4 actionable tips for creating your cloud budget

At Kostner, we have done countless cloud cost management workshops, and it is beyond doubt that those companies who understand and embrace the differences between managing a cloud budget and an on-prem budget are most successful.

We have taken all that experience and boiled it down to four actionable tips to help you succeed with your cloud budget.

Tip #1: Budget for growth

Cloud costs are only going one way in all the companies we are working with – up!!

Many trends are driving increased costs:

New digitalization initiatives on how to serve and interact with customers
New projects to automate existing routines and drive down employee costs
Price increases

Particularly the latter is a powerful trend, ie. Microsoft just announced that Office 365 will be 20-25% more expensive in 2022 for most bundles.

With these powerful forces a new approach to budgeting is required, so you avoid getting the blame for the growth in costs and any later budget overruns.

Tip #2: Get the framework right

As one of our client’s CIO mentioned in a workshop:

It is more about getting the right framework than getting the right number.

What he refers to is that you need to understand who can take what responsibilities in a new mode of cost management often referred to as FinOps.

In the cloud world referring to the fundamental equation is often useful:

The equation highlights the framework for managing cloud costs

Buy at the right price, ie.
- Optimize means buying the services as cheaply as possible leveraging all pricing and discount options available
- Architect means that you build with the services that gives you the lowest price.
The business should be accountable for managing quantity – but needs support to do so, ie.
- Inform them about the costs they are consuming through chargeback or showback

Manage the costs, ie. with a quarterly review of all main cost items.

Make sure that you are not assuming an accountability you cannot control. However, make sure that you can explain the main principles for who should be accountable for what and how to get there.

Tip #3: Price optimization is your “license-to-play”

Keeping the budgets used to be my “license-to-play” in the on-premises world.

In cloud, getting price optimization right – and being able to document it – is the new “license-to-play”.

Torben Kjær, Group CIO, Aller

Centralizing price optimization is about buying what you already buy as cheaply as possible. This could be using reserved instances and AHB licensing options in Azure or ensuring that your employees have the right M365/O365 license to what they use.

Centralizing price optimization is the first and most important thing to get right for several reasons:

There is a lot to save
You can centralize it because you can make changes without affecting the business
You can document cost-efficiency and benchmark yourself

Understanding price optimization allows you to build a new measure of your contribution to cost management – not only focus on budget.

As another client’s CIO mentioned as a great benefit of documenting cost-efficiency is that “it changes the discussion from how much we are spending to what we should use our budget for”.

Tip #4: Chargeback – the business needs an incentive to manage costs

With business driving more and more IT costs between budgeting cycles – how do you deal with that?

We see all larger organizations moving towards chargeback so that the unit driving the costs are also charged the costs. They should see increased efficiency elsewhere in their own cost base, or improved results ultimately driving top line growth.

Implementing chargeback gives the business owner a clear incentive to cut down costs and engage in managing quantity – as described in the framework above.

However, be aware that chargeback will drive some extra tasks in your organization. You will need a process for tagging cost items to organizational units, frequent reporting to create transparency, and support to help the business owner make necessary decisions.

Getting chargeback right requires the participation of IT and Finance as a minimum – or a dedicated FinOps person or team.

Want more information for successfully budgeting your cloud costs?

Now that you have gotten these tips and are ready to budget your cloud costs it would be interesting to see how other companies are saving on cloud. Kostner Quarterly Insights is a report that provides you with benchmark data on public cloud (Azure, AWS) usage. Get your benchmark for Q3 2021 here.