SOA Funding Models
One of the primary reasons SOA efforts fail in many companies is simply
due to inadequate or inappropriate funding models. Costs are typically
at the core of every problem and SOA programs are not exempt. We hear
horror stories all the time – the initial investment to establish an SOA
environment was too high, so the effort was cancelled; there are many
services created in the company but they are hardly reused; etc.
Establishing a funding model that is right for your company is the key
to moving the SOA program forward.
Any SOA initiative is comprised of two parts – infrastructure and services. Both need to have a separate funding model established in order to successfully support SOA program’s goals.
SOA Infrastructure Funding
Infrastructure funding requires a pretty straight forward approach. When discussing SOA infrastructure, I am referring to shared platforms that are used by a number of services across the organization. Some companies host services on the same platforms whose functionality is being exposed. However, even if this is the case, some shared infrastructure components like ESBs, service management technology, Registry/Repository, etc. must exist to support SOA program’s needs. Thus, it is safe to assume that some form of shared SOA infrastructure exists. There are two possible ways to provide effective funding to build it out.
The per-use-fee scenario is a little tricky as each SOA infrastructure component needs to define what a transactional unit is and how much to charge for it. Transactional units can be different for each SOA platform. For example, an ESB transactional unit can be a service call, Registry/Repository – an individual user and/or a UDDI request, etc. In this case, total usage amount based on predefined transactional units would be calculated, multiplied by the unit cost, and charged to the business units. The most effective way to determine a unit cost is to divide the total investment made in the platform by the total transactional units being consumed. The obvious effect is that unit costs would decrease with increased usage. Here are all the formulae discussed above.
Service Funding
As discussed earlier, funding for the SOA infrastructure should come from a central source. Where the money comes to build individual services, however, presents a bigger challenge. Since projects are the primary drivers behind demand for services, special consideration should be given to project needs and budgets. However, service design and implementation can incorporate additional requirements that fall outside of the project scope. Another typical project-related problem stems from the shared nature of services. It is unfair to burden a project with the full cost of a service that will be utilized by a number of other consumers.
There are three possible ways to address the service funding concerns.
Establishing a central funding source for all projects to use when building reusable services is probably the ideal approach. Few companies, however, would be willing to write what in essence would be a blank check for the projects to use in their service delivery efforts. The opportunity for abuse and misappropriations would be too tempting. Unless strong governance and control mechanisms are in place, this funding method will most likely end up costing the company more money and provide unrealistically small return on investment.
Providing supplementary funding to projects building services is probably the most realistic approach. A central fund needs to be established to cover the efforts falling outside of the project scope. Since shared services would typically incorporate other projects’ and enterprise requirements, the actual cost ends up being higher than what projects budgeted for their needs. Thus, the easiest way to distribute supplementary funding is to allow the projects to pay for functionality already included in their budgets and cover all the additional costs through the central fund.
Whatever the funding approach is used, it needs to be carefully administered. A party not involved in day-to-day project work is best suited to play the administrative role. There could be a couple different groups managing the infrastructure and service funding and chargeback mechanisms. Overall, however, this should fall under the SOA Governance umbrella and managed centrally as part of the SOA Program.
Any SOA initiative is comprised of two parts – infrastructure and services. Both need to have a separate funding model established in order to successfully support SOA program’s goals.
SOA Infrastructure Funding
Infrastructure funding requires a pretty straight forward approach. When discussing SOA infrastructure, I am referring to shared platforms that are used by a number of services across the organization. Some companies host services on the same platforms whose functionality is being exposed. However, even if this is the case, some shared infrastructure components like ESBs, service management technology, Registry/Repository, etc. must exist to support SOA program’s needs. Thus, it is safe to assume that some form of shared SOA infrastructure exists. There are two possible ways to provide effective funding to build it out.
- Fund all the SOA infrastructure centrally
- Identify appropriate projects to acquire / extend new / existing SOA infrastructure
- Do not recoup the investment
- Place an entry fee to use any SOA infrastructure component
- Charge a small fee for each usage instance
The per-use-fee scenario is a little tricky as each SOA infrastructure component needs to define what a transactional unit is and how much to charge for it. Transactional units can be different for each SOA platform. For example, an ESB transactional unit can be a service call, Registry/Repository – an individual user and/or a UDDI request, etc. In this case, total usage amount based on predefined transactional units would be calculated, multiplied by the unit cost, and charged to the business units. The most effective way to determine a unit cost is to divide the total investment made in the platform by the total transactional units being consumed. The obvious effect is that unit costs would decrease with increased usage. Here are all the formulae discussed above.
Usage charges per platform:Unit = Different per Platform
Unit Cost = Total Platform Investment / Total Amount of Units Consumed
Line of Business Usage = Units Used by Line of Business * Unit Cost
Some
companies have chosen to grow their SOA infrastructure gradually,
without a central program or funding. A typical approach in this
scenario has been to attach SOA spending to the most appropriate
projects. Thus, the projects would purchase new SOA infrastructure
platforms or upgrade existing ones to suit their needs. There are
several problems with this approach.Unit Cost = Total Platform Investment / Total Amount of Units Consumed
Line of Business Usage = Units Used by Line of Business * Unit Cost
- Typically, the projects purchasing the infrastructure don’t want to share it with other potential consumers unless there is significant pressure from above. The platforms don’t end up being reused or, if so, only minimally. The projects do not have any incentive to sharing their investments with anyone else, especially since they are seen as critical to projects’ success.
- Projects often get cancelled due to over-inflated budgets. SOA infrastructure is expensive and cost conscious enterprises do not want to invest into what looks like excessive infrastructure for project’s needs.
- Demand to extend a platform based on project’s needs typically comes without enough lead time to accommodate project’s timelines. Thus, projects face a tough decision – to extend their delivery date or use alternative infrastructure.
Service Funding
As discussed earlier, funding for the SOA infrastructure should come from a central source. Where the money comes to build individual services, however, presents a bigger challenge. Since projects are the primary drivers behind demand for services, special consideration should be given to project needs and budgets. However, service design and implementation can incorporate additional requirements that fall outside of the project scope. Another typical project-related problem stems from the shared nature of services. It is unfair to burden a project with the full cost of a service that will be utilized by a number of other consumers.
There are three possible ways to address the service funding concerns.
- Make the first project to build a service provide the complete funding
- Establish a central funding source that will cover all service design and construction expenses
- Provide supplementary funding to projects building services
- Do not recoup the investment
- Place a surcharge on each instance of service leverage
- Charge a small fee for each service call
Establishing a central funding source for all projects to use when building reusable services is probably the ideal approach. Few companies, however, would be willing to write what in essence would be a blank check for the projects to use in their service delivery efforts. The opportunity for abuse and misappropriations would be too tempting. Unless strong governance and control mechanisms are in place, this funding method will most likely end up costing the company more money and provide unrealistically small return on investment.
Providing supplementary funding to projects building services is probably the most realistic approach. A central fund needs to be established to cover the efforts falling outside of the project scope. Since shared services would typically incorporate other projects’ and enterprise requirements, the actual cost ends up being higher than what projects budgeted for their needs. Thus, the easiest way to distribute supplementary funding is to allow the projects to pay for functionality already included in their budgets and cover all the additional costs through the central fund.
Whatever the funding approach is used, it needs to be carefully administered. A party not involved in day-to-day project work is best suited to play the administrative role. There could be a couple different groups managing the infrastructure and service funding and chargeback mechanisms. Overall, however, this should fall under the SOA Governance umbrella and managed centrally as part of the SOA Program.
