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VM cost calculation guide

Proper VM cost assessment is a critical element of meaningful showback and chargeback practices in a virtual data center.

What does a VM cost? Although the question is simple, the answer can be surprisingly complex: It involves a keen...

knowledge of computing costs, an understanding of computing capacity and insight into anticipated usage.

A cost analysis might seem better left to the business side. But IT experts have all the details necessary to perform some basic calculations, and they lay the important foundations for cloud-based VM management tasks, such as showback and chargeback. There is a general exercise you can use to calculate the VM cost of each instance.

Calculate fixed and recurring costs

Any VM cost estimate must start by figuring the total fixed and recurring costs involved with virtual server deployment. For example, fixed costs per server include physical servers; physical storage, such as a storage array; hypervisor licenses, such as VMware vSphere; OS licenses, such as Windows Server 2019 Datacenter edition; and management software, such as VMware vCenter. Also, consider recurring annual costs per server, including network connectivity, storage connectivity, OS and management software maintenance, and routine system hardware maintenance. Your organization might carry more or fewer costs, so feel free to adjust this list accordingly.

Multiply the annual recurring costs per server by the expected lifecycle of the deployment. For example, suppose you plan on a three-year lifecycle. In other words, you'll operate the equipment or software for three years before you repurpose or retire it. A $10,000 fixed server cost -- such as a Dell PowerEdge R940xa Rack Server -- remains the same over three years, but an annual network connectivity cost of $500 would cost $1,500 per server over three years. And a $2,000 annual management database cost for the deployment would cost $6,000 over three years. Other organizations might use longer or shorter lifecycles depending on business plans and needs.

Now that you know the fixed and recurring costs per server over the lifecycle, multiply this by the total number of servers involved in the deployment. This shows you the total costs of your virtual hardware and software deployment. Here's a simple example of a 10-server deployment with one large 512 TB storage array -- such as a Hewlett Packard Enterprise 3PAR StoreServ 9000 Storage system -- and a single management tool with annual updates. Actual costs can vary dramatically depending on the products selected, as well as the specific terms extended by each respective vendor.

Cost item

One-time costs

Recurring costs

Lifecycle
(3 years)

Total
(10 servers)

Server

$14,000

-

$14,000

$140,000

Storage array
(512 TB)

$20,000

-

$20,000

$20,000
(1 array)

Hypervisor
(per CPU)

$4,000

$4,000

$40,000

Hypervisor maintenance

-

$1,000

$3,000

$30,000

OS

$6,000

-

$6,000

$60,000

Server maintenance

-

$1,000

$3,000

$30,000

Network connectivity

-

$500

$1,500

$15,000

Management software

$10,000

-

$10,000

$10,000
(for one)

Management maintenance

-

$2,000

$6,000

$6,000
(for one)

Total cost

 

 

 

$351,000

Calculate the computing capacity

Now that you've added up the cost of your virtualized data center hardware and software deployment, you must determine the amount of computing capacity that deployment can potentially provide to VMs. You already know that the storage array will provide up to 512 TB, but also figure the effective number of servers. This is the total number of servers minus the number of redundant servers. So, if you have 10 servers with no redundant nodes, there are a total of 10 servers available. For example, if three of those servers will be redundant for highly resilient workload deployments, you'll wind up with seven -- 10 servers total minus three servers held for failover or redundancy effective servers to supply compute resources.

Note the total amount of memory, processors and processor clock cycles available per server. This comes right off the technical specifications for each machine and might include 2 TB of memory with two 12-core processors running at 2.3 GHz for a total of 24 cores per server. Also, figure the percentage of memory and processor capacity per server that you intend to reserve, along with the percentage of memory and processor capacity that you intend to overcommit. Reservation might simply keep some compute capacity available for later growth or performance management tasks, while overcommitment recognizes that all VMs don't use all allocated resources all the time; it's a way of maximizing resource usage. There is no requirement for reservation or overcommitment, but knowing this now will affect cost. Network bandwidth -- in gigabits per second -- isn't included here, but you could.

So, suppose you plan to reserve 15% memory and overcommit 5% -- VM performance is most sensitive to memory -- while you also reserve 15% of processor cycles and overcommit 60%. Nothing here needs to add up to 100%. Here is the breakdown of available and allocable resources per server, for all seven of your effective servers.

Resource

Per server

Reserve

Available

Overcommit

Per-server
total

Group total*

Memory

2,048 GB
(2 TB)

15%

1,740.8 GB

5%

1,827.8 GB

12,794.8 GB

Processors

24

-

24

-

24

168

Clock cycles

2.3 GHz

15%

1.955 GHz

60%

3.128 GHz

21.896 GHz

*In this example, we're figuring the total compute resources for seven out of the 10 servers for the group total.

Calculate the effective costs

We know total deployment costs, and we know what compute resources should be allocable. So, we can take a stab at calculating some monthly and hourly costs for computing resources. Start by determining how many hours per month the deployment will be available. In almost all cases, the deployment will run 24 hours per day for 31 days per month, so 744 hours per month is a standard benchmark. Also, determine the total number of VM instances that you intend to carve out of the deployment. For this exercise, let's figure on 200 VMs maximum. Determine the percentage of costs allocated to memory and processor cycles. For example, it's common to assign 70% of costs to memory and 30% of hardware costs to processor cycles. This must add up to 100%.

Let's use memory as the first example. We know that the business needs to recover $140,000 in server costs for the deployment over three years, and with 12,794.8 GB of memory available accounting for 70% of the costs, that's ($140,000 / 12,794.8 GB) * 0.7 -- $10.94 per GB over three years, $3.65 per GB per year, $0.304 per GB per month or $0.000408 per GB per hour ($0.304 / 744 hours per month).

Let's break down the cost of the processor cycles. Remember that the business also needs to recover the remaining 30% of that $140,000 investment over three years from the 21.896 GHz of allocable processor cycles. This means ($140,000 / 21.896 GHz) * 0.3 -- $1,918 per GHz over three years, $639.38 per GHz per year, $53.28 per GHz per month or $0.0716 per GHz per hour ($53.28 / 744 hours per month).

Next comes storage, and the business has to recover 100% of the $20,000 price tag for that 512 TB storage array over three years. That's $20,000 / 512 TB -- $39.06 per TB over three years, $13.02 per TB per year, $1.086 per TB per month or $0.00145 per TB per hour ($1.086 / 744 hours per month). Here is the memory, processor and storage costs breakdown.

Item

Cost %

Capacity

Lifetime
cost

Annual cost

Monthly
cost

Hourly cost

Memory

70%

12,794 GB

$10.94 / GB

$3.65 / GB

$0.304 / GB

$0.000408 / GB

Processor

30%

21.896 GHz

$1,918 / GHz

$639.38 / GHz

$53.28 / GHz

$0.0716 / GHz

Storage*

100%

512 TB
(512,000 GB)

$39.06 / TB

$13.02 / TB

$1.086 / TB

$0.00145 / TB

*The previous version expressed storage in gigabytes, while this version works with storage in terabytes, which is 1,000 times more capacity. To convert costs from terabytes to gigabytes for a side-by-side comparison with 2014, divide the terabyte cost by 1,000, which makes storage costs extremely small compared to 2014.

We're not done. We've only calculated the compute costs per hour based on the capital cost of the gear and the total compute resources that should be available from that gear. Now, we need to figure the monthly costs for the noncompute items, such as licenses and connectivity. This involves taking the total lifecycle cost for each noncompute item and finding the annual cost, monthly cost and the cost per VM, assuming that we use 200 VMs as planned. Here are the noncompute fixed costs.

Cost item

Lifetime cost

Annual cost

Monthly cost

Monthly cost per
VM (200)

Hypervisor
(license and maintenance)

$70,000

$23,333.33

$1,944.44

$9.72

OS

$60,000

$20,000

$1,666.67

$8.33

Server maintenance

$30,000

$10,000

$833.33

$4.17

Network connectivity

$15,000

$5,000

$416.67

$2.08

Management software*

$10,000

$3,333.33

$277.78

$1.39

Management maintenance*

$6,000

$2,000

$166.67

$0.83

Total fixed cost

$191,000

$63,666.66

$5,305.56

$26.52 per VM

*These figures are per license. Multiple licenses might be needed depending on the capabilities of the management software.

Find the per VM cost

That should do it. Each month, we're going to charge the owners of each VM instance $0.304 per GB of memory and $53.28 per GHz of processor time to recover a portion of the $140,000 server investment, $1.086 per TB of storage to recover part of the $20,000 storage array and a flat monthly fee of $26.52 to help recoup all of the other noncompute costs of the deployment. Some organizations might also charge a one-time setup fee to provision and configure the VM. As an example, this fee might be $500 or $1,000, and it often serves as a powerful business tool to mitigate indiscriminate or unnecessary provisioning requests.

So, the total VM cost would then depend on the actual amount of memory, processor cycles and storage allocated to the VM instance. Suppose that IT offers a menu of small, medium and large VM sizes. For example, IT can supply a small VM with 2 GB of memory, 4 GHz of processor cycles and 100 GB -- 0.1 TB -- of storage. A medium VM might include 4 GB of memory, 8 GHz of processor cycles and 200 GB -- 0.2 TB -- of storage. A large VM could offer 8 GB of memory, 12 GHz of processor cycles and 400 GB -- 0.4 TB -- of storage. Using the costs established above, these three VM types would then cost the following.

VM size

Memory

Processor

Storage

Monthly
compute

Monthly
storage

Monthly
fixed

Monthly
total

One-time
setup*
(optional)

Small VM

2 GB

4 GHz

100 GB
(.1 TB)

$107.17

$0.186

$26.52

$133.88

$500

Medium VM

4 GB

8 GHz

200 GB
(.2 TB)

$427.46

$0.217

$26.52

$454.20

$500

Large VM

8 GB

12 GHz

400 GB
(.4 TB)

$641.79

$0.434

$26.52

$668.74

$500

*The one-time setup cost would be added to the first month's showback/chargeback bill per VM.

Revisit costs regularly

Remember that this is only one simple example of VM cost analysis. It's not meant to be all-inclusive, and you can easily add other cost factors, such as network bandwidth or data center energy costs, to the calculations to suit specific business considerations. But you can see that changing key cost factors, such as lowering server costs through volume discounts or increasing the number of VMs expected from the deployment, can radically alter the pricing passed along to your VM consumers. Also, note that this analysis doesn't include markups.

This method provides a sound foundation for internal showback or chargeback processes rather than generating a profit. However, it would be a simple matter to add a margin to these costs to produce profit if IT provides VMs to external computing consumers.

Finally, cost analysis isn't a one-time endeavor. IT leaders should reassess and recalculate compute and noncompute costs on a regular basis -- perhaps annually or each time that a technology refresh or other major change occurs in the data center infrastructure.

Dig Deeper on Virtualization costs, licensing and support issues

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What other cost factors do you include in VM calculations?
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Great way to support more on existing resources. This is a smart solution to take enterprise computing to the next level without killing your budget.
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I see some cloud providers price per core / Storage and memory - in your calculation above 2GHz processor means what ? how many cores are we allocating here ?
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Why is your total group clock cycles 23ghz? it should be round about 380Ghz for 7 servers (112 cores á 3,4ghz with 15%/60% reserve/overcommit) that will do
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