Adding It Up: Virtualization Reduces IT Costs

Does it take either a significant service outage or a sea change in your business, like a major acquisition or a downsizing, to get business leaders to re-examine seriously whether your Information Technology infrastructure and resources are performing efficiently and effectively? All too often, businesses only re-examine their IT infrastructure and resources when a major snafu has occurred or some external force has turned the business model on its head.

It's not surprising that many managements shy away from reviews of their IT systems and react only when irked customers are wondering why an order is late or a database has been compromised. After all, every business leader has a tale of a colleague whose system upgrade was months late and over budget, or whose vendor went out of business shortly after completing the project, or who is still awaiting the promised performance from an IT investment.

Compounding the problem, IT projects often challenge traditional Return On Investment (ROI) analyses, since the gains in productivity and service quality can be elusive to capture on a spreadsheet while the costs are all too apparent. With IT budgets often consuming 10% or more of revenue, many managements seize the temptation to simply cap IT spending at a fixed percentage of total budget.

No IT executive can reasonably expect a CEO or board of directors to sign off on an IT project without hearing a solid business case for the investment any more than they would authorize a capital expenditure or new subsidiary without scrutiny. Yet, a study by the Gartner Group revealed otherwise. Gartner found that only 20% of organizations undertaking large systems projects and only 50% embarking on a re-engineering of their systems ever developed a business case for the project. And of those that did, even fewer checked back to see if the projects ever hit their goals.

Concrete Results
IBM's virtualization of servers, storage, and applications delivers three results that every CEO or director can get his or her mind around quickly: simplicity, flexibility, and cost savings. Of all those, cost savings is the most likely to draw a CEO's interest. Virtualization promotes efficient resource management and the ability to provision server, storage, and application resources dynamically in line with shifting demands and priorities. Virtualization achieves this in three ways:

• Reducing the total cost of ownership and making better use of IT assets by significantly improving server utilization and sharing I/O resources.
• Improving business responsiveness and operational speed by dynamically re-allocating resources to applications as needed, to better match changing business cycles or handle unexpected surges in demand.
• Simplifying the management of IT infrastructure by making workloads independent of hardware resources. This allows users to make business-driven policies to deliver resources based on time, cost, and service-level requirements.

The first step toward assessing whether virtualization will reduce IT spending, or at least slow the rate of future increases, requires getting a firm grasp on the costs of operation for the current infrastructure and resources. This applies to both the direct costs and indirect costs. The direct costs start with the hardware and its maintenance. Key questions include: What is the expected life of the hardware? What is its rate of utilization? What are future growth expectations? How often have there been hardware failures?

The second area of direct cost is software licenses. How many licenses are you currently paying for annually? How many machines are running those applications? What are plans for introduction of new applications and how will they be deployed? Facilities costs are another major area of costs. What are you paying for space for IT facilities, data transmission between data centers, and power? With rising energy costs, electricity—both to run and cool machines—is becoming an increasingly expensive component of overall costs. Finally, what are the labor costs required to support the system?

Then, there are the indirect costs. These become somewhat more subjective, but nevertheless are real and can be measured. For instance, what are the opportunity costs of IT technicians having to focus on maintenance of the server farm, instead of evaluating software upgrades that might assist the business units in meeting their goals?

"With server virtualization, one physical server via partitioning can behave as multiple logical servers. Each independent logical server, or virtual machine, can run different applications and is a unique functioning server from a system point-of-view. This creates the potential for significant consolidation."

On the other side of the ledger, the benefits of virtualization are readily identified, because in most business environments non-virtualized x86 server utilization runs at about 8% and Unix server utilization around 15%. With server virtualization, one physical server via partitioning can behave as multiple logical servers. Each independent logical server, or virtual machine, can run different applications and is a unique functioning server from a system point-of-view. This creates the potential for significant consolidation. So a data center consisting of 400 physical servers might be quickly collapsed into fewer machines.

Real Cost Savings in a Virtual World
Now, begins the savings calculation. For starters, IT technicians have fewer machines to maintain, creating opportunities for more productive deployment of these resources to other projects or for direct savings through reduced headcount. In addition, the useful life of a data center is also lengthened considerably, since the center has newly freed-up server capacity to accommodate future growth. Power consumption and cooling can also be effected due to the reduction in servers. From a software licensing standpoint, companies can often see a direct reduction in software licensing costs (per CPU) or could potentially have greater leverage to negotiate favorable terms when licenses come up for renewal. (And so far, this doesn't even begin to add in the indirect savings.)

The gross savings from server virtualization can often run as high as 20% a year; as a result, virtualization usually pays for itself in short order, anywhere from within the first year to the third year after implementation.

The beauty of virtualization is that businesses can achieve these dramatic improvements in cost and efficiency without sacrificing performance. Many virtualization solutions can often benefit from the comprehensive management features and dynamic reallocation of server and storage resources via products such as IBM's San Volume Controller, Enterprise Workload Manager and the Systems Director family of offerings.

Waiting until your IT infrastructure is straining due to high operational cost, high complexity, poor quality of service, uncontrollable server sprawl, etc. is not necessary to gain business buy-in that virtualization is a sound business choice. To do so is comparable to waiting for a storm to come before repairing a leaky roof on your home. Time and experience have demonstrated that IBM's virtualization reduces costs, simplifies IT, and delivers business value.