Analysis 1: Renown Server Virtualization

For this analysis, you are to evaluate a proposal for Renown Medical Center to optimize their data center by virtualizing their existing servers. Use the following facts to conduct a break-even analysis of the virtualization technology assuming that all of the virtualizations takes place in 2018.

Costs

It is estimated that virtualization will reduce the number of servers required in Renownsdata center by a ratio of 4 to 1. That means for every 4 physical servers running applications the virtualization process will enable just 1 physical server to run the same set of applications.

Renown currently has 80 physical servers in their data center.

In 2018 virtualization software will be installed on each of the physical servers that are to be

retained for virtualization. The licensing cost of the virtualization software is $7,200 per server per year.

The virtualization software provider will also software services for Renowns data center at a cost of $20,000 per year.

In 2018 there will be a onetime cost of $50,000 to train Renowns IT staff on the virtualization software.

Benefits

The reduction in servers due to virtualization is expected to save Renown $800 per server in maintenance costs, each year, for each of the servers that will no longer be required.

The reduction in servers from the virtualization process is also expected to save Renown $700 per server in electricity and cooling costs each year, for each of the servers that will no longer be required.

Physical servers have a limited life expectancy and must eventually be replaced. Therefore, by not having to replace as many servers each year, the cost of the replacements that are no longer required will become a benefit for Renown. Servers have a four years life expectancy and Renown replaces 25% of their servers each year. The hardware cost to

replace each physical server is $5,200. Due to virtualization, Renown will save on the replacement cost for the servers that became redundant due to virtualization.

Renown will also save on the labor cost to procure and deploy each physical server they would not need to replace. This amounts to $900 per server that does not require replacement.

Calculations

The break-even analysis will cover a 4 year period from 2018-2021. For each year:

Calculate the system costs.

Calculate the system benefits.

Calculate the net benefits of the system.

Calculate the break-even total for the system.

For the total time period:

Calculate the net present value (NPV) of the investment using a rate of 10%.

Calculate the internal rate of return (IRR).

At the bottom of your spreadsheet add the two questions below and include your answer to them:

In what year will Renown break even on this project?

Based on their required rate of return of 10%, should Renown go forward with this project?

Analysis 1 Part B

Many organizations build/maintain duplicates of their data centers for backup as a part of their disaster recovery plans (DRPs). This requires them to purchase and maintain a larger number of servers that mostly remain idle. As a result of virtualization, Renown can implement a disaster recovery plan for its critical applications with fewer servers. If Renown was maintaining an exact duplicate of their data center, how would the cost-benefit analysis change?

Create a new Worksheet Tab in the same Excel file by copying the existing worksheet. Rename the copy Renown-DRP.

Change the number of original physical servers to account for duplicates for the DRP. The cost of the software services that was earlier $20,000, will double in this analysis.

Since employees will not need additional training for additional servers, the annual training cost will not change.

You will note that the number of servers after virtualization, and the number of servers that will not be needing replacement, will change automatically. Similarly, the cost and benefit numbers that are based upon the number of servers, should change automatically.