IRS saved millions by virtualizing servers, IG says

Successfully virtualizing some of its servers helped the Internal Revenue Service save $10.2 million in equipment costs over two years, according to a new report from the agency’s watchdog.

An additional $1.3 million in annual savings is expected to accrue starting in fiscal 2013, as a result of reduced electricity needs, stated the May 7 report from the Treasury Inspector General for Tax Administration.

There also is potential for another $7.7 million in savings to be generated over the next five years if the IRS virtualizes all its servers, and the report recommended that the IRS do so.

Server virtualization is a technology that allows a several “virtual” servers to run on one physical host. The technology is said to improve hardware utilization, save on electricity, and reduce server replacement costs.

The IRS worked with contractors to develop the consolidation and server virtualization program, with installation beginning in 2009.

By October 2011, the project team had established a virtual server environment, with approximately 1,800 virtual servers running on 234 physical host servers at 13 data centers. Another 1,500 servers are expected to be virtualized by the end of fiscal 2012.

The conversion of physical servers to virtual servers helps reduce energy and server replacement costs and improve operational efficiency, the inspector general wrote in the report. It's also resulted in millions of dollars in savings as power use has dropped and the cost for the necessary hardware has fallen.

The virtualized servers help lower operational costs through standardization, by making it easier to load or remove a server from the operating environment, the report said. The virtual servers also reduce hardware downtime, provide automatic load balancing and allows for movement of data before a system failure. The IRS has realized those data loss prevention benefits on two separate occasions since the virtualization, the report added.

While the IRS completed its virtualization program on time and within budget, it currently has no plans to virtualize additional servers. The agency said there are about 650 servers in field locations that could be decommissioned and made virtual.

The inspector general is recommending that the IRS take advantage of full virtualization.

"By virtualizing these remaining servers, the IRS could realize additional savings of approximately $7.73 million," J. Russell George, Treasury inspector general for tax administration, said in a statement. "Aside from the cost savings to taxpayers, these actions could help the IRS meet Federal Data Center Consolidation Initiative goals," he added.

The IG recommended that the IRS’ Chief Technology Officer identify servers currently located in field offices that could be virtualized, and create a plan to virtualize those servers. IRS management agreed to both recommendations.