ENM603 - Operations Management

Prof. Kathleen Eze

Improving efficiency at XYZ, Inc. with Virtual Infrastructure
Group #1
National University










Names Here
Efficiency at XYZ, Inc.

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INTRODUCTION .......................................................................................................................... 3
MARKET ANALYSIS ................................................................................................................... 5
TECHNOLOGY BEHIND THE SOLUTION ............................................................................... 6
What is Virtualization?................................................................................................................ 6
How Does Virtualization Work? ................................................................................................. 6
The VMware Approach to Virtualization ................................................................................... 6
What is a Virtual Machine? ......................................................................................................... 7
SWOT ANALYSIS ........................................................................................................................ 8
Strengths ...................................................................................................................................... 8
Weaknesses ............................................................................................................................... 10
Opportunities ............................................................................................................................. 11
Threats ....................................................................................................................................... 12
STAFFING PROFILE .................................................................................................................. 12
FEASABILITY ANALYSIS ........................................................................................................ 13
Technical Considerations .......................................................................................................... 13
Financial Analysis ..................................................................................................................... 13
SCHEDULE .................................................................................................................................. 14
COST ............................................................................................................................................ 16
Time-Phased Budget ................................................................................................................. 16
PROJECTED SAVINGS .............................................................................................................. 18
CONCLUSION ............................................................................................................................. 19
REFERENCES ............................................................................................................................. 20



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INTRODUCTION
XYZ, Inc., a San Diego-based Government contractor with over 40,000 employees
worldwide, has just gone public and the Chief Financial Officer has requested to implement two
new financial systems within the next 18 to 24 months: Hyperion Financials and Deltek
CostPoint. The new financial systems will provide stakeholders accurate financial performance
information.
These new applications require a total of 130 new Windows 2003 Servers (x86 servers).
Each DELL server costs $12,000. Implementing the solution would require $1,560,000 in
hardware alone. The assumption is there will be no need for new database and SAN [Storage
Area Network] resources as these are pooled resources within Corporate IT.
XYZ, Inc.s Data Center infrastructure is almost working at full capacity, as it is
supporting the Core Corporate IT systems, including HR, Procurement, CRM and Corporate
intranet, to name a few. SDG&E cannot provide any more power from the street. This has put
the project in jeopardy!
Group1 Consulting Services was hired to analyze the Data Center infrastructure
limitations and propose a solution to accommodate the existing infrastructure and the servers
required by the two new financial applications. Relocating is not an option.
Group1 Consulting Services has conducted a study that revealed that most servers in the
Data Center are being underutilized. In fact, the servers averaged only 6% of CPU [Central
Processing Unit] utilization. This means, that 94% or $11,280 of processing power is being
wasted for each server.
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After evaluating possible solutions, Group1 Consulting Services has recommended using
virtualization technology, where one physical server can host up to 10 virtual servers or virtual
machines, reducing the projected cost in new hardware for this project down to $520,000 from
the initial $1,560,000 estimate. That is over 60% savings in the infrastructure required for the
implementation of the two new financial applications!
Several vendors were considered, but based on market analysis, Group1 Consulting
Services recommended to implement VMWare Server Virtualization software.
The virtualization effort will not stop with this new implementation. In fact, existing
servers will be virtualized in a phased approach. Group1 Consulting Services has identified 674
existing servers that can be virtualized across environments. First, the Development servers will
be virtualized, then the QA servers, and finally, all Production servers.
XYZ, Inc. estimates over $2.1 million in savings from reduced hardware leases for the
resulting 804 virtualized servers.
This paper examines the implementation of the virtualization solution at XYZ, Inc. and
the scope is limited to delivering 804 virtualized servers to support the companys infrastructure
needs: 674 converted servers and 130 new virtual machines, not the actual implementation and
configuration of the Hyperion and Costpoint systems.



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MARKET ANALYSIS
Server virtualization seems to be the trend across industries for IT departments. Private
companies, Universities and Government agencies are using the technology to improve their IT
operations. The ROI is simply irresistible. Total Cost of Ownership varies, depending on the
virtual-machines-to-physical-server ratios, up to 80 percent savings.
According to the Gartner Report, November 2003, Enterprises that do not leverage
virtualization technologies will spend 25% more annually for hardware, software, labor, and
space for x86-based servers". (Improving TCO with VMWare)
The Gartner Report, December 2004, reports that through 2007, organizations with more
than 200 servers will waste between $500,000 and $720,000 annually supporting underutilized
application/server combinations. (Improving TCO with VMWare)
The following graph summarizes the trend in x86 server purchases in the US: (Improving
TCO with VMWare)
Figure 1
Annual x86 Server Purchases

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TECHNOLOGY BEHIND THE SOLUTION
What is Virtualization?
x86 computer hardware was originally designed to run only a single operating system and
a single application, but virtualization makes it possible to run multiple operating systems and
multiple applications on the same computer at the same time, increasing the utilization and
flexibility of hardware. (Virtualization)
How Does Virtualization Work?
VMWare Infrastructure software allows you to transform the hardware resources of an
x86-based computer, including the CPU, RAM, hard disk and network controller, into software-
based components that create a fully functional virtual machine that can run its own operating
system and applications just like a real computer.
Multiple virtual machines share hardware resources without interfering with each other
so that you can safely run several operating systems and applications at the same time on a single
computer. (Virtualization)
The VMware Approach to Virtualization
VMware inserts a thin layer of software directly on the computer hardware or on a host
operating system. This software layer creates virtual machines and contains a virtual machine
monitor or hypervisor (ESX Server) that allocates hardware resources dynamically and
transparently so that multiple operating systems can run concurrently on a single physical
computer without even knowing it. (Virtualization)
Figure 2 depicts the VMWare approach to virtualization (Improving TCO with
VMWare):

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Figure 2
VMWare approach to virtualization


What is a Virtual Machine?
A virtual machine is a tightly isolated software container that can run its own operating
system and applications as if it were a physical computer. A virtual machine behaves exactly
like a physical computer and contains it own virtual (ie, software-based) CPU, RAM hard disk
and network interface card (NIC). (Virtual Machine)
An operating system cannot tell the difference between a virtual machine and a physical
machine, nor can applications or other computers on a network. Even the virtual machine thinks
it is a real computer. Virtual machines offer a number of distinct advantages over physical
hardware.


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SWOT ANALYSIS
Strengths
Compatibility/Adaptability One of virtualizations major strengths is the adaptability on
a variety of platforms. Virtual machines are compatible with all x86 computers and can host
their own operating systems and applications. The same physical components found in physical
computers are also found in Virtual Machines. For example; motherboards, VGA cards, network
cards, etc.
Isolation As if physically separated Virtual Machines are isolated from each other. The
availability and security of applications in a virtual environment are superior to traditional
environments due to Isolation.
Encapsulation Virtual Machines create a complete computing environment by including
a complete set of virtual hardware resources inside a software package. Encapsulation makes
Virtual Machines portable and easy to manage.
Hardware Independence Different kinds of operating systems can run on the same
server and run independently as a regular computer. This gives you the freedom to move a
virtual machine from one x86 computer to another. You can also move a virtual machine from
one physical server to another without any downtime, which is also referred to as live migration.
VMware refers to this ability as VMotion.
Server Consolidation and Infrastructure Optimization - Virtualization makes it possible to
achieve significantly higher resource utilization by pooling common infrastructure resources and
breaking the legacy one application to one server model.
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Physical Infrastructure Cost Reduction - With virtualization, you can reduce the number
of servers and related IT hardware in the data center. This leads to reductions in real estate,
power and cooling requirements, resulting in significantly lower IT costs.
Improved Operational Flexibility & Responsiveness - Virtualization offers a new way of
managing IT infrastructure and can help IT administrators spend less time on repetitive tasks
such as provisioning, configuration, monitoring and maintenance.
Increased Application Availability & Improved Business Continuity - Eliminate planned
downtime and recover quickly from unplanned outages with the ability to securely backup and
migrate the entire virtual environment with no interruption in service.
Improved Desktop Manageability & Security - Deploy, manage and monitor secure
desktop environments that end users can access locally or remotely, with or without a network
connection, on almost any standard desktop, laptop or tablet PC.
Leader in the Virtual Industry VMware leads the virtual industry and is ahead of its
largest competitor by eighteen months allowing them to set the industry standard. Customization
can occur gradually at the IT managers own pace allowing customers to implement the
technology in increments.
The following table summarizes the advantages of the Virtual Infrastructure approach:
(Improving TCO with VMWare)


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Table 1
Traditional Approach vs. Virtual Infrastructure Approach
Key Task Traditional Approach Virtual Infrastructure Approach
Provision a new server 3-14 days hardware
procurement
1-4 hours provisioning new
server
5-10 minutes provisioning a
new Virtual Machine
Moving an application
to a new server;
Repurposing a server
4-6 hours for migration
Service interrupted for duration
of maintenance window
Requires days/weeks of change
management preparation
2-5 minutes for live
migration using VMotion
TM
(no
service interruption)
10-30 minutes for cold
migration
Hardware maintenance Requires 1-3 hour maintenance
window
Requires days/weeks of change
management preparation
Near zero downtime
hardware upgrades with
VMotion
TM


Weaknesses
Cost The amount of memory needed to run VMware is larger and more expensive. One
GB of memory is required and more is recommended. Also, a workstation license fee is charged
per workstation which increases cost to the using company. More complexity in the traditional
environment creates a more expensive virtual environment to manage.
Perception A company thinking that a physical server has more capabilities than a
virtual server. If virtualization is not more efficient then there is no reason to use it.
Resistance - Employee resistance to the architecture change of their familiar IT
organization. Also, server administrators will have to learn much more about storage and
networks than required before.
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Political Reasons - An internal customer may decide to go with a competitor due to brand
loyalty or current operating system usage. For example; some companies run only in a pure
Microsoft environment.
Amount of Support - VMWare 3.0 can only support up to 4 CPUs per virtual machine.
This needs to be taken into consideration for applications that explicitly require more processing
power for multithreading support. These types of applications should not be deployed on a
virtual environment.
Opportunities
Movement Virtualization moving from leading edge to mainstream is creating a
growing market for companies who realize the flexibility and low overhead of virtual
environments.
Independent Software Vendors (ISV) ISVs can save development time and resources
and avoid compatibility issues. Also, they can help reach a larger customer base that would be
out of price range for smaller businesses.
Group 1 Consulting Services Great business opportunity for our consultation company
to increase our customer base and recognition in the industry. Opportunity for Group 1
Consulting Services to increase the overall availability of XYZ Inc.s IT environment, by
offering them the chance to create their own customized application or service. Show them a
way to utilize what they already have and are paying for more effectively.

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Threats
Security Breaches Hacking is the largest threat, however, has not happened. Security
issues with corporate data could diminish the virtualization software market.
Competition The number of companies that are planning on entering the virtualization
market in the near future is growing rapidly. VMware is the leader in the industry but, they must
continue to offer the latest in virtual technology.
STAFFING PROFILE
Group 1 Consulting Services staffing profile opened and accepted on 12-01-2008. The
purpose of Group 1 Consulting Services is to prepare XYZ Inc. for data center growth. Our Goal
is to make XYZ, Inc. more effective and efficient. Our responsibility to XYZ, Inc. is to propose
a solution to infrastructure limitations while enhancing the ROI for XYZ, Inc. XYZ Inc.s
responsibility to Group 1 Consulting Services is to provide feedback from virtualization results
and fulfill contract obligations. One week of training is required for two of XYZ Inc.s IT
management employees. The cost of the training is $5,000 per employee (Buenavista, 2008;
Rizzuto, 2008). Three-hundred and twenty hours of in-house consultation is required for the
phase one migration of 183 development servers and phase two for provisioning 130 new virtual
machines for the Hyperion and Costpoint efforts (Richardson, 2008). A XYZ, Inc. trained FTE
will shadow the consultant on these phases. After the consultant has completed the contracted
tasks, the second trained FTE will shadow in the remaining tasks (Buenavista, 2008; Rizzuto,
2008).
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FEASABILITY ANALYSIS
Technical Considerations
Group1 Consulting Services has met with ORACLE and DELTEK, the vendors of
Hyperion and Costpoint respectively, and they have determined the applications to be
implemented do not require more than 4 CPUs per server. The current version of VMWare
supports up to 4 CPUs per virtual machine. Also, the 674 physical servers to be virtualized have
no more than 4 CPUs. This makes it a perfect fit for VMWare Server Virtualization.
Financial Analysis
The lease for the 674 identified servers expires on May 2009. (Magahis, 2008) The
following table demonstrates that investing $3.2 Million in the Virtualization project produces
annual savings of $2.1 Million, making it an attractive project for XYZ, Inc. (Buenavista, 2008;
Rizzuto, 2008)
Table 2
Cost analysis of VMWare solution for XYZ, Inc.
Investment for VMWare Solution
Quantity Description Cost Total
80 Dell PE6850 servers/hosts (3-year lease) 35,000 2,800,000
80 VMware ESX license per host 5,232 418,560
320 hours of consulting 100 32,000
2 Training 2 FTE 5,000 10,000
Total Investment for VMWare Solution 3,260,560
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SCHEDULE
Five months are required for the implementation: Start Date: 12/1/2008 End Date:
4/30/2008. (Buenavista, 2008) The work will be performed in a phased approach. The new 80
Dell PE6850 servers cannot be powered at the same time due to power limitations in the Data
Center. (Buenavista, 2008; Richardson, 2008) Only 20 servers will be powered on initially to
allow the conversion or migration of the existing 183 Development servers into virtual machines.
VMWare provides utilities to enable the P2V (Physical-to-Virtual) migration process. A typical
P2V migration takes 1 minute per GB. (Buenavista, 2008) After this initial phase, the original
183 physical servers in Development will be decommissioned and the remaining 60 Dell PE6850
servers will be powered on to allow the completion of the remaining virtualization tasks, as
described in the following schedule:
Lease Costs of Physical Server Solution
Number
of Servers
Description Cost Total
183 Dev Server leases (3-year lease) 12,000 2,196,000
154 QA Server leases (3-year lease) 12,000 1,848,000
337 Prod and DMZ Server leases (3-year lease) 12,000 4,044,000
130 New Servers for Hyperion and Deltek 12,000 1,560,000
Total Lease Cost (804 servers) 9,648,000

Hardware Savings from Virtualization Solution 6,387,440
Annual Savings 6,387,440 / 3 (3-year lease) = 2,129,147
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Table 3
Implementation Schedule at XYZ, Inc.
# Activity Dec 08 Jan 09 Feb 09 Mar 09 Apr 09
1 Procure 80 Dell PE6850 20 days
2 Training 2 FTEs on VMWare ESX
technology
5 days
3 Power on and install ESX software
on first 20 hosts
5 days
4 Virtualize 183 Dev Servers 15 days
5 Power off and return 183 Dev
Physical Servers
5 days
6 Power on and Install ESX Software
on 60 remaining servers
20 days
7 Provision 130 new VMs 10 days
8
Milestone: Turn 130 servers to
Hyperion and Costpoint
implementation teams
0 days
9 Virtualize 154 QA Servers 10 days
10 Power off and return 154 QA
Physical Servers
5 days
11 Virtualize 270 Prod and 67 DMZ
Servers
20 days
12 Power off and return 270 Production
and 67 DMZ Servers
10 days
13 Milestone: Virtualized 674 servers 0 days

Legend
x days Activity can be started in parallel

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COST
The solution requires to implement 80 VMWare ESX servers and to work with a
VMWare consultant for 320 hours at a $100 rate. Two FTEs will cross train with the consultant
and be completely responsible for virtualizing the QA and Production servers. Total cost of
implementation = $3,260,560
Time-Phased Budget
XYZ Inc. is already paying for Systems Engineers (FTEs) to support their current
Physical Server infrastructure. Two existing FTEs will be trained in VMWare technology and
they will continue supporting same set of servers. For purposes of the budget analysis, the cost
of these two FTEs are displayed but not added to the total budget, as it is not an additional
expense introduced by the virtualization project.
The time-phased budget for the VMWare server virtualization project is included in the
following table:
Table 4
Time-Phased Budget for XYZ, Inc.
# Activity Dec 08 Jan 09 Feb 09 Mar 09 Apr 09
1 Procure 80 Dell PE6850 3,218,560
2 Training 2 FTEs on VMWare ESX
technology
10,000
3 Power on and install ESX software
on first 20 hosts
4,000
4 Virtualize 183 Dev Servers 12,000
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5 Power off and return 183 Dev
Physical Servers
2,000
6
Power on and Install ESX Software
on 60 remaining servers
8,000 +
4,000

7
Provision 130 new VMs 8,000 +
4,000

8
Milestone: Turn 130 servers to
Hyperion and Costpoint
implementation teams
0
9 Virtualize 154 QA Servers 4,000
10 Power off and return 154 QA
Physical Servers
2,000
11 Virtualize 270 Prod and 67 DMZ
Servers
12,800
12 Power off and return 270 Production
and 67 DMZ Servers
4,000
13 Milestone: Virtualized 674 servers 0
Totals 3,228,560 16,000 8,000 8,000 0


Legend
9,999 Activity performed by consultant
9,999 Activity performed by employee

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PROJECTED SAVINGS
VMWare is a proven technology and customers worldwide on average have experienced
Total Cost of Ownership (TCO) cost savings up to 70% as depicted in Figure 3: (Improving TCO
with VMWare)

Figure 3
Total Cost of Ownership reduction


The projected savings of the virtualization effort at XYZ, Inc. are as follows:
$2.1 million
Projected annual savings from reduced hardware server lease costs
136 kilowatts (kW)
Virtual servers will use 75 percent less power than equivalent separate physical servers,
saving $150k annually (current Data Center total power use is 273 kW)
33 racks
Total number of data center racks needed is 12 instead of 45

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3,162 cables
Overall number of server cables is reduced which mean less complexity, cost, and
maintenance
716 hours
Time to provision a new server is reduced from six weeks to four hours

CONCLUSION
By implementing Group1 Consulting Services virtualization solution, XYZ, Inc. will be
able to meet its infrastructure requirements and work around the Data Center space and power
limitations. Thus, improving the overall operations of XYZ Inc.s Corporate IT. XYZ, Inc. is
preparing for the future! Total Cost of Ownership (TCO) will be drastically reduced: Downtime,
IT Operations, Software and Hardware costs will be reduced with the VMWare Virtual
Insfrastructure implementation.
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REFERENCES
Buenavista, H. (2008, December 5). Systems Engineer - SAIC Release Services . (E. Mendiola,
Interviewer)
Communities. (n.d.). Retrieved from VMWare communities:
http://communities.vmware.com/index.jspa
Creeger, M. (2008, November). CTO Roundtable on Virtualization. Communication of the ACM
, p. Vol. 51 No. 11.
Improving TCO with VMWare. (n.d.). Retrieved from VMWare:
http://www.decision.ie/_fileupload/Image/Improving%20Cost%20of%20Ownership%20
and%20Return%20on%20Investment%20with%20VMware%20Virtual%20Infrastructur
e.pdf
Krajewski, L., Ritzman, L., & Malhotra, M. (2007). Operations Management: Processes and
Value Chain. Prentice Hall.
Mahagis, E. (2008, December 5). Systems Specialist - SAIC Release Services. (E. Mendiola,
Interviewer)
PS Series. (n.d.). Retrieved from DELL Equallogic: http://www.equallogic.com/
Rizzuto, J. (2008, December 5). Systems Engineer - SAIC Release Services. (E. Mendiola,
Interviewer)
Richardson, T. (2008, December 05). SAIC Systems Engineer - SAIC Hyperion/Deltek
Implementation (formerly VMware consultant). (E. Mendiola, Interviewer)
SWOT Analysis. (2008, January 10). Bakers Half Dozen Gazette .
Virtual Machine. (n.d.). Retrieved from VMWare: http://www.vmware.com/technology/virtual-
machine.html
Virtualization. (n.d.). Retrieved from VMWare: http://www.vmware.com/virtualization/
Virtualization Blog. (n.d.). Retrieved from VirtualLifestyle: http://www.virtuallifestyle.nl/