CAPACITY PLANNING IN FINANCIAL SERVICES:

HOW TO DRIVE BUSINESS VALUE AND DELIVER ROI

Capacity Management and Planning tools empower IT teams to gain a competitive edge by cutting
down the cost of running a banks existing infrastructure, whilst also meeting the demands of
mission-critical applications.

Chapter 1: State of the industry

The times they are a changin IT is a profit centre, not a

The world of banking is in flux. Although
demand for banking services remains high,
incumbents in the industry are battling against
winds of change and adversity. As MiFID II
regulation comes into force in early 2018, no
industry is under greater regulatory scrutiny
than financial services.
Meanwhile, as banks scramble to ready
themselves for regulatory changes, financial
disruption lurks around the corner. New
fintech innovators, armed with the bleeding-
edge technologies and modern technology
stacks, are leaving no stone unturned and
are disrupting all areas of finance including
retail banking, asset management, lending,
payments and insurance.
cost burden
In these innovative times, IT is more critical
than ever as a key galvanizer for running
a competitive enterprise. Technology has
seeped into every organisational process from
what the customer sees to what happens
behind the scenes. Legacy systems and
mindsets will eventually need to give way to
modern technologies in order for financial
services incumbents to continue to exist.
It is the CIOs job to champion IT across
different departments in todays bank and
position it as a key enabler rather than a
necessary blotch on the annual budget. The
pervasive problem that enterprises face today
is that IT has been relegated to the role of a
cost centre rather than its truer definition as
a profit engine. Instead of being viewed as a
burden, IT teams can have a transformative
impact on an organisation and catalyse it to
achieve its commercial and strategic goals.

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However, things have improved in the last
decade, with many enterprise IT teams actively
aligning themselves with business outcomes.
IT operations are now more focused on
service-oriented targets such as availability,
business continuity and seamless customer
experience.
Capacity planning, a key branch of IT
operations, should therefore be high on the
agenda for financial services CIOs, who are
seeking efficiency gains in their data centres,
while maintaining high service performance
levels.
Be Proactive not Reactive
In the past decade, IT teams made capacity
decisions largely on a reactive basis. Due
to lack of real visibility into IT infrastructure,
there was inadequate means to assess when
and how much capacity needed to be added
or subtracted. When performance issues,
bottlenecks or, in the most severe cases,
outages were experienced, additional storage
or compute power was thrown at the problem
to ensure service levels were maintained.
Throwing more hardware at a problem
wouldnt be problematic in a land of unlimited
IT budgets. However, todays reality is quite
different. Banks IT budgets are under constant
pressure to prove efficiency and value to the
business. Capacity planning software is a useful
tool in an enterprises software armoury, which
proactively recommends ways to eliminate
unnecessary wastage in an IT estate.
Remove silos, think
holistically
The first element of a successful capacity
management solution is having 100%
visibility into your IT infrastructure. Without
an understanding of how the workloads are
distributed across an IT estate, it is impossible
for capacity planners to spot overutilised and
underutilised areas. Having access to data
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from across your physical, virtual and cloud
infrastructure provides a good foundation,
upon which to allow capacity planners to
redistribute workloads and therefore optimise
costs.
At the physical and virtual infrastructure level,
IT teams should collect information on server
specifications, VM configuration and real-time
hardware metrics including CPU, memory,
storage, network and IO.
Application and middleware metrics add
further context to the IT infrastructure data. IT
infrastructures role is ultimately to power the
business-oriented applications. By determining
the relationship between the application
and infrastructure layers, capacity planners
can translate high level business transaction
metrics into IT resource requirements.
Enterprise IT architectures have evolved into
a complex web of thousands of interacting
servers, VMs, network devices and containers.
Therefore, simply adding capacity without
visibility wastes money and often no longer
solves performance issues. Unplanned organic
growth will result in clunky, inefficient and
costly IT estates. CIOs will lose credibility
and no longer be able to justify decision-
making. With capacity planning, CIOs have
hard evidence when it comes to negotiating IT
budgets.
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Investment banking landscape
In investment banks, uptime has always been a
concern since traders need immediate access
to global exchanges. An investment banks
IT estate supports several mission-critical
operations, including numerous applications
for analysing markets and risk management
for traders. Below this application tier, there is
supporting middleware which ensure smooth
and timely transport of data. The underling
physical hosts and virtual machines - running on
a mix of Windows, Linux, and Solaris operating
systems - are the bedrock upon which the
middleware and business applications sit.
In trading systems, accuracy and speed is
paramount. Incorrect orders or high latencies,
even for a very short period of time, can result in
losses in the scale of millions of dollars.
Pressure on IT teams in banks is also increasing
as electronic trading increases its grip on
different markets. As new entrants offer
trading services, competition will become
fierce and trading services will become more
commoditised. Equity markets are already
dominated by electronic trading. This has
been spurred on by the increasing popularity
of products such as ETFs, where trading is
conducted almost fully automatically and
electronically. Even traditional asset managers
are taking note. In the wake of MiFID IIs mandate
to unbundle research and execution services,
quality of order execution will become crucial
for brokers. In order to attract order flow, banks
will need to offer robust, reliable and compliant
execution services.
Typically, a brokers stack will be composed of
interrelated components including FIX engines,
order management systems, market data
platforms, smart order routers and algo engines.
Each of these represent a potential capacity
bottleneck - which could impact execution
and in turn, cause clients to defect to another
broker. Being able to manage and plan capacity
therefore becomes crucial in order for banks to
support the current levels of trades and make
informed infrastructure decisions based on
expected future demand.
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Retail banking landscape
Retail banking is rapidly migrating into the
digital and mobile world. Newer competitors
in the industry, such as UK-based Metrobank
and Monzo, are offering their services solely on
digital channels. According to Bank of America
Trends in Consumer Mobility Report 2016
report, 62 percent of Americans cited digital
banking as their primary method of banking in
2016, a significant year-on-year increase from
51 percent in 2015. Both Generation Xers and
Millennials are the most likely to use online
banking services.
The ability to conduct core banking activities
online in a seamless and time efficient way
means less people have the desire to visit
bricks-and-mortar bank branches. In response
to consumer demand, banks have ploughed
millions of dollars into building robust digital
banking channels. However, coping with millions
of online and mobile banking customers isnt
easy from a technological standpoint. While in
the past, technology problems in retail banks
could be fixed behind the scenes often without
customers noticing, in the digital world, every
transaction must be executed in near-real time.
The latest digital innovations in other industries
have also had a radical impact on customers
expectations, particularly among the millennial
generation. With the seamless customer
experiences that consumers receive in the
e-commerce sphere and the app economy,
customers are beginning to demand the same
levels of service and speed from their bank.
Customers no longer exhibit loyalty to products
and services as they once did, however they
value the whole end-to-end experience.
Customers therefore now expect banks to be
available 24/7 without interruption, to avoid lags
in transactions and to provide instant customer
service. But the onus is not only on the business
or app teams but also on the underlying IT
infrastructure to provide uptime and flexibility in
the face of changes in demand.
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 Chapter 2: Capacity Planning in our space

The Capacity Planning Stack

The modern approach to capacity planning
can be distilled into a simple stack, in which
insights are extracted from the combination of
infrastructure and application data.

Application or business demand

INFRASTRUCTURE
APPLICATIONS
(physical, virtual or cloud)

Feedback on resource requirements

Optimisation at each tier of

the stack
Application owners can optimise metrics by
granular real-time monitoring of application
metrics and ensure that the performance
meets against SLAs. At the infrastructure level,
planners should analyse available headroom in
terms of compute power and storage across
servers and virtual machines. From this data,
capacity planners can identify overutilised and
underutilised areas and redistribute workloads.
More advanced capacity planning involves
utilising sophisticated predictive algorithms
to forecast usage across individual capacity
metrics based on trends in the historical
data. This helps to identify future constraints,
for example when disk space will run out or
when an application will suffer performance
problems due to insufficient compute power.
The use of charting also helps to understand
long term trends in available headroom.

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Business demand should
dictate infrastructure
decisions
The business and application needs should
influence the needs at the infrastructure
level. Advanced capacity planning tools allow
users to understand the relationship between
application metrics and the supporting
infrastructure. By correlating the two, it is
possible to forecast requirements based on
expected changes in demand.
For example, a banks trading department,
might want to answer the following questions:
We are moving into electronic fixed
income trading. How many additional
servers do we need to support a new
trading application with an initial 10,000
trades executed every month? What if
the transaction volume doubles after
one year?
Will the average order latency go down if
the transactions per minute increase by
20% without adding resources?
Feedback filters back up
to application & business
teams
The feedback loop is complete as
infrastructure requirements and procurement
recommendations filter back
up to the application tier.
These may include installing
or decommissioning servers or
VMs, allocating more storage
or even large-scale changes
such as migrating a data
centre to another location.
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Thinking of venturing into
the cloud?
Until fairly recently, financial services
organisations were extremely hesitant about
moving into the cloud with some naysayers
saying it would never happen. However,
the agility and cost benefits that the cloud
provides have proved too irresistible and
banks are now increasingly moving testing and
production into the cloud.
What was once a taboo technology in financial
services because of security and regulation
has changed into an enticing opportunity.
The ability to reduce time to market with
applications is a key draw. Whereas it may
take over six months to deploy a new server
at a banks data centre because of the lengthy
sign-off process, servers in the cloud can be
deployed in a day without the high initial fixed
costs. This pay-as-you-go mentality is a boon
for agile developers to quickly validate ideas
and prototype new products.
Capital One, a cloud-enthusiastic trailblazer
in its industry, has gone big on AWS services.
The bank has an ambitious plan to reduce the
number of its data centres from eight to three
by 2018. Many other banks are following suit
and exploring migrating certain applications
to the cloud. However, this process is no easy
feat, especially if banks do not have clear
visibility on how workloads are distributed in
their current infrastructure.
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Capacity planning for cloud with the spike in transaction volume. Instead
of hardcoding a rule to determine the extent
migrations to which the infrastructure scales, the ultimate
The first step to successfully transition to a goal is to automatically scale using predictive
cloud environment involves collecting the algorithms.
right capacity metrics. Next, the enterprise
Whereas in a traditional data centre capacity
must aggregate, model and visualise this data
planning may have recommended hardware
to see how it would fit into the new cloud
procurement, if there is a sharp increase
infrastructure. Getting the balance right is
in users for an application in the cloud, the
important. Being too generous with cloud
compute or storage capacity can automatically
servers may avoid performance issues but may
change the level required. As soon as the
undermine one of the key objectives of cost-
capacity is not needed, it can be automatically
cutting. On the other hand, underprovisioning
scaled back.
may cause interruptions to user experience,
which could be detrimental to the reputation
of the business.

Building upon existing resource allocation The ultimate goal of capacity

baselines, What if scenario modelling can
be utilised to decide which elements of the
planning in the cloud is to
existing IT estate to migrate to the cloud. automatically scale compute
Furthermore, banks can consider different power using predictive
scenarios based on varying levels of risk
tolerance and cost-cutting intentions. Trial
algorithms.
and error in the planning stage can crucially
prevent hiccups in the implementation.

Capacity still needs to be Freeing up more IT

managed in the cloud
While for some, the cloud projects a future of
bottomless capacity, capacity planning will
remain just as important. The cloud still has
limits, it still costs money and outages will
still occur if cloud capacity is not configured
correctly.
While most of the old practices still apply in the
cloud, capacity planning priorities are slightly
different. For organisations with a high level
of cloud maturity and penetration, the focus
will shift towards automating how the cloud
environment scales in response to shifts in
demand.
resources for innovation
Advanced capacity planning tools are often
neglected by IT teams but are needed more
than ever as IT estates of banks balloon to
meet the demands of its customers. Instead
of continuing with business as usual when
it comes to IT decisions, CIOs need to be
more forward-thinking in their approach to
undertaking software projects and focus on
projects which will provide the highest value.

For example, a retail bank would want to

automatically scale up its compute power
during Black Friday until Cyber Monday to cope

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Usually around 70% of
the total IT budget is
used for maintaining
existing applications and
infrastructure, which leaves
little room for exploring new
directions.
Preserving the status quo therefore means
that too much focus is placed on keeping
the wheels turning, instead of digital
transformation.
It also means that CIOs have less opportunity
to implement projects that optimise ROI on IT
spend and this, in turn, perpetuates the myth
that IT is merely a necessary cost that needs
to be contained. Advanced capacity planning
tools are unique in that they reduce the effort
and costs required to keep the lights on as
well as providing near-immediate return on
investment for the business.
How to show ROI from
capacity planning
Enterprise can be divided into two camps:
the first camp helps keeps the lights on and
the second can provide returns to the actual
business. There should be pressure to minimise
the costs of the first camp without compromising
service levels. However, the second camp should
be treated like any other capital expenditure; they
should be assessed on business merit alone.
But how can IT teams successfully put forward a
credible case for capacity planning? The best way
is to start with a simple calculation based on the
fewest assumptions.
1 Average cost of an outage per minute: This
varies according to industry and how mission-critical
the applications in question are. A recent study of US
data centres by Ponemon Institute, sponsored by
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Emerson Network Power, estimates that the average
cost of an unplanned data centre outage is more
than $8,900 per minute. According to the study, this
cost has been rising steadily year-on-year.
2 Average length of an outage: According to
the Ponemon Institute report, the average outage
duration is 95 minutes.
3 Number of outages per year: Research
conducted by analyst firm Quocirca in 2016 reports
that an enterprise suffers on average three outages
per month. However, IT will usually have systems in
place to record their actual number of incidents or
outages in the previous year.
4 Percentage of outages that are capacity-
related: A 2014 Gartner report estimates that
around 30% are due to capacity problems.
Although it is always more accurate to use a
companys internal data, using available industry
data, the average cost of an unplanned capacity-
related outage amounts to 36 x 8900 x 95 x 0.3 =
$9.1M.
Even with the conservative assumption that capacity
planning tools can prevent just a third of these
outages, over $3M can be saved.
AMOUNT SAVED BY USING A
CAPACITY PLANNING TOOL
1
=
AVERAGE COST OF AN OUTAGE PER MINUTE
2
x
AVERAGE LENGTH OF AN OUTAGE
3
x
NUMBER OF OUTAGES PER YEAR
4
x
PERCENTAGE OF OUTAGES THAT ARE CAPACITY RELATED
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 8 key takeaways
he objective of capacity planning is to
T
determine the optimal IT infrastructure
to meet the current and future needs of
a business.

Real-time monitoring of a banks entire

physical, virtual and cloud infrastructure
ensures that IT teams can plan capacity
holistically, instead of in inefficient silos.

Reduce infrastructure footprint

by harmonising underutilised and
overutilised areas of the IT estate.

Predictive analytics should be used to

foresee future when future constraints in
capacity will occur.

What-if scenarios allow banks to plan a

data centre or cloud migration.

Cloud environments still require capacity

planning to contain costs and to scale up
IT resources only when needed.

By correlating application and

infrastructure metrics, enterprises can
make informed IT decisions in response
to actual business demand.

IT executives should focus on making

a more compelling business case for
capacity planning.

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