The First Step is Always the Hardest The advantages of virtualization, whether using VMware or Windows Virtual Server, are overwhelming. Sharing hardware between applications means fewer physical servers, less space, easier provisioning and better business continuity, all of which contribute to an anticipated 60% reduction in costs over 3 years. But it is not free – the virtualization software, services and training all have costs associated with them – meaning that if you get your priorities wrong the anticipated ROI within one year might be unachievable. So, even though the destination is clear, the decisions and priorities that you set along the way have a big impact on its perceived success.

What are the Right Priorities? The ‘obvious’ starting point is to target the most expensive hardware as this will give the greatest cost savings from server consolidation. However, the cost of the hardware alone is actually a poor driver for virtualization priorities as the server might be efficiently running a heavy application utilising most of its capacity. What about the least utilised services and applications? Although these could be easily virtualised, they might be more of a candidate for retiring from the portfolio rather than spending time and effort on them with little opportunity for payback. So really there are a number of factors to look for in order to identify business worth and set the priorities.

• Costly, inefficient use of the server assets

• Low technical utilisation of the server with significant wasted capacity

• Anticipated business usage of the service delivered by the server

• Dynamic provisioning with lots of changes/additions to the service Most of all, this visibility needs to be continually updated in order to reprioritize work and identify new candidates for virtualization as the project progresses. ServiceFlow IT Cost Management gives IT Managers an unprecedented single view of their datacenter costs and utilisation by bringing together all of this disparate information into one place to set priorities for virtualization in order to achieve the anticipated savings faster. By using actual cost and utilisation data from expense records and monitoring systems, ServiceFlow delivers a true, dynamic view of the costs without the need for manual intervention so decisions are made from facts rather than conjecture or guesswork. Of course, once the virtualization project has been started, another problem emerges - that of allocating costs to applications/business units.

Who Benefits from Virtualization? Now that you have successfully implemented your virtualised environment, how much have you actually saved? Presumably, the savings will be in line with the 60% reduction in operational and capital costs over 3 years and ROI within one year that formed the basis of your business case. Business continuity and ease of provision are solid drivers but it’s the bottom line savings that justified the investment. But who gains from this? Although that is quite a simple question the answer is inevitably far more complex as virtualization’s inherent portability and ease of provisioning makes it like trying to hit a moving target. For example, many different applications that previously only used 5-10% of their server’s processing capacity will now be defined as virtual machines sharing common hardware. Each virtual machine will still only be using a small part of the available capacity but, collectively, they will be getting the most out of the hardware assets. The savings mainly come from consolidating the hardware (typically 50% reduction in servers. 50% of storage, 70% of network and 60% less space required) and easing the server provisioning (90% saving), so how do you attribute these costs, and their consequential savings, to the different applications or to the business units that ultimately pay for them?

How Do You Measure a Virtual Environment?

The good news is that the virtualization platform itself is very data-rich i.e. it records which virtual machines have been deployed and how the usage of CPU time, memory and I/O subsystems are split between them. The challenge is to convert this factual data into the kind of cost visibility that is meaningful to the business managers and CIO. When most businesses try to perform this type of analysis, it is typically done as a one-time special project in complex spreadsheets created by a single financial analyst who is the only person who understands them. Usually this will involve applying baseline assumptions to each of the virtual machine metered elements. For example, if disk storage is assumed to costs $10 per GB and an application uses 200GB then its storage cost is $2000. Repeat this process with assumptions for CPU, network I/O and memory and you will get the total cost for an application in a virtualised environment, right? Well, not really. Although this gives a ball park figure, the answers are only ever going to be as correct as the assumptions made.

• The cost of storage varies enormously with performance and reliability ranging from a few dollars per GB for a NAS server to a couple of hundred dollars per GB for a high end

fibre channel RAID. Other measures have similar degrees of variance in their costs assumptions.

• Moore’s Law indicates that whatever assumptions are made this year will be hopelessly out of date next year.

• These assumptions only take account of the physical world – other factors like server provisioning time (which probably had a significant effect on the business case) tend to get forgotten or ignored.

• Once the project is completed, there is no system in place to continuously monitor for wasteful spending, and the spreadsheets quickly becomes out of date and the labor intensive to manage.

How is ServiceFlow IT Cost Management Different?

Rather than making assumptions about the cost rates, ServiceFlow goes back to the source of the expense records, usually the General Ledger, to get a true and dynamic picture of the detailed costs. Some of these cost elements will relate to the physical servers which host the virtual servers. Here we will use the virtual machine monitoring information e.g. VMware vCenter to split up those physical server costs between the different virtual machines and, thereby, the different applications. Of course, there will be other costs in the General Ledger which are nothing to do with the virtual environment but these can also be apportioned to the different applications and business units using agreed percentages or dynamic usage information.

Increase IT Cost Efficiency

Although virtualization delivers considerable efficiency gains merely from hosting the old applications on less hardware, that is really just the starting point. By giving an insight into the cost of delivering the service and the drivers behind it, IT managers can evaluate alternative delivery models, investigate different hardware costs and understand consolidation implications to prevent overruns in the delivery budget and further reduce the unit cost of the various services.

By having the cost model continuallyre-evaluating the cost of technologyand services, IT managers are able to view forecasts and trends in order to take proactive action.

Automate Billing and Chargeback

Of course, these costs need to be recovered either directly or indirectly from the business, often through a chargeback mechanism. These charges can be directly derived from the cost (either Cost or Cost Plus) or on a more commercial pricing structure (such as Going Rate or Market Rate) but always with the aim of reclaiming the costs and justifying those charges to the business.

Here ServiceFlow automates that whole process by calculating and allocating the charges for each business unit or customer, based on their actual consumption, and delivers a dynamic itemised bill detailing exactly what needs to be paid and what they are getting for it.

Reduce Services Costs through Visibility and Collaboration

One of the quickest ways to reduce costs, even where there is no chargeback mechanism, is to show the business the services it consumes, the cost of delivering those services, and the business processes supported by those services. This increased visibility allows the service organization and business to collaborate on how best to reduce costs, whether by reducing consumption, changing the level of service, reducing unit costs or eliminating services with minimal business value. The next step is to show how actual service spend compares to the budget laid out by the business. With an IT cost management solution the IT and finance organization can link the budget for each service offering, department, business unit, geography, etc and track actual service spend versus budget in near real-time on an ongoing basis. By putting service spend and cost visibility at the fingertips of managers and executives, they will be better prepared to balance the necessary trade-offs between service consumption, quality, and cost in order to meet their goals and objectives.

How Digital Fuel Can Help

Digital Fuel provides an easy to use solution that delivers immediate value to reduce IT costs and improve overall service delivery using a virtualised environment. Whether you are a large IT organization, shared service centre or government agency, your success, and that of your customers, depends on being able to control service delivery costs and charge for services effectively. ServiceFlow IT Cost Management helps you cost, price and control services spend and usage, even ones delivered through virtual machines. It provides IT with the cost visibility that is required to manage your service organization like a well run business.

• Identify candidates for virtualization and set priorities

• Reducing costs and optimising value for maximum business benefit

• Demonstrate value to the business

• Charging for services based on the total cost of delivering each service

• Helping business leaders manage their spend and consumption in an effective, transparent way

• Creating service chargeback (bill for IT services) that provides rich detail in an online format

• Using a wide range of cost allocation methods including virtual machine usage measures

• Tracking actual service consumption and spend against budget on an ongoing basis

• Accelerating your initiative with pre-defined content aligned with ITIL v3