Tuesday, July 15, 2014

The Cost of Business

In my mind, understanding the cost of running infrastructure operations and cost transparency is one of the most critical aspect of transforming IT operations into a service provider. If you can't provide the underlying value of the technology units being consumed by the business and the overall business value associated with the services provided, than the line of business is going to view you as overhead.

IT cost transparency is a key factor in being able to communicate the value of IT.  When there is no overall cost of IT services being provided by the operations organization; it is impossible for IT decision makers and organizational leaders to measure the value of striking a balance between price and performance to run current applications, grow the business, and transform product lines to serve new customer segments with new products and services.

While my approach may not work for everyone, in my previous role in IT leadership, I worked on a method for providing cost transparency of the services my team was looking to provide. I wanted to share this with you!

I used server density ratios based on virtual machine vCPU ratio to physical cores. In my scenario, I am going to use a conservative 3:1 production virtual machine workload ratio for my silver level virtual machines, which have a 4 year lifecycle.

Here are the components I am going to include in my cost analysis:
  1. Physical Server Cost
  2. Sales Tax
  3. Server Power
  4. VMware vCloud Suite Standard License
  5. Windows Data Center License
  6. vC Ops License
  7. Norton Anti-Virus License for all VMs
  8. VMware TAM Support
  9. Microsoft TAM Support
In addition, I include a Cluster HA Charge for maintenance and a level of risk avoidance.

The image below shows the total capital server costs based on vCPU density ratios. With this host, we are working with 24 physical cores with a 3:1 virtual machine to core ratio, that provides us with a density ratio of 72 virtual machines per host.

1 vCPU Virtual Machine

The cost of my physical server in my example is $23,453.62. This information should be relatively easy to ascertain. There is 8% sales tax for $1,876.29. Based on the server power at $.09 a kilowatt, the annual charge for power is $283.82, which amounts to $1,135.28 over 4 years. Jumping down to Norton Anti-Virus Licenses, because this environment is still using agent based threat protection on every virtual machine there is an associate cost per guest OS of $7.31. I have also included the charges for the VMware and Microsoft TAM services in my cost model.

The total capital server cost is $43,638.56; but like I noted above, I include a 10% Cluster HA Charge for maintenance and availability. The total cost per virtual machine based on a 72 VM density ratio is $743.09.

After we have our annual base-line cost of $185.77, there are a few other things we need to add in to our cost model. First, we need to add in the annual maintenance on software which is typically 20%. I broke out memory and storage into separate categories, this provides me the flexibility to configure virtual machines with different resource configurations based on the application requirements and business needs. Also, there are expenses for additional services, in the silver tier virtual machine I have a annualized expense for CLB support and disaster recovery.

Last; the item that takes up the bulk of the expense in our cost model is infrastructure engineering support (OPEX) per VM at $732.00 per virtual machine. The support level for my silver tier is 24/5 support.

This is the model for my small virtual machines (1 vCPU) in the silver tier. I can use the same formula and change the density ratio to provide the cost for different size VMs. In the below diagrams, you will notice that we have a medium, large, and extra large virtual machine with the respective density ratios of 36 VMs, 18 VMs, and 9 VMs.

2 vCPU Virtual Machine
4 vCPU Virtual Machine

8+ vCPU Virtual Machine

Now, with my gold service level tier, we have a new generation of physical servers with 8 core processors, this impacts our density ratio. We have included a high level of support which is reflected in the OPEX charge (24x7 with root cause analysis), we have lowered our density ratio for over-committing the virtual machine vCPU ratio to physical cores to 2:1 production virtual machine workload, and we have add in additional server charges for priority resource guarantee expense and alternate site recovery expense.

1 vCPU Virtual Machine

The cost differential between the gold tier small virtual machine and the silver tier small virtual machine is an addition $1,168.16 a year! A significant difference.

Our bronze tier small virtual machine has no extra service expenses and the support level is considered unmanaged (25% discount on OPEX) with 8 am to 8 pm support.

1 vCPU Virtual Machine

When looking at the expense across service tiers, we really get a clear view of the associated cost of providing the infrastructure service by classified virtual machine size. Communicating IT value becomes conclusive, you are able to provide IT leadership and the line of business the cost for the right services, at the right quality level, at the right price. The business can then focus their strategy and IT investments on opportunities that matter.

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