Application-aware backup is failing on virtual machines if the credentials of the VM provided to Phoenix belong to a non-admin user

This issue can occur if there are a certain permissions that are needed for the credentials that are assigned for the VM.

Resolution

For the local machine user:

1. Create a user. 
2. Add it to the Administrators group.
3. Add user to all the available SQL Server instances on guest VM and assign the sysadmin role. 
4. Update the user account control (UAC) settings to disable the User Account Control: Run all administrators in Admin Approval Mode setting. To do this:
   1. Run gpedit.msc.
   2. In the Local Group Policy Editor window that opens, navigate to Computer Configuration > Windows settings > Security settings > Local policies > Security Options.
   3. Select and right-click on User Account Control: Run all administrators in Admin Approval Mode and then click Properties.
   4. In the dialog that appears, select Disabled, then click Apply, and then click Ok. 
5. Restart the VM.

(Administrator rights are required to start/stop VSS service, and calling API CreateVssBackupComponents)

For an active directory (AD) user:

1. Add the domain user from the AD to the local administrators' group. For more information, see https://social.technet.microsoft.com/wiki/contents/articles/7833.how-to-make-a-domain-user-the-local-administrator-for-all-pcs.aspx. This would add the domain user to the local administrators' group on PC. Or, if you don't want to manage this setting from the Active Directory, the domain user can be added to the administrators' group on the guest VM directly.
2. If the UAC settings are also managed from the AD, update the settings in the Group Policy Object created in the above step by disabling the User Account Control: Run all administrators in Admin Approval Mode setting. If you don't want to manage this setting from the Active Directory, modify this setting on the guest OS of the VM.
3. On the guest OS of the VM, run gpupdate /force on command prompt.
4. On the guest OS of the VM, the domain user needs to be added to all the available SQL server instances with the sysadmin role.
5. Restart the VM.