AECbytes Feature (January 12, 2011)

BIM and the Cloud, Part 2: The Economics of Private Cloud Computing

Chris France
President, Advance2000

Many of you have read my previous article, “BIM and the Cloud,” published in AECbytes early last year, and provided some terrific feedback, some of which appears in the AECbytes blog posting of that article. The idea of running Revit “in the cloud” has clearly taken hold.  This article addresses firm owners, principals, or “C”-level executives that are responsible for providing a robust technology infrastructure to keep their firm competitive, now as well as into the future. This certainly includes a BIM application like Revit, but there are also design, project, and business applications that are required to run a successful practice. Also, firms will continue to feel the technology stress as Integrated Project Delivery (IPD) takes hold.  For those who oversee the total IT spend in firms and are responsible for the “economics of IT,” this article discusses key IT indicators that you can use to effectively manage your business.

Note: The actual numbers used in this article are not the actual financials for a specific design firm. Rather, they are a good representation of the IT spend for a typical 300 person firm. The percentages, however, are accurate.  While there are a bazillion ways to organize your IT, you can apply these concepts to larger or smaller firms and they still hold true.  This mini-case study is based on my eleven years as CIO of Little Diversified Architectural Consulting, a 220 person large architectural firm, and my relationship with Advance2000, who is my new employer as of Jan 1, 2011. We will be moving Little from its current IT infrastructure to the Advance2000 private cloud to gain the efficiencies I’m writing about.

What is a Private Cloud?

Before taking the discussion on BIM workstation clouds initiated in my last article to the next level, it is important to define what I mean by a “private cloud” (psst…a private cloud is a fancy term for IT consolidation).  The opposite of a private cloud is a public cloud.  A public cloud would be a provider such as Google, Amazon, Autodesk, Microsoft, Buzzsaw, SITEOPS, Salesforce.com, ADP, etc.  If a firm utilizes these clouds, they can take advantage of their low prices.  But they also end up fragmenting their IT infrastructure, with their corporate data scattered all over the place in multiple datacenters.  For example, although I am a Gmail user, I have no idea where that email data is located.  It may or may not be in a favorable jurisdiction to my business.  And at the very least, it poses problems in integrating one cloud provider to another.  Maybe I can get Google to talk to Amazon directly, but good luck getting Google to talk to Microsoft directly!  I will probably have to transfer the data back to my infrastructure before I send it along to another cloud provider, and this transfer will only be done at Internet/WAN speeds. A private cloud, on the other hand, is your IT infrastructure in ONE datacenter. All your data, workstations, servers, and phone (PBX) are on one fast, gigabet network. Of course there is a backup datacenter for redundancy, but logically there is one datacenter for your firm. Transfers are done easily and quickly at multi-gigabit LAN speeds.  This private cloud can reside in your company, or you can rent space from a larger private cloud service provider. That is what I mean by a “private cloud.”

Shortly after we built Little’s BIM cloud infrastructure, everyone wanted to know if they could run their corporate applications there as well.  The short answer is “yes”!  Imagine how well your financial system reporting, timecards, marketing applications, and other general purpose applications would run on a designer workstation. In fact, you can run your entire IT shop in YOUR cloud. An analogy can be helpful to understand this. Traditionally, every small/medium business (SMB) has designed, built, and operated its own IT infrastructure. In effect, this is a privately owned “IT Building.”  But if you look at how SMB’s manage their corporate real estate, many of them do not own their own building—they typically rent high-end Class A office space.  The exact same concept applies to your “IT building.”  Rather than owning your own “Class B” building (in-house IT infrastructure), you can rent a “Class A” building (private cloud) for less cost than what you are spending now.

Given the current economic climate, the top challenges that firms are facing in regards to their IT are:

  • Economic slowdown is causing firm revenue to fall.
  • IT assets and costs are fixed and difficult to reduce quickly without affecting service levels and capabilities.  Falling revenue means a higher percentage of firm profits go to IT spend.
  • IT staff reductions, which leads to loss of skills, no people redundancy, and slower response times.
  • Design applications hungry for more computing power, which means more cost.
  • Aging infrastructure that need to be upgraded, because “if you don’t change your oil, your engine is going to seize up.”
  • Increased demand for computing resources, and the ability to scale up quickly.

We will see that a private cloud provides a better approach to address these challenges, which, by the way, also exist in good economic times.

The Economics of IT

Here are a few key metrics which I use to ensure that the IT spend is in line with the revenue and needs of a firm. Yes, it is important to make sure that your firm has the technology capabilities needed to serve clients and do great design, but you also need to spend within your means. There are many firm owners who feel that they have no choice on their IT spending, but when the numbers start getting out of whack, it’s time to start looking at new solutions that can provide the necessary technology capabilities while staying within your means.  It requires keeping an eye on the major expenses and working hard to keep them as low as possible. Here are some key things to look at:

Net Revenue: How much money the firm keeps after paying out to consultants.

IT Spend: Total amount of money spent on IT in a year.  There is much discussion on what is/is not included in this number. I generally include everything that requires electricity and these major cost buckets listed below:

  • People: IT staff, consultants, contractors that design, build, and maintain your IT infrastructure.
  • Hardware: Physical devices that run your business, e.g., desktops, laptops, servers, phones, plotters, etc.
  • Software: Applications, maintenance, computer programs running your business on your hardware.
  • Telecom: Circuits that connect your people and computers to other people and computers.
  • Buildings: Required for IT, e.g., Datacenter, security, HVAC, power, square-footage needed to house and operate your hardware infrastructure.

% Net Revenue: IT Spend divided by Net Revenue.  This percentage will vary based on firm size, number of offices, IT strategy and needs, etc.  The important thing is to figure out at what percentage your firm should be, and then take action if the number increases.

Let’s look at IT people in some more detail, as their salaries are generally 20-60% of the IT Spend; also, they are hard to find, hard to train, and hard to retain!  Technology does not run your business, people run your business. I would rather have fewer “superstars” with higher salaries than a bunch of mediocre IT people with lower salaries. A good IT person will save you a ton of money, minimize your aggravation, and keep firm utilization rates high. The desire of the firm owner is to gain the IT capabilities the business requires and take advantage of new capabilities for the least amount of money.  Most design firms cannot afford a large staff where the jobs are as specialized as those listed on www.salary.com (see Table 1).  They have to have multi-skilled individuals and the supply of those people is smaller—therefore there is higher demand, resulting in them commanding a higher salary.  Your IT is only as good as the people designing and operating it.

Table 1. IT Salaries from www.salary.com, US National Averages (all industries):
(Smaller firms will be at the low range, Larger firms towards the median)

  Low               Median
CIO/IT Leader: $138,968 $219,422
Network Engineer: $65,875 $83,009
Email Administrator: $52,549 $72,072
Systems Administrator: $67,015 $89,538
DBA:      $64,663 $86,544
Developer: $75,335 $89,635
Helpdesk Technician: $42,514 $54,974
Application Specialist (BIM): $65,609 $81,040

This list of job descriptions embodies the typical skills required for a design firm. It is difficult for a CIO with years of experience to create the right mix of talent to keep an IT infrastructure running within the means of a typical design firm.  It is almost impossible for a firm owner without the IT background to do that.  That would be like an IT person trying to manage a large design-build project.  While possible, there are better ways to achieve the desired results.

A private cloud provider is in a much better position to attract, train, and retain top notch IT people and provide affordable enterprise-class computing than a firm doing their own IT.  As a traditional IT person, I decided it was better to embrace this change rather than fight it.  This is fundamentally the same concept our clients use when hiring an architect—a design firm is, of course, in a much better position to design-build their building than their in-house staff.

The purpose of a design firm is not to employ IT people—it is to provide great design to clients and make a profit.  It is that belief that provides the overriding justification to move to private cloud computing.

Traditional IT vs. Private Cloud

Traditional IT is the way most firms operate today. They design, build, and manage their own IT infrastructure inside their offices. There is an IT maxim that was true 30 years ago and will be true 50 years from now: “Centralize when you can, Distribute when you have to.” Until recently, we HAD to distribute design applications and design data to be close to the end user. When it became possible to successfully push a “BIM Workstation” to a data center, we entered into a new era of IT. What we once had to distribute, we can now centralize to gain better capabilities, economies of scale, and cost reductions. Below are the metrics of a typical “traditional IT” 300-person firm.

Firm Metrics
Revenue $30,000,000
IT Spend $1,400,000
%Revenue 5%

Traditional IT Spend
People $600,000
Hardware $150,000
Software $300,000
Telecom $250,000
Buildings $100,000
Total IT Spend $1,400,000

Now take the same firm and start from a blank sheet of paper. How can we do IT differently by utilizing a private cloud to gain more capabilities for less money?

Firm Metrics
Revenue $30,000,000
IT Spend $1,071,000
%Revenue 4%

Private Cloud IT Spend
People Service* $306,000
Infrastructure Service* $405,000
Software* $180,000
Telecom $180,000
Buildings $0
   
IT Spend $1,071,000
IT Spend Reduction 24%

Notice the IT pie for the Private Cloud Computing approach is smaller.  The items with an asterisk (*) are provided as a monthly service and will scale up/down based on the number of people and computer resources required (e.g., BIM cloud workstations, storage, etc.).  A good chunk of your software expense will be in the infrastructure service (like VMware, SAN or storage area network, and data protection).  Other parts of your software infrastructure will still run in the cloud, but must be owned by the firm with a direct, contractual relationship with the software vendor (e.g., Autodesk Revit).

Economies of Scale

First, let’s look at the definition of a few terms that directly pertain to how we can achieve the benefits and cost savings of a private cloud.  (These definitions are from Google.)

  • Economies of scale: The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run average cost of each unit.

  • Diseconomies of scale: The forces that cause larger firms to produce goods and services at increased per-unit costs.

What does this mean to IT?  At a recent CIO meeting, I asked them how many people have infrastructure projects on the books. Everyone raised their hand. These infrastructure projects range from Email server upgrades, VMware implementation or expansion, SAN/storage implementation or expansion, and others. Every firm spends time, resources, and money building infrastructure, and that cost is typically 80% of their IT spend. What happens if this infrastructure is already built? The cost to appropriate incremental technology for your use is much lower than building it yourself. That is economies of scale.  For example, the private cloud provider will have ONE infrastructure project (e.g., Exchange upgrade), but all the customers riding on that infrastructure benefit from it once it is completed.

Look at it on a more granular level.  The cost to set up and maintain an Exchange email server is about the same, whether it’s a 5, 50, 100, 300, or 1000 person firm.  The cost per user for 5 people is MUCH higher than the cost per user of a 1000 person firm.  Imagine what the cost per user would be for a 10,000 user mail server (just look at Microsoft Online: $5/user/month).  A private cloud provider can do the same thing. This again is “economies of scale.”

What about VMWARE? It is a very popular server consolidation strategy, but it has significant capital costs and requires a much higher IT skill level to operate. Those of you that have set up this infrastructure know what I mean. Now imagine that all you need to do is right-click and create another VM instance on a pre-built VMware farm?  The incremental cost to do that is very low. That is “economies of scale.”

A CIO at $138,968/yr salary at a 300 person firm would cost $463/person/year. At a 20 person firm, this person would cost $6,948/person/year and practically be out of reach for this size of firm.  This CIO at a 2,000 person firm would cost $69/person/year. At this rate, even a small firm can tap into that skill set, if it was available at that price. This is “economies of scale” and it plays out with all your IT skill sets and technology assets.

It is important for firm owners to understand this concept. The laws of business physics apply to IT as well. In this recession we are seeing firms that once had “economies of scale” shrink in size and see their unit costs go up to the point where it becomes “diseconomies of scale.”

Rent vs. Buy Decision

The decision to rent versus buy computing infrastructure is no different than what firm owners go through now with their office space. Do I rent or do I buy? What is different is that this is a huge change to how the firm currently operates. And with any major change, it has to be managed successfully. Also, it is not an all or nothing proposition, similar to how a firm may own some of their buildings but rent others.

There are four private cloud adoption strategies that are emerging:

  • Firm-owned Cloud: A large firm that has 2+ offices decides to centralize their IT infrastructure into one location.  One office of technology costs less than 10 offices of technology.

  • Hybrid Private Cloud Service: The firm decides which strategic IT assets they would like to retain in-house, then adopt a private cloud service provider for the rest.

  • Phased Private Cloud Service: Move pieces of your IT infrastructure to a private cloud service provider over time, e.g., your PBX, Exchange, BIM cloud workstations, and SAN based on your schedule, needs, and available IT skill set. (This is the strategy I am deploying at Little.)

  • Big Bang Private Cloud Service: Decide from Day One to adopt a private cloud for all IT and implement it as fast as possible.

The good news is that we now have more options available to gain capabilities and save money.

Frequently Asked Private Cloud Questions

What size of firm would be a candidate for a private cloud—do we have to be 300 people?

NO! A private cloud can be set up for ONE person. The sweet spot would probably be between 10 to 500 people. It is true, however, that the larger and more distributed your firm is, the greater will be the savings potential.

Can all applications be installed in a private cloud?

Technically yes, legally no.  You will have to consult your software application provider to determine if they will allow you to run their application on a remote, cloud computer.  For example, Autodesk allows you to run a networked seat of Revit but not a standalone seat in the cloud.  But even if 1% of your applications can’t run in a cloud, you still see great benefit running the 99% that do.

Do AEC firms have specific needs that a generic cloud computing firm cannot meet? 

Yes, absolutely. For example, design and rendering applications have unique challenges and most cloud providers are geared towards corporate desktops. There are things you have to do to Revit, for example, to get it to play nice in the cloud that a generic provider does not know.

Will this only work for Autodesk products? 

No.  I have tested Bentley products and they works fine.  I am also testing other AEC applications in the cloud.

It sounds too good to be true.  Are there limitations or challenges involved in this approach?

Current limitations are mostly the software vendors. Some are embracing this computing method, others are not. The technology infrastructure is sound with both large and small firms operating in this fashion, but we really have to push some software vendors to make their products more cloud-capable. You also have to have a good understanding of telecommunications and remote access protocols, which a single-office firm may rarely have had to deal with before.  For some firms, you may see an increase in your telecommunications costs to upgrade your bandwidth, but the overall IT spend reduction makes up for this increase.  And finally, the do-it-yourselfers will see an increase in costs. If you work 40 hours as an architect and 40 hours as the firm’s IT person, you have two jobs and getting paid for one.  This may work in the short-term, but focused IT professionals can get the job done much faster (see my earlier point about IT superstars).  When you get to the point of needing some IT help, then the best way to deploy is via a cloud.

How do “public” cloud providers such as Autodesk’s Project Butterfly fit into a private cloud strategy?

There are lots of public cloud providers, as I mentioned earlier in this article, which will allow you to do remote computing.  The main aspect you have to watch for is your DATA.  Where will your corporate data be located and how fragmented will it be?  You can certainly use both a public and a private cloud, if there is a compelling business reason.  SITEOPS is a good example of how you could use their public cloud site analytics service with your private cloud.  The data stored at their location is minimal and worth duplicating.  Just remember that one “pot ‘o data” is cheaper, faster, and easier to manage than many pots of data.  You only want to fragment your data infrastructure if it makes really good business sense. 

If I choose not to build a private cloud myself, can you provide a list of the private cloud service providers for the AEC industry? 

Since this is a very new concept, few providers can do it all.  These are the ones I know of:

  • Advance2000: With 3000 architectural desktops in their cloud, Advance2000 is well positioned as an AEC full-service private cloud provider that can run phones (PBX), CIOs, Engineers, email, circuits, VMware, and all required IT assets needed for an AEC firm. 

  • CADDForce: A multi-disciplinary AEC BIM Cloud solutions provider built on Advance2000 infrastructure.

  • CADForce: An A/E design and production services firm moving to the cloud.

  • VirtualQ: A computing-as-a-service provider, but the last I heard, their cloud implementation does not allow multiple Revit users to work in the model at the same time.

  • RevUpRender: A point solution that allows revit rendering in the cloud

  • BIM9: A new private cloud service provider.

Conclusion

Now that you have your BIM cloud for your designer workstations, it may make sense to look at having a “Firm” or “Private” cloud to meet ALL your IT needs today and into the future.

In summary, the approach is as follows:

  • Pull together your IT metrics and see where you fall as a firm.
  • Identify the capabilities you need (e.g., applications, business continuity, redundancy, data protection, etc.).
  • Compare your Traditional IT to a Private Cloud for both capabilities and cost.
  • Make a Rent or Buy decision.

I hope this answers some of your questions related to the emerging technology of cloud computing. If you have more, please don’t hesitate to post them on the blog posting of this article or reach out to me on LinkedIn.

 

About the Author

Chris France, President of Advance2000, has specialized in Information Technology for over two decades. He started his career at IBM Federal Systems as a software and systems engineer and progressed to project manager of major DOD systems. From IBM, he traveled to Charlotte to work for Bank of America and then Wells Fargo, where he led efforts to merge and consolidate the information technology of financial and capital markets divisions. After working in Fortune 100 companies, Chris spent 11 years as the CIO of Little Diversified Architectural Consulting, a medium-sized A/E firm headquartered in Charlotte, NC.

As President of Advance2000, Chris leads the charge for “private cloud computing” and is a published author on cloud computing for the AEC industry.  He is able to bring the innovation, capabilities, and economies of scale of enterprise cloud computing to both large and small companies.

Chris holds a bachelor’s degree in computer science from The Ohio State College of Engineering and a master’s degree in business from the State University of New York at Binghamton. You can connect with Chris at: http://www.linkedin.com/in/christopherfrance.

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