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Real Life ROI

Return on Investment… the holy grail of IT.

Simply put, ROI is defined as the “ratio of money gained or lost on an investment relative to the amount of money invested”. One formula used to determine ROI is “net income plus interest divided by the book value of assets equals Return On Investment.”

In real terms, when you invest in a technology for your business, it’s about more than that. IT-related ROI often needs to provide cost savings, rather than generate revenue. In the case of virtualization for consolidation, this is often a simple calculation made difficult by many variables.

Variable 1) Power

This is a hot topic in the virtualization world, and has been ever since energy costs spiked and data center electric bills started going through the roof. Tracking the ROI of energy savings requires discipline, but in a large environment the numbers can be significant. It’s important to get a good baseline before implementing server consolidation via virtualization, which means getting the bills from the previous few years and calculating average monthly and yearly energy costs. Then, after the project is complete the process must be repeated and the results compared. Lastly, as the elapsed time periods pre- and post-project are matched up, the calculation must be re-run.

As an example, if you have an average cost of $50,000 per year for power over five years pre-consolidation, you need to calculate each year out and then each month, so that in the first month post-project you can compare that same month the year before, and then in six months the cost of the same six months the year before, etc. etc. This shows how fluid ROI can be over time, but how important it can be to be disciplined in tracking numbers like that to show success and failure rates over the long-haul, and not just the last quarter. Whether to include market fluctuations in power costs into your calculations or not is one I’ll leave to the reader. I personally don’t, because there’s one thing I can count on: Costs go up. If your bill is paid by the company, and includes other sources such as cube farms and the cafeteria, the calculations can still be made, but good luck removing the non-IT variables if needed (like say, the cafeteria closing for a month for renovations… that will cut power use dramatically).

Variable 2) Long-Term Staffing and Consulting

The hardest calculation of them all. How much did it cost for you to pay those consultants? How much time did your staff invest in the project, and how much is that time worth as an overall portion of their salary and benefits? Do you even calculate benefits as a factor in ROI? How much was spent on training and other job-related benefits during the time? Did a server fall on somebody’s foot and cause a Worker’s Compensation claim? How much time are staff members going to spend on administration? How does this impact other processes, and what’s the cost to them? The short answer is that you will spend more on virtualization experts, but less on hardware technicians, because there will be less hardware to break. This teeter-totter of staffing will carry over into several types of team – including networking, storage, etc. Tally the fully-burdened costs and compare them to pre- and post-project figures. Nobody likes to think about laying people off because they aren’t necessary anymore, but retasking is good for the soul, and often for the career of the retasked. That means you need to calculate the training costs outside of virtualization as well.

Variable 3) Infrastructure Hardware and Software

The easiest calculation of them them all. How much did it cost you to acquire all of your assets over how long a period of time? What is the average cost per year for an average growth rate? How much can you then expect to spend over an equivalent period of time in the future using that average, versus how much you project to spend using virtualization-based server consolidation. If you use chargebacks, what do you charge and how can that be reduced? If you reduce chargeback costs, should you be factoring in their lower costs to your ROI calculation on a seperate line item?

Variable 4) Services Reduction

That’s right – less services. Less management of services too. Backup and DR comes to mind as a prime service that can be reduced. A smart shop backs up as many virtual machines as they can using storage snapshots or virtual machine snapshots and then moves those snapshots to a remote location without the need for tape. That means no more tape pickups, which is a service reduction. Even for those shops who have systems where backups of the data in the guest machine still needs to be completed, there’s a serious reduction in services because there’s a huge reduction in tapes used and stored. There are also faster restore times. Take for example, if a file server falls over due to an OS corruption cause by a conflicting set patches – restore from the snapshot, and your in business. No call for tape, no waiting for delivery, and only minimal downtime. This is just one area where services are reduced, yet greater service is provided. Others include provisioning new servers, which in a large environment is time-consuming and costly. Replacing dozens of servers sitting cold in a DR facility with a few hefty virtualized systems can reduce physical storage costs just in terms of rack space and square footage. Needless to say, the calculations for this vary from shop to shop, and you will have to find your own service reduction ROI points. Some places to look:

  • Reducing tapes
  • Reducing tape  and DR facility storage fees
  • Decreasing time and personnel costs to prepare new infrastructure
  • Decreasing hardware support / warranty contracts

Variable 5) Service Increases

Availability comes to mind here – no more worrying about hardware failures requiring a huge restore window means a huge bump in availability numbers. In the case of DR, there’s most likley a pre-determined cost per picosecond of business downtime – that figure is just ripe for plucking into an ROI calculation (albeit on a seperate line), because with tools like VMware’s VMotion, HA, and DRS, the time-to-recover from failures is drastically reduced. This means that the company is losing less money due to an outage, and therefore each tracked outage can be tallied up and compated to the pre-virtualization outages, yielding a good source of ROI from loss-aversion.

That’s the positive part of ROI – remember that ROI comes with a built-in double-edged sword – some costs will go up. In the services arena, you will pay more for the increased networking required for good remote DR. In the training arena, you will pay more for virtualization training. In salaries, you will pay more for virtualization experts. The list goes on. The “trick” of ROI is in being complete – finding all of the increases and decreases in costs that virtualization brings. I’m willing to bet that any environment with more than ten servers will get positive ROI in less than a year. The long and short of doing an ROI analysis is this – it’s a long, involved process that won’t give real numbers worth a darn if you don’t take the time to analyze your entire business-technology environment for the correct numbers. Claiming a positive ROI by server consolidation alone is a great win, but not at the cost of missing other aspects of your business’ ROI. To sum up, look at the following for sources of ROI:

  • Hardware Costs
  • Software Costs
  • Physical Storage Costs
  • Downtime Costs (averaged w/ equal periods, pre-project)
  • Consumables Costs (tapes)
  • Chargeback Costs
  • Salary and Benefits Costs
  • Training Costs
  • Consultant Costs
  • Energy Costs

Put these into two main columns, what you spent on the project and in production post-project and what you saved from pre-project expeditures. Adjust for inflation and print.

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Virtualization is the single hottest topic in IT today for a simple reason, it just makes sense. Joe has summarized all those issues well, and real vituralization liberates software from the hardware, simply turning hardware into what it is, a commodity. Server virtualization is understandable by all who spend a few minutes looking at the issue. It is now vital that they now look at the back end, and virtualize their storage as well, for all the same reasons. It makes no sense to deploy a quality hypervisor only to tie it to a legacy storage solution. I will take a moment here to urge readers to explore virtualizing the data center by not stopping on the severs, but looking at the impact of the storage as well. ROI will be dramatic. Dont miss the opportunity.