BlogASG Economics – Server Virtualization TCO Example

Companies not taking advantage of virtualization infrastructures are increasing the likelihood of unplanned downtime for business applications, not to mention spending more than necessary. As a result, virtualization technology has become a common practice in today’s data centers for managing IT assets efficiently.

However, there are still struggles when it comes to determining total cost of ownership (TCO) and establishing effective policies. While virtualization can take many forms, we recently performed a five-year TCO analysis on refreshing or replacing 400 existing physical servers versus virtualizing, consolidating, and migrating those servers to 24 blade servers running VMware. According to our calculations, the payback timeline for the virtualization option was just 10 months!


In this scenario, we assumed a 5% annual growth in server counts, estimated a 17 to 1 average consolidation ratio, and included 5 years of prepaid hardware and software support.

Here are the other assumptions we used in our model:

  • Average cost per kWatt hour = $0.13
  • Average IT staff time required to provision a physical server = 10 hours
  • Average IT staff time required to provision a virtual server = 2 hours
  • Average number of physical severs managed by 1 administrator = 45
  • Average number of virtual severs managed by 1 administrator = 76
  • Average server admin annual salary = $85,000
  • Average annual salary increase = 3%
  • Average power consumption as percentage of nameplate watts = 67%
  • Virtual host server power consumption uplift = 15%

We estimated the following cost categories in this analysis:

  • Server and storage acquisition/support costs
  • Virtualization and OS software acquisition/support costs
  • Power and cooling costs
  • Server administration and provisioning labor costs

We didn’t quantify other potential benefits and cost advantages, such as:

  • Network and data center infrastructure costs
  • Data center rack space costs
  • Systems uptime improvements
  • Disaster recovery simplification
  • Other benefits of advanced virtualization software features
  • Potential software licensing savings


About the Author

Bob Mauro

Bob Mauro, IT Economist

As an IT Economist for ASG, Bob works as a client advocate by developing business cases, building financial models, and creating customized tools to help customers evaluate return on investment (ROI) and other financial considerations. He also offers a broad base of experience in accounting, finance, and business analysis.