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Slippery savings

You'll find Internet testimonials everywhere about how much virtualization can save you, but how does it really break down? Expert Andrew Kutz explains in this response, using his own company for a theoretical example.

There are many testimonials floating around the Internet these days lauding virtualization and its cost savings. Can you help me wade through the muck and figure out how much virtualization will or won't save me?

In the previous question, I addressed the cost of the different virtualization solutions. That was the simple cost of software, but now I will address the Total Cost of Ownership (TCO) by examining hardware and software costs, infrastructure costs, personnel costs and downtime recovery costs.

Hardware and software costs

Imagine the company l o s t c r e a t i o n s needs to host 20 servers, and they already have a SAN. With an average Dell PowerEdge 2850 costing around $4,000, 20 servers will cost around $80,000. Because of this steep cost, virtualization is being looked at as a way to save the company money. The administrator in charge of this project chooses to use VMware ESX Server 2.5.3. It will cost $43,259.68 to purchase hardware (2 Dell 2850s with 4 2.8GHz cores and 12GB of RAM), software (ESX with SMP and VMotion support, VirtualCenter) and support (for the Dell hardware and ESX). That number includes educational discounts.

Infrastructure costs

Twenty Dell PowerEdge 2850s take up 40Us. A typical Dell 42U rack costs $8,000, and because of concerns about heat dissipation and weight distribution, only half of the rack space is generally allocated. Since the two virtual servers only take up 4Us combined, one rack can be eliminated, saving $8,000.

There are also additional infrastructure costs associated with a server, such as physical space, electricity, cooling, and time invested in hardware management. It costs l o s t c r e a t i on s $1,380 per year to host a single server. This means it costs $2,760 annually to host the two ESX servers. The ESX servers are configured to host 30 VMs, costing $92 annually to host a single VM (this only takes into consideration associated infrastructure costs).

Personnel costs

L o s t c r e a t i o n s pays its average IT administrator $50,000 a year, but with benefits included, the cost of the same employee is closer to $80,000. Managing 20 servers requires the dedicated time of a full-time employee (FTE). Consolidating 20 servers means that these duties can easily be collapsed into an existing position or a half-time employee (HTE), saving $40,000 to $80,000 annually.

Downtime recovery costs

Three of the 20 servers are Web servers that provide a sales point for l o s t c r e a t i o n s. Every minute these servers incur downtime because of hardware failure, l o s t c r e a t i o n s loses potential sales. Assuming a purchase an hour at a cost of $1,000, the company loses $1,000 every hour the server is off-line. Dell Gold-support provides a four-hour delivery time for failed hardware replacements, and given another hour to install the hardware, a hardware failure will result in a minimum of five hours in downtime, costing $5,000.

It is likely that a hardware failure will occur at least once every two years, costing the company $2,500 annually. Spread over 20 servers, that is a cost of $125 per server. With virtualization, the number of servers is decreased, also decreasing the chance of a hardware failure. Even if a hardware failure does occur, the right planning will result in zero downtime, saving l o s t c r e a t i o n s lost sales. This is also possible with physical hardware, but it is made almost transparent with hot VM migration technologies such as VMware's VMotion or Xen's Live Relocation.

In summary, here is the cost for physically hosting 20 servers vs. virtually hosting the same 20 servers:



Hardware & Software costs

$80,000 (fixed)

$43,259.68 (fixed)

Infrastructure costs

Rack costs

$16,000 (fixed)

$8,000 (fixed)

Hosting costs

(based only on associated infrastructure costs)

$27,600 (annually)

$1,840 (annually)

Personnel costs

$80,000 (annually)

$40,000 (maximum required, annually)

Downtime recovery costs

$2,500 (annually)


Total fixed cost



Total annual cost




Virtualization saved l o s t c r e a t i o n s $44,740.32 in fixed cost and $68,260 annually.

This figure could be much higher or lower for other organizations, depending on all the variables involved. The bottom line is that while Internet testimonials must be taken with a grain of salt, there is much truth to the fact that virtualization will save you money.

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