Server virtualisation is supposed to save buckets of cash, largely from server reduction. After all, consolidating some 20 physical servers to three host servers means less hardware, power and cooling, and management overhead: right?

But wait! The maths is much trickier than that - and unless you're a large business, there's a good chance it'll cost you more than you save, at least from the outset. "Probably 50 percent of the small- and medium- business virtualisation implementations I see are not cheaper than simply replacing the physical servers already there," says Matt Prigge, a virtualisation consultant .

Let's do the maths. If you buy 20 spanking-new servers at $5,000 to grow your data centre or replace your current boxes the traditional way, that's a $100,000 outlay. Server virtualisation's cost equivalent: three powerful host servers with hardware memory chips from the likes of AMD or Intel at $16,000 each; a SAN at $40,000; and assorted costs in staff training, management software, virtualisation licences, and consultants. That'll all run about $100,000 as well. (Operating systems and apps aren't included, but their costs are the same for either approach.)

Shared storage investments and new Intel or AMD servers, along with redundant network connectivity upgrades, constitute the lion's share of the cost of virtualisation. Software licences from vendors such as EMC VMware, Microsoft, and Citrix - though several thousand dollars per host server - pale in comparison with these infrastructure costs, though you do have to factor in ongoing maintenance costs.

What all this means is that if you're building a 20-server datacentre from scratch, or adding to or replacing one, then the cost of going with physical servers or virtual ones is roughly equal. But given the many benefits of server virtualisation - notably business continuity gains - the virtualisation route is a wise choice.

If you're setting up more than 20 servers, the case for virtualisation gets easier. "Server virtualisation is an absolute no-brainer for organisations with 50 or more servers," says Chris Wolf, an analyst at the Burton Group. "In such environments, an 8- to 18-month ROI is easily achievable."

Conversely, virtualising most environments with fewer than 20 servers will cost you more than it's worth. A SAN is overkill for most small shops, in terms of sticker price and capability, says Prigge, who wrote a "virtual" virtualisation case study detailing everything from pricing and products to technical and skills requirements. You'll need another reason than strict cost to justify going the virtual route if you have fewer than 20 servers.

Server virtualisation costs in the real world
Of course, these figures assume that you are starting from scratch. But hardly anyone is starting from scratch nowadays. So what's the cost and ROI to virtualise an existing data centre?

If you have a 20-server data centre with a 2- to 3-year server refresh cycle and upgrade the existing physical servers with new physical servers, you're buying 8 physical servers every year at a total cost of $40,000. Virtualising all your servers instead costs $100,000, taking 2.5 years to recoup the initial virtualisation investment - the same as your refresh cycle. "Of course, organisations don't want to see an ROI that equals their hardware refresh cycle," Wolf says.

If you don't have to invest in a new SAN, then the recoup time is just more than a year. Indeed, the single largest outlay for virtualisation is shared storage - a virtualisation requirement. If you don't have shared storage, you have to build an iSCSI SAN, a Fibre Channel SAN, or a network file system. You'll need to refresh your host servers every two or three years, but you can keep the other SAN hardware longer, so over time, your refresh costs per year will be lower in a virtualised environment than in a physical one; how much depends on a bunch of factors specific to your environment, but it's a safe bet that you won't refresh your SAN any sooner than every 5 years, and likely less often.

Less predictable cost
Even if the basic numbers tell you that virtualisation's ROI is neutral or positive, note that the actual cost of virtualisation varies greatly on the path you choose.

Costs that get short shrift in the financial forecasting process include software and hardware management. Because virtualisation changes the management scenario, you might need different lifecycle management tools. Many companies also upgrade to Windows Server 2003 or Windows Server 2008 Data centre edition when they virtualise, says Burton's Wolf. "That has to creep into the equation."

Also, you'll likely need to bring in a consultant to review the virtualisation architecture, no matter what size the deployment. And then there's the cost of actually migrating physical servers. Consulting and migration fees vary widely.

The good news is that a 20-server virtual environment probably won't need a special virtualisation staffer who commands at least $80,000 or even an additional sysadmin, after everything is up and running. virtualisation vendors understand that small and midsize businesses often employ a single admin who wears many hats, so they've made their tools as easy as possible to learn. "One admin could get up to speed on virtualisation," Wolf says. "Often, small organizations will develop their own talent there."

But the larger your virtualised environment, the more you will need such experts. You might recoup their costs by needing fewer server admins, but you might not. After all, you also have a SAN to manage.

Another cost that can be hard to estimate is virtualisation training, warns Prigge. The admin, for instance, will need to know how to reboot a virtual machine without restarting the whole host. "In some situations, the customer's inability to dedicate time to learn how to use a system suggests that sticking with physical servers with all of their limitations is actually a better course of action," he says.

Many but not all these costs can be inputted into good ROI calculators for server virtualisation from VMware and Microsoft. These calculators can bring some clarity to a potential investment. Moreover, their predictions are often on the money with the actual ROI, says Wolf.

Virtualisation's elusive ROI
If your reason to invest in virtualisation is just about the numbers, you may be disappointed - especially if you're a smaller business. Consultant Prigge figures that many smaller businesses that adopt virtualisation pay 10 to 15 percent more when all is said and done.

But this extra cost, he says, "is justified by the increased capability to recover from a hardware failure. If you're not paying attention to business continuity gains, of which server redundancy is just one, you're sort of missing the boat," says Prigge. After all, virtualisation's greatest benefit is flexibility and simplicity of business continuity for the entire datacentre - not merely reduction in server boxes.