How Virtualization affects IT Costs Chargeback strategies

For those companies that have chosen to chargeback their IT costs to final users (departments, companies, etc), the usage of virtualized environments is challenging the chargeback strategies they have traditionally adopted.

Why is virtualization changing the recommended strategies for Chargeback?

The improved utilization of physical resources reached through virtualization needs to be reflected by cost Accounting and Chargeback. Let’s summarize it like that:

• the physical resource  has a known cost (Total Cost of Ownership, TCO);
• the number of virtual resources that can be provided by this physical resource is varying;
• thus the number of final users that should be charged for the cost of the physical resource can vary accordingly to the virtual environment configuration.

As the most distinctive feature of virtualized environment is to optimize the provisioning of IT resources, this means that different virtual machines use a different part of the physical resources and then should have a different cost. That’s why, in our experience, an effective approach to provide a fair enough chargeback of IT costs to final users, when using virtualized environments, is to take into account resources consumption, using what literature defines as a “Measured Resource Usage” (MRU) strategy.

As the name suggests, with MRU strategy, costs are charged back according to the usage of IT resources that are responsible of generating the costs themselves. This strategy, tipically used for resources like storage and virtualized infrastructure, is definitely fair, but needs to be supported by tools measuring the resouce usage and, being based on actual data, has a lower level of predictability.

How can IT managers effectively charge back IT costs for virtualized environment?

Resource consumption measurement is provided by many different monitoring tools that are currently available. CPU and Memory are the main indicators. The estimation of CPU and Memory consumption cost allows to account effectively IT costs for virtualized environments and to perform a fair enough chargeback of IT cost to final users. The ability to integrate consumption data into the definition of cost rates is definitely a plus for tools dedicated to Accounting and Chargeback.

What are your experiences in the Accounting and Chargeback of virtualized environments? Which were the factors that drove your choice among the different Chargeback strategies? Was virtualization one of them? Thank you in advance for sharing.