Price Models, ROI and Virtualization

Virtualization is a technology that can apply to almost any organization in a number of ways. The strategy that the small and medium business may use for virtualization would differ greatly from that of a large enterprise. Regardless of size, scope and virtualization technologies in use, there are over-arching principles that guide how the technology is to be implemented.

It is easy to get hooked on the cool factor of virtualization, but we also must not forget the business side. In my experience, it is very important to be able to communicate a cost model and a return on investment analysis for your technology direction. Delivering these end products to management, a technology steering committee or your external clients will be a critical gauge to the success of current and future technologies. Virtualization was among the first technologies that made these tasks quite easy.

The server consolidation approach is an easy cost model to make by outlining the costs for a single server's operating system environment (OSE) in the physical world, compared to that of the virtual world. It is important to distinguish between a cost model and chargeback, as few organizations do formal chargeback at the as-used level for processor, memory and disk utilization. While it seems attractive to have the electric company approach in billing for as-used slices of infrastructure, most organizations prefer fixed price OSE models for budget harmony. To be fair, there are use cases for as-used chargeback; I just haven't been in those circles.

So what does a cost model look like? What is the deliverable? This can be a one-page spreadsheet with all of the costs it takes to build a virtual infrastructure or it can be an elaborate breakdown of many scenarios. I tend to prefer the one-page spreadsheet that has the upfront costs simply divided by a target consolidation ratio. This will simply say what it takes to provide infrastructure for a pool of OSEs. You can then divide this to show what it may look like in the 10:1, 15:1 or higher consolidation ratios.

The next natural step is to deliver an ROI on virtualization technology. Virtualization for the data center (specifically server consolidation) is one of the easier ROI cases to make. Many organizations have not had the formal requirement to document an ROI; but it may be a good idea to do so. This will increase the likelihood of future technologies to work with virtualization as well as increase your political capital within the organization.

For an ROI model, you can simply compare the cost model of the alternative (physical servers) with the cost model of a virtualized infrastructure. For most situations, there will be a break-even point in costs. It's important to not over-engineer the virtualization footprint from the start yet set realistic consolidation goals.

An effective cost model and ROI can be created easily with organizations that are already using virtualization to some extent. For organizations that are new to virtualization, it is important adequately plan for capacity when considering migrating to a consolidated infrastructure. Check out my comparative report of three popular capacity planning tools to help make sure you don't under- or over-provision your virtual environment from the start.

How do you go about the business side of virtualization? Do you use formal cost models and ROI analyses in your virtualization practice? Share your comments here.

Posted by Rick Vanover on 03/29/2010 at 12:47 PM