What is hiding in your datacenter? - IBM

June 2019

What is hiding in your datacenter? The impact of indirect costs in x86 and LinuxONE environments

What is hiding in your datacenter?

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IBM IT Economics Consulting & Research © 2019 IBM Corporation

Hidden IT costs Accounting for IT costs can seem straightforward but lurking behind the obvious costs can be hidden costs that often aren’t properly quantified. Most teams consider IT costs to be servers, storage, software licenses and maintenance. However, a significant proportion of IT costs are committed to infrastructure support. These are often overlooked when considering the cost of new applications or the impact of changing application platforms. Separating costs into direct and indirect costs is a helpful approach for estimating the true impact on total IT costs for new applications and platform changes. Direct costs and indirect costs IT costs can be separated into two categories: direct costs and indirect costs. Direct costs are the obvious costs and are easily identified and quantified: • Servers and server maintenance • Software licenses and associated maintenance • Storage and storage maintenance Indirect costs typically span multiple departments and are part of the supporting infrastructure of IT. Indirect costs typically include: • Networking (including network hardware, directory and address management, network software and

operations) • Operations and Monitoring (problem management,

incidence management) • Security (hardware, software, and people) • Physical Infrastructure management (inventory,

purchasing, life-cycle management, racking/stacking, Uninterruptable Power, Generation, Power, and cooling)

• Software license management (entitlements, renewals, auditing, reporting)

Client IT assessments by the IT Economics team show that indirect costs have made up 40% to 50% of total costs in those IT organizations in industries that we studied (government, finance, insurance, and banking). IBM IT Economics assessments also show that there were significant differences in these costs between platforms and computing methods for those customers.1

1 Differences between centralized server and distributed server direct and indirect costs are based on client cost data from client IT environments participating in IBM IT Economics assessments. Studies involving review of IT budget direct and indirect costs were for enterprises in different industries (government agencies, banking, insurance, retail) and geographies (primarily North America and Asia Pacific) found that indirect costs comprised 40% to 50% of total IT costs. These studies also found that indirect costs associated with distributed server environments were consistently higher than indirect costs associated with mainframe environments. To determine these findings, IT Economics consultants met on-site with clients to examine their IT operations and costs for both mainframe and distributed workloads and their overall infrastructure. The studies analyzed workload activity and costs for both distributed and mainframe environments to provide a summary of IT expense by cost category across the different environments. For additional information on direct and indirect IT costs, contact the IBM IT Economics Team at [email protected] .

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Indirect costs differ between IBM LinuxONE™ and compared distributed environments LinuxONE design and use of a centralized platform topology can simplify several of the areas listed above (namely networking, security, physical infrastructure management, and software license management) and can reduce indirect costs associated with them. How? Let’s look at each in detail: • Networking – Instead of requiring multiple servers with a supporting network topology, networks and

network connections between virtual machines can be provided internally within the LinuxONE server. • Security – Centralized and proven security management uses hardware assisted encryption and key

management technology with the ability to encrypt 100% of application data at rest or in flight2 • Physical Infrastructure Management – A LinuxONE server is designed to host 100’s of virtual

machines in a single physical server that on other platforms could require many separate distributed virtualization hosts. Instead of needing the space, heat management, asset tracking, cabling, etc. required to house and connect many physical servers , more of these virtual machines can be hosted in a single physical LinuxONE server reducing the total number of physical servers needed.

• Software License Management – LinuxONE can reduce physical cores required for hosting virtual

machines by as much as 20-to-13. Managing and tracking physical cores in a LinuxONE environment simplifies the task of tracking and accounting for usage of licensed software.

The self-contained nature of a centralized server like LinuxONE means, by definition, that the “built-in” nature of the platform captures these capabilities within the platform rather than relying on external capabilities between platforms. This is a fundamental difference between a centralized approach and a distributed approach. How indirect costs impact data center budgets To illustrate how indirect costs impact data center budgets, let’s define three cases to show the potential benefits of a centralized approach for lower overall cost using a conservative case, a moderate case, and an aggressive case. The conservative case assumes a 70/30 direct-indirect ratio for LinuxONE and a 60/40 direct-indirect ratio for a distributed system. The moderate case assumes a 75/25 direct-indirect ratio for LinuxONE and a 60/40 direct-indirect ratio for a distributed system. The third case, the aggressive case, assumes a 75/25 direct-indirect ratio for LinuxONE and a 50/50 direct-indirect ratio for a distributed environment. In order to simplify the comparison, we assume equal direct costs for all cases. We can see in the following chart that even when direct costs are equivalent, there are significant differences in the indirect costs for each of the cases. For the aggressive, or high indirect/direct cost ratio case, the cost of indirect distributed cost is almost 3x the cost of indirect LinuxONE cost, representing 27% of the total budget. For the conservative case, indirect distributed costs are

2 IBM Journal of Research and Development, Vol 62 No 2/3 Paper 2 March/May 2018

3This comparison is based on 5.2GHz processors in IBM LinuxONE servers and Intel Xeon E7-4870 Deca Core 2.4 GHz processors in x86 servers. The TCO estimates were made using tools from the IBM IT Economics team. (See additional disclaimer below.) The TCO numbers included estimated costs for hardware, system software, application software, administration, networking, floor space, energy, and migration or services costs. Findings are derived from actual customer studies by selecting a representative sample of virtualized x86 servers in their environment and comparing measured utilization of resources and calculating required resources in a LinuxONE environment.


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100% 100% 100% 100% 100% 100%

100%

33.3%

66.7%

33.3%

66.7%42.9%

Distributed Centralized Distributed Centralized Distributed Centralized

Aggressive Moderate Conservative

Comparison of Indirect Costs Given Equal Direct Costs

Indirect Expense

Direct Expense

considerably lower yet still represent 19% of total budget compared to LinuxONE indirect cost of 12.5%.1 IT data centers that consolidate workloads onto centralized topologies are positioned to mitigate the cost of IT. Given that LinuxONE can reduce indirect costs compared to other distributed platforms, we can see that growth can also be more advantageous on LinuxONE. As direct costs grow they can drive additional indirect costs. So, for enterprises with yearly growth, LinuxONE can provide a more cost-efficient scaling model to enable operations growth with lower additional indirect costs. Issues for IT Management It is crucial to account for indirect costs when evaluating platform expenses and projecting costs for new applications. Looking only at the direct platform costs of a distributed environment without considering the indirect cost elements necessary to support that environment can lead to a serious underestimate of the total costs required when planning for new applications or platform changes. IT Economics assessments show that direct/indirect cost proportions were remarkably stable when looking at both small and large IT operations for our clients. In other words, indirect costs grow proportionally with direct costs. What is the takeaway for IT accounting? Indirect costs are an important consideration and are likely to grow with new applications and may increase with re-platforming decisions. In addition, a failure to consider indirect costs can result in misleading comparisons between platforms, leading to missed opportunities to identify savings. When comparing costs, be sure to apply indirect cost assessments.


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Finally, be careful when budgeting and assessing chargebacks by platforms. “Spreading” indirect costs equally among platforms can create a false impression of total platform costs. Interested in knowing more? The IBM IT Economics team can help you understand IT costs by providing a no-charge assessment of your organization’s types of costs and cost allocations. For more information on IT cost analysis contact the IBM IT Economics Team. About the author

Roger Rogers is an IBM Executive IT Economics Consultant for the IBM IT Economics team and works with clients worldwide to optimize their IT operations. He has more than 35 years of experience in product development, management, and strategy. During his tenure at IBM Roger has received two IBM Outstanding Technical Achievement awards and has been recognized in IBM’s Top 500 IBM Employees list. He is also a frequent speaker at IBM conferences and customer briefings to share technical and financial insights on the latest IT solutions. For more information contact the IBM IT Economics team.

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