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Opportunity cost: Thinking outside the virtual box

Considering the opportunity cost of your virtualization-related decisions can inspire creative new solutions to problems, which saves time and money.

In my graduate studies, one business term stood out more than any other. It has changed how I view business, technology, even life.

Any time you confront two or more mutually exclusive options, you must decide which opportunity to take advantage of and which to pass up. The value of the option not taken is considered the "opportunity cost" of that decision.

Opportunities are not always obvious, but their costs are real.
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Opportunity cost is a key to decision making and a concept of which a good manager should always be mindful. In fact, everyone could use a better awareness of opportunity cost and how it plays into strategic decision making -- even when it comes to virtualization.

Opportunity cost and the road not taken
Let's assume you have an application running on an old server with four processors, and the lease is coming up for renewal. The application could run on a new, smaller server with just two processors. There is a nominal fee to buy out the lease on the old server, but you continue to pay maintenance on four licenses. And the aging hardware is more prone to failure as time goes on.

New hardware brings with it a new lease, but it can reduce your software maintenance fees and will be more reliable. Which option is more attractive? Do you see the third option?

Opportunities are not always obvious, but their costs are real. There is an opportunity to double the instances of this application without purchasing additional licenses. This route could provide increased capacity and possibly even deliver high availability or disaster recovery functionality. Using smaller servers, the cost of two new servers may not be much more than the cost of one old server. And with leases, you may even end up reducing your run rate on the hardware.

Add value with new opportunities
I have seen organizations default to option one, adopting the "If it isn't broken, don't fix it" strategy. I have also seen organizations default to option two and always renew leases to the more modern, standard server.

Ongoing support is usually a small fraction of the cost for a new license. Failing to renew two licenses could have had a large financial penalty should the business need to increase capacity in the future.

To make IT really add value to your business, you need to look for new opportunities. By focusing on these hardware and licensing decisions, you miss the potential business value of the third option.

Know your customers, know your purpose and seek out new opportunities. Every opportunity that you miss has a value.

About the expert
Mark Vaughn (MBA, VCP, BEA-CA) serves as an enterprise architect for a multinational corporation. Vaughn has more than 14 years of experience in IT as a Unix administrator, developer, Web hosting administrator, IT manager and enterprise architect. For several years, he has focused on using the benefits of virtualization to consolidate data centers, reduce total cost of ownership, and implement policies for high availability and disaster recovery. Vaughn is a recipient of the 2010 vExpert award and has delivered several presentations at VMworld and BEAWorld conferences in the U.S. and Europe. Read his blog at http://blog.mvaughn.us/.

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