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PAPER
Table of Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 why is tCO important? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 results of this study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Understanding Total Cost of Ownership and Return on Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 5 tCO analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Calculating rOi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 How VMware Virtual Infrastructure Reduces Server TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 reducing hardware Costs with VMware Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 reducing Operational Costs with VMware Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 reducing Downtime Costs with VMware Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 reducing Business administration Costs with VMware Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Reducing Server TCO with VMware Virtual Infrastructure: Three Case Studies . . . . . . . . . . . . . . . . . 8 applying tCO analysis to Customer Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Case #1: regional healthcare organization reduces tCO by 74% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Case #2: U.S. insurance company reduces tCO by 65% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Case #3: National transportation business reduces tCO by 82% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Applying TCO Analysis to Your Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Seven Steps for estimating tCO Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit 1 lists some of the other benefits realized by the three customers profiled in this paper:
Exhibit 1:
Other Benefits
Number of Physical Servers Required Server Development Time (hrs) Recovery Time (hrs) Server Consolidation Ratio Average CPU Utilization
Healthcare
62 960 12 10 5%
6 120 1 1 80%
58 240 6 7 <10%
8 7 .17 1 60-65%
Estimated TCO/ROI
Industry Averages
TCO/ROI Calculators
Consulting Engagement
Accuracy
Calculating ROI
ROI is a measure used to compare the cost of a project with the benefits of that project. The formula for calculating ROI is the benefits realized over a period of time divided by the amount of investment over that same period of time: ROI = Quantifiable Benefits / Quantifiable Costs To evaluate a project, organizations typically look at both the size of the projects ROI and the time required for benefits from a project to surpass the projects costs. For a virtual infrastructure project of the type discussed in this paper, TCO analysis is a prerequisite for any ROI study since customers cannot determine their savings without understanding their costs. ROI for a virtualization project is then calculated by comparing the cost of the project with the cost reduction and cost avoidance resulting from the project.
Methodology
The TCO methodology discussed in this paper is based on industry-recognized approaches to TCO analysis. This methodology considers four categories of costs that contribute to the TCO of servers: hardware and software, IT operations, downtime and business administration. This TCO methodology considers both hard costscosts that represent direct expenditures, and soft costscosts such as labor costs and administrative costs that are not direct expenditures and may be more difficult to quantify. Exhibit provides more information about these four categories.
IT Operations
Downtime
Business Administration
Reducing hardware costs for disaster recovery . Most disaster recovery plans require building an exact duplicate of production data centers, requiring the purchase and maintenance of a large number of servers that are mostly idle. VMware virtual machines are hardware independent and can be consolidated onto fewer physical servers. As a result, companies using VMware software can implement disaster recovery plans for critical applications with significantly fewer servers and without being forced to exactly duplicate production server hardware.
reducing Server TCO with VMware Virtual Infrastructure: Three Case Studies
To illustrate how TCO analysis can be applied to real scenarios, VMware spoke with three customers who shared details about their VMware virtual infrastructure implementation and how it affected their costs. As indicated in the summary table below, this sample of VMware customers represent a range of industries, company sizes and implementation scenarios.
virtualization incrementally as part of their normal server refresh cycle and can re-use existing server hardware for virtualization in many cases. A key part of this TCO analysis was determining which cost components were important to the customer and could be quantified. The three customers profiled in this paper were able to quantify many of their hardware, software and operational costs. These customers did not have sufficient data available to quantify costs related to downtime and business administration, particularly for the first six months of their implementation; so, these costs were not included in the TCO models.
2 . U .S . insurance company
Bottom-line Results:
ROI over first six months: 89% Savings from avoiding the need to upgrade data center: $1 million$1.5 million Reduction in hardware and software costs: 79% Reduction in IT operations costs: 4% Reduction in procurement costs: 80% Time to provision a new server: 4 labor hours before virtualization, hours after Average CPU utilization: 5% before virtualization, 80% after Server consolidation ratio achieved: 10:1
Healthcare Example
TCO Comparisons Hardware and Software Costs Number of Physical Servers Required Total Hardware Costs Hardware Maintenance VMware Software VMware Software Support VMware Training & Services Total Hardware and Sofware Costs Hardware and Software TCO Reduction IT Operations Affected Datacenter Costs: (SAN port and power costs) Total Server Deployment Cost: Server Development Time (hrs) Average Hourly Labor Cost Server Support Total Affected IT Operations Costs IT Operations TCO Reduction Total Affected costs Total TCO Reduction Six Month ROI Other Benefits Recovery Time (hrs) Server Consolidation Ratio Average CPU Utilization 1 10 5% 1 1 80% $545,657 $8,67 $59,50 1488 $40 N/A $68,157 $1,56 $7,440 186 $40 N/A $38,966 4% $140,0 74% 89% 6 $44,000 $4,500 $0 $0 $0 $477,500 6 $8,757 $16,757 $1,000 $5,50 $19,500 $101,263 79% Without Virualization With Virtualization
10
Bottom-line Results:
ROI over first six months: 189% Reduction in hardware and software costs: 6% Reduction in IT operations costs: 70% Reduction in procurement costs: 50% Average CPU utilization: 510% before virtualization, 60-70% after Server consolidation ratio achieved: 1:1
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Insurance Example
TCO Comparisons Hardware and Software Costs Number of Physical Servers Required Total Hardware Costs Hardware Maintenance VMware Software VMware Software Support VMware Training & Services Total Hardware and Sofware Costs Hardware and Software TCO Reduction IT Operations Affected Datacenter Costs: (Network and other data center costs) Total Server Deployment Cost: Server Development Time (hrs) Average Hourly Labor Cost Server Support Total Affected IT Operations Costs IT Operations TCO Reduction Total Affected costs Total TCO Reduction Six Month ROI Other Benefits Recovery Time (hrs) Server Consolidation Ratio Average CPU Utilization N/A 1 <10% N/A 1 60-70% $1,1,60 $169,5 $41,400 55 $75 $1,697 $432,630 14,71 $7,600 68 $75 $87,650 $129,971 70% $87,976 65% 189% 9 $690,000 N/A $0 $0 $0 $690,000 8 $01,999 N/A $40,000 $1,006 $,000 $258,005 6% Without Virualization With Virtualization
1
Bottom-line Results:
ROI over first six months: 449% Reduction in hardware and software costs: 81% Reduction in IT operations costs: 88% Time needed to recover a system: 6 hours before virtualization, 10 minutes after Average CPU utilization: less than 10% before virtualization, 6065% after Server consolidation ratio achieved: 7:1
1
Transportation Example
TCO Comparisons Hardware and Software Costs Number of Physical Servers Required Total Hardware Costs Hardware Maintenance VMware Software VMware Software Support VMware Training & Services Total Hardware and Sofware Costs Hardware and Software TCO Reduction IT Operations Affected Datacenter Costs: (SAN port and power costs) Total Server Deployment Cost: Server Development Time (hrs) Average Hourly Labor Cost Server Support Total Affected IT Operations Costs IT Operations TCO Reduction Total Affected costs Total TCO Reduction Six Month ROI Other Benefits Recovery Time (hrs) Server Consolidation Ratio Average CPU Utilization 6 7 <10% .17 1 60-65% $454,76 $5,966 $1,90 48 $40 $7,840 $77,726 $5,114 $87 10 $40 $,840 $9,341 88% $8,841 82% 449% 58 $77,000 N/A $0 $0 $0 $377,000 8 $5,000 N/A $17,00 $4,00 $0 $73,500 81% Without Virualization With Virtualization
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3 . Determine which TCO components are relevant for the analysis . Some components of server TCO will not be affected by virtualization and thus can be excluded from a comparative TCO analysis. For example, the cost of application administration is generally not affected by virtualization. Other server TCO components may not apply to a given scenario, may not be deemed important in the scenario being considered, or may be impossible to quantify. These could include costs of procurement and vendor management. Likewise, organizations may have other costs such as various charges paid to internal or external service providers that are not included in the models discussed here but that are important to include in their analysis. 4 . Gather data . Collect the data needed to calculate the TCO for the chosen scenario(s). This data may include the number of servers in the computing infrastructure; the software license costs; the cost and average number of hours of planned and unplanned downtime; and the amount spent on maintenance, management and monitoring of physical systems. A VMware Capacity Planning assessment can help accurately gather this information and jumpstart a virtualization project. VMwares Capacity Planner tool helps companies gather information about their existing hardware and its utilization, even helping companies find hardware they didnt know they had. 5 . Build a TCO model to compare existing environment with a virtualized environment . Build a TCO model that compares the TCO of the necessary scenarios. The model presented in this paper provides a framework that can be leveraged for this analysis 6 . Use TCO model to compare scenarios . The TCO model built in the previous step will enable a comparison of the VMware software implementation with the costs of other options. This model can also be used to calculate the ROI of an investment in VMware software. These two metricsTCO and ROIare two of the most common metrics that organizations use to evaluate potential projects. 7 . Implement a pilot project . VMware and its partners have helped many customers develop pilot projects that validate the benefits of VMware virtual infrastructure. These structured pilot projects are designed to help prove the effectiveness of VMware server software in the specific environment based on specific success criteria.
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Conclusion
The small sample of VMware customers profiled in this paper describes how TCO and ROI can be measured for virtualization projects. These customers reported significant cost reductions from implementing VMware virtual infrastructure solutions. In all three customers profiled, the customers experienced a significant positive ROI within the first six months of their implementation. Exhibit 8 compares these customers TCO and ROI before and up to six months after implementing VMware virtualization software.
Virtualization projects are often justified from the start as a result of projected savings in hardware and software costs. The customers profiled in this paper achieved hardware and software savings above 60% in all cases. What may surprise customers even more is the savings these customers experienced in IT operations. On average, these customers experienced TCO savings in IT operations of 67%. All customers profiled in this paper are expanding their virtualization infrastructures due to the success of their first virtualization project in delivering a rapid ROI. Clearly, there is much to be gained in conducting TCO analysis to get a more complete picture of cost savings of a technology investment.
Exhibit 8:
Healthcare Example TCO Comparisons Total Hardware and Sofware Costs Hardware and Software TCO Reduction Total Affected IT Operations Costs IT Operations TCO Reduction Total Affected costs Total TCO Reduction Six Month ROI $545,657 $68,157 Without Virualization $477,500 With Virtualization $101,263 Insurance Example Without Virualization $690,000 With Virtualization $258,005 Transportation Example Without Virualization $377,000 With Virtualization $73,500
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The Bottom-line
Exhibit 9 shows the before and after TCO impact of a virtualization investment for the three companies profiled. They saved an average of $71,000 in hardware and software costs and $1,000 in IT operations costs.
Contact VMware to learn more about how virtual infrastructure software can lower server TCO. For more information, please contact VMware sales at sales@vmware .com or 1-8774VMWARE .
Exhibit 9:
IT Operations Hardware & Software
$68,157 $77,726
$129,971
$377,000
$200,000 $100,000 $0
$258,005 $9,341 $73,500 Without With Virtualization Virtualization Without With Virtualization Virtualization
Healthcare
Insurance
Transportation
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2006 VMware, Inc. All rights reserved. Protected by one or more of U.S. Patent Nos. 6,397,242, 6,496,847, 6,704,925, 6,711,672, 6,725,289, 6,735,601, 6,785,886, 6,789,156 and 6,795,966; patents pending. VMware, the VMware boxes logo and design, Virtual SMP and VMotion are registered trademarks or trademarks of VMware, Inc. in the United States and/or other jurisdictions. Microsoft, Windows and Windows NT are registered trademarks of Microsoft Corporation. Linux is a registered trademark of Linus Torvalds. All other marks and names mentioned herein may be trademarks of their respective companies.