Why virtualization projects need ROI calculations

Virtualization projects bring obvious benefits, but they can be tough to quantify. Without accurate ROI calculations, your virtualization projects can hit serious roadblocks.

Virtualization projects have a clear return on investment (ROI).

Server consolidation reduces hardware, power and cooling costs, and advanced features cut down on management overhead. But ROI calculations are still necessary for successful virtualization projects.

The best ROI calculations will take all costs into account -- hardware, software and several hidden costs you might not think of -- and fully quantify the benefits of server virtualization projects. With accurate information about virtualization ROI and total cost of ownership (TCO), selling management on virtualization projects becomes a lot easier. ROI calculations will also help you discover potential problems with your planned virtualization projects before it's too late.

The following tips explain the details of ROI calculations for virtualization projects: why they're so important, the costs you should consider and how to perform them. There are also two case studies that exemplify the value of ROI calculations for virtualization projects.

Do ROI calculations before starting virtualization projects
Server virtualization projects obviously save money on hardware, power and cooling. So why do you even need to calculate return on investment? Because it's easy to forget that there are still costs involved. Proper ROI calculations will help you get a hold of these costs and set realistic expectations for your virtualization projects. Learn about the challenges of correctly calculating ROI in this tip.

Hardware, software and labor: The costs of virtualization projects
The key to successful ROI calculations is to understand virtualization costs. The obvious expenses for virtualization projects are hardware, software and labor. Sure, you'll save money by consolidating servers, but you'll have to pay to make your remaining servers more powerful, because they'll be running more workloads. Without proper management of your virtualization projects, licensing issues can increase your software costs too. Labor costs should also factor into your ROI calculations.

The hidden costs of virtualization projects
Sometimes, making your existing servers more powerful isn't enough. You may need to buy new servers altogether. These unexpected hardware upgrades are one of virtualization's many hidden costs. Virtualization projects may require storage, network and security upgrades, so factoring these into your ROI calculations is crucial. You'll also need to consider the costs of potential downtime in your virtual environment, staff training and management, as well as the effects on existing business continuity and disaster recovery plans.

Calculating virtualization ROI using unconventional factors
According to conventional wisdom, server virtualization will reduce a data center’s hardware, power and cooling expenditures. But the potential cost savings don’t stop there. When calculating virtualization ROI, be sure to include unconventional factors, such a high availability and quicker provisioning times.

Using virtualization to speed up IT service requests
An obscure ROI consideration that’s sometimes overlooked is how server virtualization speeds up IT service requests. Virtualization can cut down on procurement requests as well as the time it takes to provision resources, making an IT department more agile and responsive to the needs of end-users. These factors may be hard to quantify, but they contribute to a positive ROI.

Debunking virtualization and ROI calculation myths
ROI calculations can be rife with errors – some of which are common virtualization misconceptions; others stem from vendor opinions that are incorrectly restated as fact. Without careful scrutiny, you can jeopardize your entire ROI calculation. To ensure that your figures are accurate, account for the virtualization myths found in this tip.

TCO and ROI calculations: A how-to guide
Now that you know about the importance of ROI calculations, it's time to figure out exactly how to calculate ROI and TCO for virtualization projects. Most experts suggest a top-down approach: Start with the most important costs and benefits, then work your way down to a more granular level. Time -- how long it takes your virtualization projects to pay for themselves -- is also an important consideration in ROI calculations.

Virtualization projects case study: Server consolidation
It's one thing to understand how ROI calculations work in theory. It's another to see their results in actual virtualization projects. This case study shows how CSK Technologies, an IT consulting and management firm, used virtual server consolidation to save thousands of dollars. The company was able to achieve a virtual machine density ratio of 7:1, getting one $9,000 server to run the workloads of seven $3,500 servers.

Using ROI calculations to sell management on virtualization projects
When capacity problems led to server performance issues at OpenSolutions, the financial services firm used its ROI calculator to justify a virtualization project. Management had rejected virtualization projects in the past, but ROI calculations helped convince the higher-ups that virtualization was the best way to solve their problems. This case study shows the importance of ROI calculations in getting your virtualization projects off the ground. It also includes a sidebar on network switches and how they affect ROI calculations.

This was first published in January 2012

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