Calculate return on investment before moving to server virtualization

Server virtualization is an obvious money-saver, but you still need to calculate return on investment. There are often hidden costs that will affect your virtualization ROI.

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There is no question that server virtualization saves money over the long term. So why do you need to calculate return on investment (ROI)?

Calculate return on investment by evaluating costs

Apart from retiring old server hardware and using that as a business write-off, costs typically break down this way:

  • New server hardware
  • New server hardware upgrades and improvements
  • New hardware service and maintenance over time
  • Virtualization software purchase
  • Virtual server and IT infrastructure management software
  • Other infrastructure software for failover, backup and so on
  • All software maintenance contracts over time
  • Power to operate the hardware over time
  • Labor to retire the old hardware
  • Labor to install the new hardware
  • Labor to manage the virtual servers, including costs of workflow changes
  • Training for IT staff
  • Network upgrades and maintenance
  • Storage upgrades and maintenance

 Reduced hardware costs, along with lower power and environmental outlays, are just a few of the most notable benefits that have IT administrators and CFOs alike taking a closer look at virtualization ROI.

But because the benefits of server virtualization are so compelling, it's easy to forget that there are actual costs involved in moving to the technology -- costs that can sneak up on you if you don't calculate return on investment properly. First of all, you have to purchase and license the virtualization software, and you often need more powerful servers to support multiple virtual machines (VMs). Extra storage may also be required for storing virtual images and supplying backup repositories for VMs.

Testing and training are also on the list of expenses that can increase the total cost of ownership (TCO) and undercut the savings promised by virtualization technology. Data center managers need to examine the tangible and intangible costs of server virtualization and consider the influence of each factor when they calculate return on investment.

The pros and cons of virtualization ROI
The first challenge when you calculate return on investment and TCO lies in understanding their importance. Conventional wisdom suggests that virtualization ROI should be an obvious consideration in any initiative. But opinion seems split when it comes down to the actual virtualization ROI.

"I'd say the vast majority of our customers do (calculate return on investment) -- maybe even as high as 90%," said Eric Perkins, chief technology officer at Cyberklix, a security and networking tool provider in Chicago. "We're seeing TCO and ROI used more as a procurement vehicle -- a means to get budget allocated for a project."

But he acknowledged that server virtualization initiatives can have a big effect in organizations, which can complicate financial calculations.

Not everyone agrees with this assessment.

"Very few are actually calculating the ROI from the technology," said Allen Zuk, president and CEO of Sierra Management Consulting LLC, an independent technology consulting firm based in Parsippany, N.J. "There seems to be more focus on implementing and delivering the technology with the view that the technology will solve a variety of problems."

Calculate return on investment accurately
Although data center managers may be able to predict the ROI in hardware and power savings for a server virtualization deployment, it may not be possible to accurately incorporate the effect of greater flexibility, better backups and less downtime into the calculation. But it is exactly the challenge of identifying and understanding these intangibles that ultimately make the ROI exercise so compelling.

More virtualization ROI resources
Quantifying virtualization ROI

Obtaining maximum ROI from virtualization

Calculating the ROI of virtualization adoption

 In some cases, the move to virtualization may spawn supporting projects. As one example, a virtual server can be provisioned and configured much faster than a bare-iron server. The ease of that task can then lead to VM sprawl, a proliferation of virtual machines that eventually become difficult to manage.

The potential for sprawl can adversely affect virtualization ROI and drive new business processes for reviewing VM creation and lifecycles. Similarly, some organizations may choose to use part or all of their hardware savings to procure redundant servers. Instead of seeking a strict financial return, the preferred business objective might be to implement server redundancy that might not have been practical before virtualization.

About the author
Stephen J. Bigelow, a senior technology writer at TechTarget, has more than 15 years of technical writing experience in the technology industry. He has written hundreds of articles and more than 15 feature books on computer troubleshooting, including Bigelow's PC Hardware Desk Reference and Bigelow's PC Hardware Annoyances. Contact him at sbigelow@techtarget.com.


This was first published in February 2010

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