AIX Tip of the Week: Server Consolidation Financial Justification

Audience: Finance, IT Managers, Systems Administrators

Date: August 6, 1999

Server consolidation is a major driving force in the IT industry. Server consolidation involves many considerations, including business needs, organizational boundaries, technical capabilities and financial benefits. This tip addresses the financial benefits, which can be estimated using the attached Excel spreadsheet. The spreadsheet was developed outside of IBM and is "server neutral." Some of the conclusions from using this tool using RS/6000 servers are:

• Benefits result from continued price/performance improvements of new servers
• Every situation is unique and must be considered individually.
  • Results are highly sensitive to the criteria used: floor space in Tokyo may dominate the analysis, but not in the Midwest
  • Generally, equipment older than 3-4 years can be automatically cost justified
  • Vendor pricing: differences in vendor pricing affects analysis (especially after purchase costs).
• Rules of thumb:
  • If you can consolidate five servers into to one, maintenance savings alone will pay for the new replacement server.
  • Administrator costs can be a major source of savings
• Intangibles, or hard to quantify benefits may justify the consolidation.
  • Reliability, quality, network traffic, service improvements.
  • If the financial ROI is close to your company's hurdle rate, the "intangibles" benefits will make the consolidation viable
• Financial paybacks can be huge
  • Spreadsheet example: the estimated ROI was 49% for consolidating five RS/6000 R30 servers into one H70 server.
• Broadening the scope will improve the payback
  • Include all platforms: Unix, NT, VMS, Novel

If consolidation is financially justifiable, the next step would be to address the organizational and technical considerations. Next weeks tip will cover some of the technology issues, and how a new function in AIX 4.3.3 facilitates consolidation.. (For a detailed server consolidation analysis, IBM uses an internally developed "ALIGN" methodology. Contact your local IBM representative for more information.)

Download server consolidation spreadsheet