Virtualization'sImpactonBankingand

Finance:IsitaRealityYet?

Writer: Rully Feranata – Enterprise Architect Wholesale Banking - Bank Mandiri, Indonesia

Over many years, the IT function in financial institutions has evolved from a mere transactional tool into

a pervasive, integral element of virtually every aspect of doing business. This transformation has

constituted a fundamental, structural change in the financial services arena and has put IT performance

at the top of the CEO’s agenda at most banks and insurance companies.

Yet most institutions are facing a major IT problem: How to cope with growing complexity? This

complexity can stem from numerous sources, such as funding models that make it difficult to pursue

long-term, low ROI projects like IT application consolidation; short term business decisions whose

cumulative IT ramifications become problematic over time; old and inefficient legacy systems that are

never retired; numerous new applications that are incrementally patched in without sufficient regard to

their effect on the long term IT environment; and poor integration of IT systems following mergers and

acquisitions.

As it evolves, IT complexity causes severe problems for financial institutions and their customers alike.

For example, employees often see only a portion of any given process and are unable to get an

integrated picture of a customer’s current holdings or position on one screen. Staff must deal with

multiple applications that show inconsistent or incorrect data and must log on to numerous systems

every day. Customers in the other hand must deal with the staff inefficiency that result from disjointed

IT landscape and frequently must turn to multiple channels to resolve issues – often with different point

of access providing conflicting information.

Moreover, from a cost standpoint – IT Cost are growing faster than any other category for most financial

institutions. And between 60 and 80 percent of IT budget usually go toward maintenance, development

and testing, with about half of what remains being committed to wiring in new applications. Precious

little is left over for investment and renewal. Indeed, in a value creation sense – the cost of IT’s effect on

staff productivity and morale is greater than the cost of capital for most banks.

The problems stemming from IT complexity can often be solved by radically simplifying the IT landscape.

Such an initiative can also reduce overall IT costs by up to 30 percent and provide significant benefits in

terms of increased flexibility in implementing future changes to the IT environment. But how can banks

go about a comprehensive IT Streamlining?

There are many methods and steps to do it, but since I have already mentioned above on IT budget

mostly gone to development and testing through server virtualization and consolidation – this areas

that I would like to highlight and discussed more, other strategy for virtualization such as storage

virtualization, desktop virtualization, and other would be discussed separately.

Taking a stake – Earned Profit or Risk? Most banks are pursuing virtualization to varying degrees these days. But how far they should go with

these efforts, and how much of their infrastructure can be virtualized, are up for debate. Virtualization --

the process of running programs in virtual storage and creating virtual versions of hardware or operating

systems -- can help financial institutions reduce costs and improve services, but there are concerns

about the potential risks of too much virtualization and of virtualizing legacy applications. It's a

technology that banks must be vigilant in using, experts say.

Some expert may have comments like "Since virtualization technology is fairly mature, most banks

should be leveraging it in some capacity, Virtualization can be very beneficial from a financial

standpoint". Those benefits include speeding up time to market, reduced costs for IT resources, greater

agility and connectivity to run applications, accelerated service delivery and server consolidation.

You can set up low-cost environments, and for certain organizations being able to do things quickly

translate into a huge cost savings. It's a worthwhile thing to start to leverage.

There are, however, still some concerns about the implications of server virtualization - One issue is, it's

so easy to adopt that you can get server sprawl. It can create a bit of a mess if you aren't disciplined

about it, but that's true of anything regarding technology. But with virtualization you may need to be a

bit more vigilant.

Another limitation of virtualization has to do with the presence of legacy systems and older applications

that most banks possess. "You've got these old mainframe apps from the '80s churning in a back room,

and people touch them maybe once a year. You wouldn't put something like that in a virtual

environment," a response from one customer. "And there are some applications -- especially in top-tier

banks -- that require an extraordinarily high performance and use an extreme level of system resources.

In those environments, it can be very difficult to virtualize."

Still, we believe that by and large, virtualization is beneficial to banks. In fact, there are two "easy wins"

banks can pursue quickly with virtualization: development and test environments and disaster recovery.

Many third-party vendors will set up test sites in a virtual environment, but some said that for banks it's

also easy to set them up by yourself.

If you have a virtual environment, you can take a piece of hardware and put a development

environment up and mirror a production environment and save an extraordinary amount of money on

that alone.

“Banks realize the impact virtualization can have on operations, from the data center to the desktop,

and how it should be embraced as part of an enterprise wide infrastructure strategy,” said Rich

Feldmann, managing director of the U.S. Financial Services Group at Microsoft. “Virtualization helps

create the foundation for innovative banking applications and channels by producing an agile

infrastructure. While banks are known as early adopters of technology, this survey indicates that more

than one-third are still on the sidelines waiting for greater value and ease of use before adopting.”

The survey was conducted in February 2008 and includes responses from 100 technology decision-

makers in the United States and United Kingdom with IT management responsibilities over a region or at

the enterprise level for retail banks with assets of more than $25 billion. Key findings included these:

• Fifty-three percent of those implementing virtualization reported that it makes it easier to

centralize deployment and manage applications, and an equal number reported that it produces

cost savings — while 51 percent reported that virtualization makes it easier to respond to issues

such as failures of applications or systems.

• Saving space (46 percent), making it easier to provide security (46 percent) and saving energy

(34 percent) also ranked as significant drivers for the technology.

• Among those who are currently using virtualization, 95 percent use it in regional or national

headquarters, such as in data centers, while 53 percent use it within branch offices; nearly one-

third (32 percent) of those who are planning to use virtualization say they will definitely or

probably use it in branches.

• The most frequently mentioned type of branch where virtualization has been deployed is

community branches (82 percent), followed by premium or showcase branches (31 percent), co-

located branches such as those within stores (28 percent), and branches-in-a-box (13 percent),

such as mobile branches used on college campuses and for events.

The wide variety of virtualization reported in the survey may be a direct result of increasing market

pressure on banks to reduce costs, innovate and manage IT resources more centrally. For today’s major

retail bank, machine operating system virtualization is becoming a foundation for a dynamic and

responsive data center; application virtualization is changing how banks manage line-of-business

software applications; desktop virtualization is empowering workers by enabling them to run multiple

operating systems on a single desktop; and presentation virtualization allows bank employees to

seamlessly execute an application from a remote computer.

Business Drivers For years, bankers have been watching and waiting for the definitive direction of virtualization. Although

the technology isn’t new, there has been a delay in adoption for reasons ranging from an overall lack of

knowledge about the benefits, to banks fearing a shift in their day-to-day operations.

Today, virtualization technology is maturing and the tangible benefits are being realized – and the timing

couldn’t be better. In the recent uncertain economic environment, the industry-wide virtualization

initiative is generating immediate and ongoing operating efficiencies and cost savings for many banks

nationwide. And more and more banks are progressively plugging in.

Below are the top five reasons banks are implementing server virtualization:

• Get More out of Resources

With virtualization, banks can pool common infrastructure resources and break the legacy “one

application to one server” model with server consolidation. Virtualization can dramatically

reduce the number of physical servers and dynamically redistribute excess computing power to

where it is needed most. As the processing power of today’s servers continues to increase, it is

now easier than ever for one more powerful server to replace multiple smaller servers.

Reducing the number of physical servers also reduces ongoing energy requirements, making it a

more environmentally friendly way of doing business. This option is attractive to banks that are

adopting “green” business practices.

• Reduce Data Center Costs

Cost reduction is one of the primary reasons banks are increasingly taking advantage of

virtualization. Virtualization requires fewer servers and related IT hardware and can reduce real

estate, power, and cooling requirements. It also provides more efficient management tools,

which can enable banks to improve their server-to-admin ratio and even reduce personnel

requirements. And looking at the big picture, virtualization dramatically reduces the hassle and

costs associated with ongoing hardware maintenance.

• Enhance Availability and Security

Virtualization increases availability of hardware and applications, improving business continuity

and disaster recovery. It enables banks to securely backup and migrate entire virtual

environments with practically no interruption in their day-to-day operations. With virtualization,

banks can eliminate planned downtime and recover quickly from unplanned business

interruptions.

• Gain Operational Flexibility

Virtualization enables banks to respond to market changes with dynamic resource management,

faster server provisioning and improved desktop application deployment. Banks need to be able

to change software and add new products in a reasonable time frame. With a virtual server

infrastructure, they can do this without having to find new hardware, order it, and wait on

having it shipped to the bank. If you have the growth room in your setup you can configure and

test without having to wait for equipment.

• Improved Desktop Management and Security

Virtualization provides environments that users can access locally or remotely, with or without a

network connection on almost any standard desktop, laptop, tablet PC, or device. With desktop

virtualization, banks can secure and manage desktops from one centralized location. Using

simple management tools, all desktops can be configured the same and the data is stored at a

data center to help ensure that security and backup policy requirements are upheld.

Our Strategy

Getting Started with Virtualization

Banks that are interested in getting started with virtualization should begin the process with discovery

and planning. It’s important to analyze the current operating environment and use that information to

decide how and where virtualization should be utilized.

Discovery – First, take inventory of your entire environment, including servers, workstations, and

switches. Monitor the performance of your environment, which includes building a history of

performance for servers, diagramming what each workstation needs physically, and tracking

performance of bandwidth locally on wide area networks.

Planning – Review your discovery documentation, and determine what elements of your environment

are good candidates for virtualization. Determine your future needs in areas such as management,

disaster recovery, and cost savings. And make sure you’re working with a trusted and proven vendor

that is experienced with evaluating and implementing virtualized environments. Look for a vendor that

offers custom network solutions and consultation that support virtualization, server consolidation,

storage, communications, conversions and migrations

Oracle has recommends two kind of practical approach:

1. Server Virtualization (disaggregating a single physical server into multiple logical servers (VMs)

or partitions)

2. Server Pooling (aggregating many physical servers to appear like a single logical server)

Criterias Server Virtualization Server Pooling

Scalability • Limited to SMP size

• Online migration to larger server

• Unlimited scale-out clusters

• Provision new server to cluster

Availability • Reduces planned downtime

• Enables broad HA deployment

• Reduces planned and

unplanned downtime

• Fastest failover times

• Fine-grained resource allocation

• Dynamic load balancing

• Server resource allocations

• Dynamic load balancing

Flexibility • Server consolidation

• Improved CPU utilization

• Scale-out and HA using low cost

servers

• Improved server utilization

through pooling

Savings • Small to medium size

• Legacy and non-critical applications

• Test and development

• Medium to very large

• Mission and business critical

• Performance critical

applications

Workload • Simple deployment

• Works with existing apps

• More complex deployment

• Requires grid-enabled S/W

Benefits “Virtualization helps make more effective use of existing hardware investments and significantly

improve IT agility,” said Kathleen Khirallah, managing director and practice leader, Global Banking,

TowerGroup. “These emerging technologies are helping today’s bank compete more effectively in an

ever-changing market by helping people anticipate and respond to business challenges and

opportunities rapidly and effectively.” As you can see at below figures – the benefits of adopting server

virtualization.

Summary Server virtualization can generate significant cost and time saving benefits to banks. If you haven’t

researched how this operational enhancement can help your bank save money, improve disaster

recovery, and simplify day-to-day processes, there’s never been a better time than right now. Around

the world, companies of all sizes are benefiting from virtualization – don’t be left behind!

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