Managing Azure and AWS costs do not have a strategic or even tactical flavour to it.

At first glance!

In this blogpost we will take a closer look at what you should include in a cloud cost dashboard if you as a CIO (or someone reporting on cloud costs to leadership) want to be able to answer the question:

 

Do we need to spend more time managing our cloud costs?

Why bother? We are on budget!

… and our priorities are to move our digitalization projects forward and ensure stable and secure operations.

Having worked with customers ranging from smaller SaaS-companies to large enterprises we see insightful CIOs and IT leaders refer to three unwanted effects they want to avoid:

  1. Making wrong business decisions due to flawed understanding of costs
  2. Wasting time on internal cost decisions
  3. Getting started with cost optimizations too late

Making wrong business decisions is maybe the most critical one. 

You might decide on the wrong scope of migrations for your existing infrastructure slowing down your digitalization journey. 

You might see earning erosions because the pricing structure towards your end customers do not consider that pricing structures and cost levels are so different in cloud compared to on-premises.

Or you might be spending valuable time in leadership meetings discussing if you cloud costs are too high when you really should be spending your time on top-line focused digitalization initiatives.

These issues would all impact the digitalization agenda negatively.

The last point on getting started with cost optimizations too late have two sides to it: Firstly, it is annoying to overpay for your cloud services, and secondly, you don’t want someone else to take up the agenda of price optimizations – this is your domain.

In this context we will take a closer look at four questions you would like to know the answer to.

How is our total cloud spend developing?

This question is really straightforward. Take your monthly cost and see how it is developing.

Surely, you are on top of this, yet you might recognize that your team spends too much time manipulating data and explaining the following issues:

  • Firstly, make sure you do not report on actual costs but amortized costs. By this, we mean that if you buy a reservation upfront, have a prepaid monetary commit, or another type of payment option where you pay for the service in chunks, then you will see your costs jumping up and down.
  • Secondly, remember that there might be costs associated with software licenses outside your cloud bill, i.e., when you use on-premises licenses. This means that you might see a drop in costs where it is not transparent that a different account holds the charge.

Also, you may want to report on a normalized cost, i.e., taking the number of days in a month into account. Otherwise, you will tend to see a cost reduction of about 10% from January to February.

All the numbers are available in your cloud portal. You can read a recent blog post on how to get data for your FinOps.

What is a reasonable forecast for our cloud costs?

Forecasting is trickier. Most companies are on a journey to use the cloud more and more, but at what pace? And how much do the historic numbers say about future growth?

Our recommendation would be to use at least the following two – mathematically simple – scenarios to give a range for where the cost can end up for the current financial year:

Scenario 1: We will be keeping the current monthly spend stable, i.e., forecasting the same monthly spend for the rest of the budget year as the last month reported.

Scenario 2: We will continue growing (or reducing) our spending with the same average rate as the last six months.

Why take scenario one into consideration when you expect increasing costs? The main reason is that almost all companies can continue expanding their use of the cloud without adding costs for a shorter period when the cost becomes a matter of priority. In a recent blog post, we outlined the three most important ways to save in Azure, and the principles apply to a large degree also for AWS.

Hence, if you are faced with budget issues, you just might be able to get on or close to the lower cost scenario.

What are the main cost drivers of our cloud costs?

Your quarterly report should give a quick overview of which areas to monitor – and where to ask questions. You could have lists highlighting:

  • “What”: Total cost split on services (Compute, storage, databases, containers, PaaS, AI/ML, etc.)
  • “Who”: Top five spenders (i.e., cost centers or projects)
  • “Who is growing”: Top five growing spenders

Getting this reporting level right requires a bit more from your side. Your team should use subscriptions (Azure) or accounts (AWS) in a way that supports your reporting structure as well as applying an appropriate tagging structure for more advanced reporting.

It may sound like a daunting task, but we recommend you start early and talk to your team, cloud partner, or cloud cost partner about the few vital things you should get right from the start – then it becomes second nature.

Can we save material amounts on our cloud costs?

Did you ever have to discuss with your leadership colleagues why costs are higher than anticipated?

The blessing – and curse – of cloud is agility. Projects and departments can easily add resources, but it makes it challenging to manage costs.

Hence, it is a great help for many CIOs to answer with affirmation any questions on higher than anticipated costs. Is this because we consume more (typically the responsibility of the business), or because we overpay for the services we buy.

Some helpful reports would be:

  • Cost efficiency index (like the energy rating on your refrigerator, house, etc.)
  • Realized savings (how much did your cloud team already save)
  • Additional savings potential leveraging pricing and discount models

Getting data for this section of your dashboard is more complicated. The data are not available in your portal, so you need access to a tool directly or from a partner. 

However, it is a powerful way to demonstrate your contribution to the cloud journey – and even more so when you can show continuous improvement over time.

External benchmark: How do our prices compare to others?

If you are struggling to understand your savings potential as mentioned above there is another way you could get valuable insights.

Compare the unit price you pay with what others are paying for the main categories of cloud services, ie. virtual machines, storage, databases etc.

External benchmarks like these have their virtues and pitfalls.

We use it with our customers in context with other measure to identify areas worth taking a closer look at. Are we leveraging the cheaper storage options? Are premium versions necessary? And a range of other architectural choises that may or may not have been done on purpose.

If you have downloaded your billing data (see below) you can calculate your total spending on a category, and how much of ie. storage you are consuming to get to a unit price (ie. cost per GB per month).

In the most recent version of Kostner’s Quarterly Insight we provide you with unit costs for the main categories our customers are buying. Download below.

How do I build a Cloud Cost Dashboard?

Most of the data is in your cloud portal. The free tools also include some graphs and tables that will answer some variants of the questions above.

However, you cannot get a trustworthy number for additional savings. There are free tools in your cloud portal providing an incomplete (and sometimes misleading) list of possible savings, but let us just put it this way: it is not the best built-out feature of your cloud portal.

Talk to your cloud team to see what questions they already know the answer to for a start.

Many tools and providers of cloud cost management and FinOps related services can make your life a lot easier. 

It need not be very expensive or time-consuming to get started on a standardized periodic report – you may want to check our pricing page to get a feel for the price levels. However, prices and price models do vary substantially between providers.

Download Kostner Quarterly Insights

Download the report to get data on public cloud (Azure, AWS) usage: 

… and our comments on “How to use the data”.

If you are like most leaders, you and your team are busy delivering the digitalization strategy. For you, Cloud Cost management is a necessity but not a priority. So, how do you avoid suddenly having to defend the total spending on your cloud projects?

This blog post will give you three key indicators of cost efficiency when managing your Azure and AWS costs. If you get solid confirmation on all three, you have less to worry about.

What does a “cost-efficient cloud” mean?

Before we get started, let us agree on what we mean by “cost-efficient cloud”. The fundamental equation for your total spending in the cloud is:

cost-efficient cloud Spend management

So, when we talk cost-efficiency we refer to buying your services at the right price, i.e., that the price is as low as possible.

In contrast, reducing (or keeping down) the quantity you buy is what we would call cost-effectiveness.

And although both parameters are essential to keep your total spending down, we will focus entirely on cost-efficiency in this post. This will bring you tangible benefits, as you can read in a recent Gartner Research – and in the quote below.

“Focusing on efficient use of cloud services brings immediate and tangible financial benefits. Unfortunately, most organizations are unprepared to profit from this savings opportunity, and they’re likely to overspend.”
(Gartner Group, 2020)

Indicator 1: Are you on top of regular cloud cost reporting?

If you can’t measure it, you can’t improve it. 

(Peter Drucker)

By running a cost-efficient cloud, you will benefit from following how your total cost is developing over time, what you are spending on and who.

And, if you have this standardized reporting in place, you probably have assigned clear responsibilities for monitoring and optimizing costs.

But, sometimes you may hear that you cannot get the correct data from your cloud portal. So, while the tools are not fantastic, and the data will require an effort to prepare for a meaningful management report, you should know that lack of data is not the root cause of the problem.

If you have a more profound interest in reporting, we recommend reading “The four things you want to know as a CIO about your cloud costs

Indicator 2: Do you have a schedule for optimizing your cloud costs?

What gets scheduled gets done 

(Michael Hyatt)

Your cloud environment is dynamic, and the pricing and discount models are dynamic. 

Hence, keeping cost-efficiency in your cloud is an ongoing practice – not a one-time project.

The minimum frequency we recommend is quarterly reviews of your entire environment, likely supplemented with other, more frequent activities. 

And, if you are interested, we have another blog post on the crucial elements in the quarterly tune-up, which tells more about what you need in place to ensure cost-efficiency in your cloud through quarterly optimisations.

Regardless, you might want to be on the lookout for typical warning signs for not sticking to the schedule, i.e.

  • Other priorities came up
  • It will slow us down
  • We must wait until our environment is stable
  • Let’s finish our overall cost management strategy first
  • We need to finalize our negotiations with the cloud provider

While at first glance many of these explanations are understandable and even intuitively correct, they can and should be challenged. Most of our customers have been surprised with the flexibility on some of the ways to save – which is precisely why you should not postpone your cost-saving initiatives.

Remember, only Amazon and Microsoft benefit from deferring your cost optimization.

Download this paper to learn

Cost-Efficient cloud management

Indicator 3: Do you track the critical KPIs for cloud cost efficiency?

Although you may not be interested in the details of cost-efficiency, someone in your organization must be monitoring the essential KPIs related to the most important ways of saving money on the cloud.

Reservations are the single most mechanism for cost savings, and you should have a robust measure for performance on this activity. Another frequently used term for this is “Reservation coverage,” i.e., the percentage of your current, reservable resources which are covered by a reservation.

In Azure, bringing your own licenses (AHB) is a must. Savings are substantial, and you should know how large a share of licenses are covered.

But, knowing the number itself is not the key here. The key is that if you do not track the number, you do not know if you have identified all significant savings.

So, having analyzed hundreds of millions of cloud spend, we know that almost all companies are not making enough reservations and are struggling to optimize their use of licenses.

How can I measure my cloud cost efficiency?

While it is great to have some indicators of cost-efficiency, you might be looking for a way to measure it.

And two of the most relevant types of measures are: an overall cost-efficiency indicator (a bit like an energy rating) and unit costs of select primitives.

But, the most common definition of cost-efficiency is calculated like this:

Cost-Efficient cloud management

When it comes to IaaS / PaaS primitives we suggest the following unit costs:

  • Virtual Machines: Cost per vCore / month
  • Storage: Cost per Gb / month
  • SQL: Cost per vCore / month

And if you have a robust way of measuring this, you don’t have to worry more about cost-efficiency – you will be well ahead of the pack.