2. 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.

3. 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

4. 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 continually
re-evaluating the cost of technology
and services, IT managers are able to view forecasts and trends in order to take proactive action.

5. 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.

6. 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