06 Oct Hyperconvergence Economics: How It Impacts the IT Budget

Watch the video of Hyperconvergence explained here (Part 1) and here (Part 2) and here (Part 3)!

Hyperconverged infrastructure has the potential to transform more than just the data center. By unlocking staff time and other resources, hyperconvergence can help your organization transform IT from a “keeping the lights on” cost center to a top-line revenue driver.

Focus on the Business, Not the Tech

When the technology becomes too complex for IT to fully manage, or constantly requires the addition of new IT staff and skills, the focus shifts from the business to the infrastructure. In other words, people focus on building the infrastructure itself instead of enhacing what the infrastructure can do for the business. That can lead to a long-term problem and is one of the primary reasons that you’ll start seeing misalignment.

The goal for most organizations must be to reduce the amount of “technical overhead.” Just like other areas of the business, you reduce overhead to lower costs. You can do the same thing in IT with its own version of overhead. Reduction activities include simplifying administration, improving utilization of existing assets, and limiting the staff time spent on the care of feeding of the existing infrastructure.

The result is often reduced budgetary needs, and it can also mean that the company is better able to seize new business opportunities as they arise. That alone can have a dramatic positive impact on an organization’s finances and the perception of IT’s value to the business.

OpEx vs. CapEx

There are two kinds of expenses that you need to keep in mind when you consider data center economics:

Operational expenditures (OpEx) — OpEx generally aligns with the total cost of ownership (TCO) of a solution minus the initial costs. These are the ongoing expenses incurred when administering and maintaining what you’ve already purchased.

Capital expenditures (CapEx) — These align pretty closely with the initial cost of a solution and are often considered the one-time costs associated with a purchase.

Where Do the Savings Emerge?

This next question revolves around the actual source of savings. As you evaluate hyperconverged infrastructure solutions for yourself, these are some of the areas in which you’ll need to focus to properly calculate cost and expense differential between your traditional environment and the hyperconverged environment.

  • No need to separate workloads — By having the ability to consolidate workload silos into fewer or even just one silo, you can more easily increase overall utilization of what you’re running. This harkens back to the early days of server virtualization, which carried increased utilization as a key driver for adoption.
  • Coexistence with existing systems — Although this is not possible for all hyperconverged infrastructure solutions, the savings can be significant for those that can, in fact, coexist with existing infrastructure. In this scenario, you can more easily continue to use some existing systems (generally existing vSphere hosts) in conjunction with the new hyperconverged environment.
  • Reduction in electrical and cooling — If you eliminate a bunch of servers, a slew of hard drives, and the accompanying infrastructure (such as WAN accelerators and SSD caches) from your data center, you will massively reduce your electrical and cooling costs. Less equipment translates to less power. Fewer moving parts means less generated heat, which leads to lower cooling costs. Don’t discount these potential savings. They can be significant and are direct reductions on the operational side of the budget.
  • Reduced maintenance contracts — You probably have annual maintenance contracts on everything in your data center. What would be the impact if you had fewer such contracts because you no longer required those hardware or software components in your data center? The likely outcome is that you would be saving money in the operational budget. Hyperconverged infrastructure has the potential to transform IT operations, including the operational budget.
  • Redirected staff efforts — Less “tech” to manage means that the same or even fewer staff can manage it. There are fewer discrete skill sets needed in a hyperconverged infrastructure, meaning you can begin to redirect efforts toward goals that are more directly business-facing.
  • Training – Top-down management (workload) vs. bottom-up (component) means less training will be required. Consider an iPhone. The iPhone handily replaces several distinct devices.  But with the iPhone, there’s only one interface to learn vs. the component-level management of a GPS, music player, camera, video recorder, timepiece, etc.
  • Operational and capital expense improvements — You have seen a number of ways that the operational budget can be improved, but hyperconverged infrastructure can also have a dramatic impact on capital budgets. A lower cost of acquisition is just the beginning. You can also implement a “rolling upgrade” paradigm. This can even out many of the spikes and valleys inherent in many capital budgets and enable easier scaling which doesn’t rely on predetermined financial schedules.

Economic Drivers for Technology Acquisition

There are three primary metrics that decision makers seek to satisfy when embarking on technology investments:

  • Return on investment (ROI) — Any time you make an investment, you expect to see some kind of result from that investment. For example, if you buy stocks, you expect to see the stock price rise over time and eventually pay you back more than your initial investment. In the data center, an ROI can come in different forms. For example, you may be able to directly save money in another area by making a technology investment. Or, you may be able to save time on a process. In a business, saving time equates to saving money. The goal with ROI is to get back more than you put in. At the very least, your ROI should result in not moving backward.
  • Initial cost, or cost of acquisition — If you can’t afford the initial cash outlay for something, even the highest ROI and lowest total cost of ownership (TCO) won’t matter. That’s one of the reasons why the initial cost remains a top priority for many organizations.

Total cost of ownership (TCO) Everything you buy in the data center requires additional funding to maintain. This is beyond the initial cost of the solution. For example, for hardware and software alike, you generally have to pay annual maintenance fees. You may need to hire staff to maintain the solution. Additional staff costs money. You may incur installation charges or other fees. Everything that it takes to support a solution, including its initial cost, is considered the total cost that it takes to keep it, or the total cost of ownership.

Initial Investment Analysis

The initial investment in a solution is often one of the only financial elements considered by many organizations. That’s because it’s really important. They need to know how much a solution is going to cost right now. However, there are a ton of flaws inherent in this myopic model. First, you don’t get a good feel for what the TCO will be for the solution. Furthermore, many traditional procurement models aren’t even looking at what the business needs today. Instead, because of the way that most organizations have established budgets, they’re buying the solutions that they need three or even five years from today. In other words, you’re buying resources you’ll have to grow into, not what you actually need today.

Let’s examine this in more detail. In the Figure 1, you’ll see two lines. The flat line is the purchased resource capacity at the inception of the current replacement cycle. The sloping line is the actual resource need in the data center. The shaded area is a zero return on investment zone.

svt-13-a

Figure 1: Load vs. Purchased Capacity in a Traditional Data Center Infrastructure

For the first few years of this solution, there is massive waste in resource and budget. IT has to buy this way today because many data center solutions don’t easily lend themselves to incremental scale. Instead, IT staff have to attempt to project the data center’s needs for the next three to five years, and they won’t always get it right. This is not a knock on IT pros; after all, stock market gurus often fail to predict markets, too. It’s just the way things are based on the tools we have today.

Hyperconverged infrastructure solutions can help you break out of this cycle and more closely match data center resources with current business needs. By enabling granular and simple scaling, you can buy what you need today and, as the business grows, just add more nodes. Besides being technically simple, this also enables you to rethink the budgeting process. By not having to buy for needs that might be in place three to five years from now, you can focus on improving what the business needs today.

Your Financial Evaluation Criteria

As you consider implementation of hyperconverged infrastructure, Figure 2 shows a simple worksheet you can use to help determine which solution makes the most financial sense — a traditional approach or a hyperconverged infrastructure.

svt-13-b

Figure 2: Traditional vs. Hyperconverged Infrastructure Worksheet

Summary

You’ve learned how Hyperconvergence can impact IT budgets and has the potential to transform more than just the data center.



Scott D. Lowe, vExpert, MVP Hyper-V, MCSE
scott@actualtechmedia.com

Virtualization and storage expert Scott D. Lowe is a multi-year vExpert, MVP Hyper-V, frequent speaker for multiple organizations and Co-Founder of ActualTech Media. Scott has been in the IT field for over twenty years with ten of those years filling the CIO role for various organizations. Scott has authored several books and hundreds of whitepapers, research reports and the like throughout his career. Over the years, he has regularly contributed to such sites as TechRepublic, Wikibon, and VirtualizationSoftware.com and is currently the editor of EnterpriseStorageGuide.com

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