Do you want to know what is ahead for FinOps in 2023? This is Kostner’s take on what is ahead in the world of those managing  costs of a major cloud platform like Azure, AWS and GCP. 

Prefer video over text – scroll to the bottom of this page to see the full video.

The 3 major predictions are:

1. Cloud Cost Management on the CIO agenda - as well as the CFO

Cloud spend on major platforms like Azure, AWS, or GCP will eclipse all other IT expenditures to become the biggest cost item in IT. This will attract the attention of finance, in a way you likely haven’t been accustomed to. If IT can’t give credible answers to how it intends to manage and reduce what is to date on average 50% YoY growth, Finance is likely to take control – and that’s rarely a fun experience for IT.

2. Strategic Management of Commitments

Trading Agility for Affordability. I often joke that agility in cloud is 20% technology and 80% total lack of process. Well, going forward, expect to see more process. The hope is we can use a combination of the flexibility of cloud to allow after-the-fact cleanup, and the predictability and lifecycle of systems, to avoid the dreaded pre-approval processes. With the recent changes in policy, we need to be able to look at least 1 year into the future and make decisions about the stable portion of our environment. If we can’t, we’ll be missing out on at least half of savings.

3. Review, Spend and Clean-up

About half of all the attainable savings come from regularly reviewing the spend on installed environments with those who know that environment best. We regularly see identified savings of between 20 and 30% the first time this kind of spend review is performed, and making this a core process is a great way to keep that spend under control.

Next step?

So when your CFO realizes that your cloud spend has gone up a lot and it is looking like it is going to continue – having control over these two elements, presenting them, is a good way to make sure you get to keep as much agility and flexibility as possible – and still run as cost-efficiently as you possibly can.

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Have your company decided to start looking into showback/chargeback for your public cloud costs? And have you been given the responsibility to set it up? This article gives you the 3 elements of showback/chargeback as well as the process of implementing it.

The whole point of chargeback is making the different business owners accountable for their cloud spend. Implementing a simple model first and then refining it over time will create understanding and ownership. This article gives you an overview so you can plan when to implement which steps – and not create obstacles early on for natural extensions you will want later.

To implement showback/chargeback in practice there are three elements you always need to go through.

Element 1: Who is spending?

For chargeback/showback you need to know exactly who uses what resources and who drives what costs in Azure. Keeping track of the different departments usage and checking their Azure bills is time consuming work. Tagging resources is the common approach, but in order to minimize administration we recommend a combination of the following:

 

Resource tagging: All resources with a cost center tag are allocated after these tags.

Virtual tagging: Enrollment accounts, subscriptions (or resource groups) are given a cost center tag, that will be used as tag, if there isn’t a tag on the individual resource.

Cost center for unmapped costs

 

We have seen other rules applied, but the above mentioned consistently deliver robustness and limited time spent administering allocations. You may want to start by allocating to only one or a few major internal customers and then continue with a wider group.

Even if you have decided on a strategy to rely on resource tagging make sure you include the other two levels. Not all costs and resources can be tagged, and you will never be 100% up to speed with resource level tagging.

Also, make sure that you have a process in place to clean up unmapped cost items monthly by assigning them a resource or virtual tag and a process to regularly check for validity of used tags.

Element 2: How much are they spending?

When your tagging is in place you have a clear picture of who owns which resources and the associated costs. But this is only the first element of chargeback – the second is to figure out how much they should be charged.

 

   a) What rate to use?

Out of box all the clouds offer two different rates you could use for chargeback: a) actual costs, and b) amortized costs.

The actual cost is what reconciles directly with your monthly cloud bill. This means that if you prepaid something – the actual cost is zero. If you bought a reservation there will be a cost for the reservation, but the cost for the resource it is applied to will be zero.

Amortized costs are the cost where any committed use discounts are applied (depending on your cloud: reserved instances, compute savings plans, CUDs etc.). This gives a better representation of the real cost – but it comes with a flaw: if you manage commitments centrally, you cannot control who benefits from the commitments. Hence, a cost center might use the same quantity of resources in two subsequent months, but their charge may vary – not by a lot, but enough to cause confusion and extra work.

Blended rate – which is currently only an option in the AWS portal – ensures all that all resources covered by the same commitment plans are charged the same unit costs. This reduces variances from month to month. Your FinOps partner might – just like Kostner – offer a calculated blended rate if this is your preferred choice.

A few more options exist, i.e., standard cost, but we strongly recommend that you settle on either amortized cost or blended rate.

This is the one decision which is critical to get right when starting out – using the wrong rate might cause issues later – and changing the rate along the way will always create internal issues and lack of ownership.

 

   b) Need to charge any additional costs?

Once you have settled on which rate you will be using the next decision is if you need to charge any additional costs, e.g.:

 

Add-on costs

In this step you decide which add-on costs to add that are driven by your cloud usage, but not invoiced through the cloud bill. This can be direct costs (i.e., costs for Microsoft licenses used for AHB), people costs enabling cloud development (CCoE, Cloud Foundation Teams, FinOps teams etc.), and more depending on your setup.

 

Costs of shared resources

On your cloud bill you may find costs that are shared between different cost centers e.g., Kubernets, micro services etc. You want to allocate these to the cost centers driving the costs – though not necessarily down to the last eurocent.

 

Shared expenses

Lastly, you will have items on your cloud bill which are not directly shared resources, but are nevertheless costs indirectly related to running the cost centers, e.g., shared infrastructure, nonutilized reservations, resources without tag etc.

When you first start out, these items may not appear very important – in fact we see many organizations where the cloud adoption is initially so business driven that there is not much shared cost personnel to consider allocating costs for.

However, it will become relevant so make sure that you prepare for this – at least in communication – right from the start.

Element 3: Practicalities

Coordinate with Finance

Make sure you involve Finance early on. You might find that there are existing policies that could guide you on the decisions above – and they will certainly have views on additional costs whether they should be charged by you or in a separate process.

Also, you want to ensure that the process and communication is aligned with your budgeting process – otherwise the line-item cloud costs will not be taken seriously.

Lastly, you want to ensure that you have agreed on the practical process with Finance:

When do they need a total cost (estimate) for the month?

When do they need the chargeback file?

Who and how do you reconcile between the bill, the estimated total, and the chargeback file?

 

Implementation

Before implementing chargeback, you need to be completely sure what it is you want, so you can explain to the organization’s department what it is they are being charged for. As every big change needs an adjustment time, it is a good idea to start implementing showback first, and getting the organization used to the idea that they have to keep an eye on their cloud spend. People need to see and hear things before they accept it, hence make them used to realizing the size of their own cloud spend before starting to charge them for it.

 

Supporting chargeback

Once implemented you have three tasks that are part of supporting chargeback operationally:

  1. Providing the data to the cost center owners
  2. Supporting the cost center owners with input on what they can do to control costs
  3. Providing Finance with the necessary data

On 1. you not only need to provide your cost center owners with data – but also a meaningful representation of what they are spending on.

Also, you want to make sure that it is clear to the cost center owners that a number of savings options have already been handled centrally, i.e., by providing a “Pay-as-you-Go” cost and the costs they are charged. This will help build credibility around the FinOps efforts you are orchestrating.

To support the cost center owners, you need to understand their data about what is driving costs – and what initiatives can be started to reduce costs. Most likely you have centralized price optimizations (i.e., commitment documents), but you can support them on discussing major cost items, and cost architecture.

How to get started?

If you want to fasttrack your showback/ chargeback project and avoid mistakes others are doing, then make sure you consult with a FinOps partner.

Do you want guidance to decide on policies? Get an “out-of-box” PowerBI solution? Design your tagging for minimum administration.

Kostner’s FinOps-as-a-Service will give you all of this and much more – we would love to be part of your virtual FinOps team. Book an inspiration meeting with us today to get started on your chargeback.

To get off to a good start, spend 30 minutes on our chargeback webinar.

Join our webinar Chargeback of Public Cloud for Managers!

In only 30 minutes you will gain the key to:

… and get the shortcut to create an actionable plan to get started and what the important next step is.

If you are considering showback / chargeback for your cloud costs, this blogpost will give you the necessary perspective on it. We will offer you a strategic context of chargeback, highlight the central decisions you need to make, and offer some thoughts on how to successfully implement. Jump to the bottom to sign up for a 30-minute webinar on showback/chargeback.

1.1. Buying XaaS requires a new model for financial Governance

 Just a few years ago, financial governance was – to exaggerate a bit – a matter of tough negotiations of a few large hardware and software contracts. In a historic context the IT cost as a percent of revenue has been very stable despite a year over year increase in the use of IT. This was possible due to a steady decrease in cost for the same capacity – often referred to as Moore’s law.

Over the last five years we have seen several trends:

  • Your company is talking more and more about digitalization of services – not only in the innovation hubs, but all the way to the board room.
  • Decisions and IT development is moving closer to the business. Buzzwords like flexibility, agility, and speed are (over)used to justify this movement.
  • More and more IT is bought as a service – everything from SaaS solutions (Sales and marketing automation, ERP, Microsoft 365 etc.) to infrastructure (Azure, AWS, GCP etc.).

… and the consequences most organizations are facing is that IT costs are starting to go up.

1.2. Buying cloud requires a new form of financial governance

This is not necessarily a bad thing – after all digitalization of services might be exactly what is needed to make your company prosper. But it does require a new financial governance.

The main driver for this new financial governance is the decentralization of decision making – and uneven use of technology across the organization. This voids the traditional central IT budget / headcount allocation – and the financial accountability must reside where decisions are made – that is closer to the business.

Hence, chargeback is a crucial component in the financial governance of the future.

1.3. The end goal is financial accountability – what does it take?

You need showback / chargeback to get the different departments on board with the agenda of focusing on managing cloud costs. It takes 3 steps for you as a manager to make the business units aware of the magnitude of cloud costs and get them to take action and manage their cloud costs.

  1. Ownership: Make sure they understand their budget.
  2. Impact: Make sure they understand how they can impact the cost.
  3. Benefit: Make sure that benefits end up where effort is taken.

All knowledge points to the fact that people will only act if they themselves have the financial responsibility. As the decisionmaker you therefore need to implement chargeback in the organization. Giving them the responsibility for their department’s cloud spend gives them the incentive to make the decisions necessary to manage cloud costs as they are now the one drawing the benefits and therefore see the value in it.

While the above gives you the strategic context across any type of XaaS financial governance we will now take a closer look on chargeback for cloud costs (Azure, AWS, GCP, etc.).

 Using chargeback, you are faced with two questions:

  1. Who should get what costs?
  2. How much should they be charged?

Surely, the ”who” is already top of mind. You might have started tagging your resources in the cloud – or intend to do so shortly. Without going into detail here you want to plan this so that you do not end up with a significant bureaucratic overhead. Virtual tagging and a robust maintenance procedure are useful additions to resource tagging. You can read more about this here (link til chargeback for practitioners).

The other question on “How much“ is a bigger question and widely forgotten at least when starting to work with chargeback.

Initially, you will focus on the direct cloud costs and there is only one critical decision here: which rate you will use; actual cost, amortized cost, or blended rate. We will not go into more detail, but you can read more here.

However, only charging the direct cloud costs will not give a fair representation of the total costs. Later, you will want to include additional cost components from one or more of these three categories:

Add-on costs

Add-on costs driven by your cloud usage, but not invoiced through the cloud bill. This can be direct costs (i.e., costs for Microsoft licenses used for AHB), people costs enabling cloud development (CCoE, Cloud Foundation Teams, FinOps teams etc.), and more depending on your setup.

Costs of shared resources

On your cloud bill you may find costs that are shared between different cost centers e.g., Kubernetes, micro services etc. You want to allocate these to the cost centers driving the costs – though not necessarily down to the last eurocent.

Shared expenses

Lastly, you will have items on your cloud bill which are not directly shared resources, but are nevertheless costs indirectly related to running the cost centers, e.g., shared infrastructure, nonutilized reservations, resources without tag etc.

When you first start out, these items may not appear very important – in fact we see many organizations where the cloud adoption initially is so business driven that there is not much shared cost personnel to consider allocating costs for.

However, it will become relevant so make sure that you prepare for this – at least in communication – right from the start.

What components you include is up to you, but chargeback is part of a bigger puzzle. If you want to know more about it, you can read our practitioner’s guide to showback / chargeback – how do you do it.

When considering how to implement it in your organization remember our three steps model:

  1. Ownership
  2. Impact
  3. Benefit

… it all starts with ownership.

We have seen it more than once that chargeback has been implemented across the organization, only to end up with shrugged shoulders and no accountability because neither finance nor the business owners understand how they got the budget in the first place, nor what they can do about it.

This is probably the reason why many organizations start with showback which will then serve as a rehearsal for later chargeback. You will be reassured that the methodology for providing the numbers is robust. As well as have time to build a process and the necessary competencies to have the dialogue with the business owners so they understand their numbers and how they can impact their cost.

Also, you want to make sure that you can track the cost savings related to the efforts of the business owners and your team.

Showback and Chargeback definition

How do I get started?

We cannot encourage you enough to start working with chargeback on your cloud costs. Typically, we see 20-25% waste that can be eliminated with chargeback and financial accountability.

Getting started is about finding the right path to the simplest possible solution – and one that does not overburden your team or add bureaucracy in your organization.

If you think chargeback sounds strategically interesting but could use a guide on the subject, we would be happy to help and discuss with you what would work for your organization. Book a 30-minute discovery meeting with us, and we will go through what would be the best way forward for you and your organization.

To get off to a good start, spend 30 minutes on our chargeback webinar.

Join our webinar Chargeback of Public Cloud for Managers!

In only 30 minutes you will gain the key to:

… and get the shortcut to create an actionable plan to get started and what the important next step is.

Have you started hearing the word FinOps often? Or trying to wrap your head around how to manage your growing cloud costs? Without adding another time-consuming task to your team or removing the flexibility and agility of cloud in your organization?

This article gives you an overview of the why and how of FinOps so you can plan your FinOps activities and get started. In the bottom you’ll find the most important advice we’ll leave you with. Completely unintentionally… – you need to scroll through the whole blogpost to see it.

Why do you need FinOps?

The reason why you need to do FinOps is that you can save 50% of your bill through structured financial governance compared to an ungoverned cloud environment.

The savings come from 3 different sources:

  1. Buying services as cheaply as possible and leverage all discount options
  2. Only pay for what you need
  3. Use the most cost-efficient services that fits your needs

FinOps is like cost management when you build a house

Just as when you are building a house – when you buy your materials, you want to buy the materials as cheaply as possible, and you might research where you can get them at discount. Second, you need to manage the quantity and make sure you do not buy more than needed so you later have to return them. Third, you look at the overall architecture and make sure you avoid using unnecessary expensive building blocks.

The new way to do financial management

Cloud calls for a new way to do financial management. The new thing is that we buy IT as a service and not large hardware and software investments. This gives flexibility and agility – but how do you ensure sound financial governance without creating a bureaucratic overhead sacrificing flexibility and agility – and adding a huge job on your scarce cloud resources?

 
Below we will go through the 4 steps of FinOps:
The FinOps journey - The 4 steps of FinOps
The FinOps journey - The 4 steps of FinOps

Visibility – know your costs

Create awareness of cloud costs by looking at your bill every month.

Visibility is the preliminary step to get your FinOps efforts going. If you’re not doing any FinOps initiatives yet, just taking the step of looking at your bill every month will put you in the mindset to start asking the right questions such as:

How much did we grow since last year?

What areas are driving the increase in costs?

Are we using everything we are paying for?

You need to know these things and track the development over time to avoid being blindsided by rising cloud costs. For example, a 5% increase one month may not seem like a lot, but if it continues for 6 or 12 months it’s completely different numbers.

Price optimizations – Buying services as cheaply as possible

Avoid overpaying for your services and leverage all discount options. This will save you 20-25%.

You can optimize price in many ways, but fundamentally it boils down to optimizing price, by working through the cloud service catalog, price, and discount models.

You might know the 3 essential ways to optimize on price – reservations /commitments, Azure Hybrid Benefit, and shared resources. But what makes price optimizations complex is the myriad of options there is within each of these, all affected by complex details, the state of your environment and the fact that Microsoft keeps changing the options for price optimizations. It’s not a difficult task – it’s just really time consuming and you need to ask yourself:

Does it make sense for you and your team to trawl through your whole cloud environment as well as your portal? Or would it be easier to get someone else to do it?

A tool is a great idea to do this as it is an optimal task for technology. With a tool your team doesn’t have to spend unnecessary time doing it.

While there is a tool side to price optimizations, i.e., using the organization tools in your portal, the main reason for not getting price optimizations done is uncertainty. What if our environment changes? What if I will move to a different service shortly? What if…?

The solution is investing in both tool and training. The tool makes you able to find the needle in the haystack and training gives you the necessary expertise to remove uncertainty and act on the recommendations from the tool.

Read more about price optimizations:

3 ways to get the most Azure for your money – and how to get it done!

3 indicators of a cost-efficient cloud

The 4 things you want to know as a CIO about cloud costs

Quantity management – only pay for what you need

Avoid paying for something you don’t use. This will save you another 20-25%.

In this step you need to get the different business owners involved in making decisions about shutting down services (lifecycle management), shutting services on/off, and buying the right capacity services (rightsizing).

To get the business units committed you need showback / chargeback to gain an overview, of which department is using what. Also, adding chargeback, incentivizes the different departments to take ownership and manage their cloud costs in a more structured way if they know they will gain the economic benefit of their own efforts.

Showback / chargeback is a moving target. In the beginning, the distribution of costs between departments can be relatively simple by just taking your cloud bill and split it between the different business owners. But with time more decisions need to be made e.g., how do you know which department is using what? how will you distribute hidden costs? and how do you distribute shared costs (shared Azure infrastructure, the FinOps team, and much more) and resources (containers, micro services etc.)?

Getting started you need to work with tags – and we strongly recommend adding virtual tagging to reduce administration. Consider using an external FinOps partner to get going in just a few weeks and avoid the common pitfalls that will make it time consuming to maintain.

Cost architecture – Use the most cost-efficient services that fits your needs

Avoid using unnecessary expensive services/ building blocks. This will save you another 10-15%.

Cost architecture is most likely the last step in the FinOps journey. Surely your team has done some research on this, but cost architecture is an ongoing activity – just like the other FinOps activities.

The reason for needing to do this ongoing is that the cloud has in-build challenges e.g., that the price for one service never drops. Consequently, you need to change server if you want a cheaper compute option.

What you specifically should focus on in your organization varies, but we see over and over again that SQL-servers, VMs, evergreening, IaaS vs. PaaS and Data Analytics are topics where an annual cost architecture review will greatly pay off.

“How do you ensure sound financial governance without creating a bureaucratic overhead sacrificing flexibility and agility? and adding a huge job on your scarce cloud resources? “

 

If you do these 4 things your bill will be halved compared to if you do not do any FinOps initiatives.

You might have taken some steps already or have not started yet. The most important to do right now is that you get started – 50% off your cloud bill amounts to a lot of money that could be used on other priorities.

The most important piece of advice we will leave you with

Starting from scratch and building your FinOps efforts is complex when FinOps is not your primary assignment. The good news is that your needs will look the same as other organizations, making FinOps an ideal external assignment. That way, you avoid a slow implementation process which only result in paying Microsoft or the other cloud providers more than necessary. With a FinOps partner you get a guide that asks the right questions, and helps you overcome the complexity by learning the simple principles of FinOps.

Our most important piece of advice is therefore to engage with an independent FinOps advisor, that can provide you with both tool and training.

Ready to move on? Have the FinOps journey infographic at hand so you know what to do when, or book a 30-minute inspiration meeting with us.

Get the FinOps journey Infographic

… have the FinOps journey at hand all the time so you know what to do when.

The FinOps Journey -guide to financial governance of cloud costs

Download The FinOps Journey Infographic

 

Full overview of the different steps

Full overview of The FinOps Journey

… have the FinOps Journey at hand all the time so you know what to do when.

The implementation of a FinOps team will ensure that all FinOps efforts are aligned within your organization and drive your FinOps agenda from awareness to action.

If your company is using public cloud, you are probably well aware that there is a lot to manage – and as your cloud usage increases so does the assignments with managing cloud costs. Most C25 companies counter this increase by implementing a dedicated FinOps team to manage cloud costs. The FinOps team will be the link that assures the company is streamlined on their FinOps efforts.

The key take away’s of the FinOps journey

The FinOps journey makes it evident that the more money you spend on cloud the more effort you need to put into managing your cloud costs.

It shows what FinOps initiatives you should focus on depending on the size of your monthly cloud spend. It works as steps, and each time you go one step up you add on to the already existing assignments. The FinOps journey differs from company to company depending on the specifics of your organization, but for many the FinOps journey will look like the illustration above.

 
The key take-away from the FinOps journey in terms of building a FinOps team is how vital this team is for the organization, and the urgency for implementing this team the more you spend on cloud. As almost every company using cloud will inevitably start to see their spend increase as more and more data is moved to the cloud, it is only a matter of time before your company needs a dedicated FinOps team to take charge of all FinOps efforts to ensure a smooth FinOps journey for your company.

The central role of the FinOps team

The FinOps team is the glue that holds the FinOps initiatives together. They have an all-embracing role in helping the different departments with the aspects of FinOps that cannot be centralized i.e. helping management with reporting, business with quantity management, procurement with negotiation input, finance with reconciliation and chargeback and IT with cost architecture.

Added up it is a lot of tasks, yet it is simple if it is all centralized in the FinOps team.

When it comes to implementing a FinOps team some companies designate people that are already within the company and give them the resources to gather knowledge of the FinOps discipline either through self-learning or an external FinOps partner while other companies decide to recruit a whole new set of people.

The tasks that a FinOps team should be able to take charge of is invoice control, price optimization, quantity management, negotiation input, chargeback, management reporting, forecasting etc. Some of the tasks will be centralized in the FinOps team while others will be in cooperation with the rest of the organization. Which tasks is handled where also varies from organization to organization.

Download "The necessary roles for a FinOps team"

Checklist for the roles: 

Background and experience

Overall responsibility

Job tasks

3 roles that are necessary for the FinOps team

In our work helping customers with cloud cost management, we’ve helped our fair share of companies build their FinOps team as they along their FinOps journey realize the importance of a central FinOps team in the organization to connect all FinOps efforts and help the different departments with what cannot be centralized. 

The 3 roles we always see as an essential part of a FinOps team is one FinOps Business Manager, one or more Technical FinOps Manager(s) and a FinOps Project Manager who is needed  as there are several projects with a need for financial management.

FinOps Business Partner / FinOps Business Manager:
FinOps Business Partner for the FinOps Team

This will be the person with the overall responsibility for the FinOps practice and the FinOps team.

The role requires a broad range of skills, i.e., discussing IT cost models with the business (who is not familiar with IT cost models), as well as being able to challenge IT/DevOps when they push back referring to “this will put operations at risk…”. The position offers a lot of interaction with the internal customers and requires business acumen and financial management capabilities.

The success of the FinOps efforts will come down to this person’s ability to drive the agenda from awareness to action both centrally, and with each project or customer stakeholder.

Technical FinOps Manager:

The technical FinOps manager is the “boots on the ground” of the FinOps team. Responsible for either directly, or with internal or external collaborators, implementing the agreed optimizations.

This role involves keeping the environment free of wasted resources through a continuous effort. It requires attention to detail and interest in keeping up to date on the constantly changing cost saving models. The position requires technical experience and offers a new career path learning the skills required to manage IT costs in a service model.

The technical FinOps Manager is the first to notice any cost changes, including observing the effects of implemented initiatives.

FinOps Project Manager:
FinOps Project Manager for the FinOps Team

This role is required to ensure a structured and planned process for implementing FinOps as a governance framework so that it is well documented, with the necessary technology support, and broadly accepted within the organization – all the way from the top and down.

In smaller organizations with small, non-business critical budgets this role may be filled by the FinOps Manager, but in all larger organizations with million EURO budgets this is a full-time project for months.

Implementing the FinOps team

You now have the 3 roles necessary for a well-functioning FinOps team. A FinOps team will bring you in control of you cloud spend and ensure that your cloud spend is not suddenly going up the roof due to unforeseen changes – with a FinOps team that risk is covered as they monitor your cloud environment daily as well as streamlining FinOps efforts in the whole organization making every department aware of the organization’s focus on FinOps initiatives.

Want to discuss the benefits of a FinOps team for your organization with a FinOps partner? Book an inspiration meeting with us here.

Download "The necessary roles for a FinOps team"

Checklist for the roles: 

Background and experience

Overall responsibility

Job tasks

As Head of IT and Digitalization in Herlev Kommune, Kim Ladegaard moved all on-premises servers to the cloud. To assure a smooth start they used Kostner who specializes in cloud cost management.

When Kim Ladegaard, Head of IT and Digitalization at Herlev Municipality started in 2018, it was with the prospect of a room of servers, where the capacity of the servers was already utilized to its maximum. The municipality had decided to move from its present location to a new city hall on two different addresses no later than the end of 2023. Hence in 2018, the newly hired Head of IT stood with a decision to either upgrade the server room – aware that it soon after had to be moved to a new address. Or come up with an entirely new strategy – based on cloud.

With his IT and Digitalization team he worked out a solution to present to the management to move all on-premises servers to the cloud. “It didn’t make sense to me to first upgrade our on-premises servers and then later have them moved to a new address. The municipality had plans to relocate the city hall’s physical address. It would be too complicated and very expensive. Based on this, the management decided to move all servers to the cloud” says Kim Laadegard.

The need for flexibility

In the fourth quarter of 2021, all servers were in the cloud – except for one system. The key for the IT department is “flexibility” where data and systems are moved from physical servers in the basement to the virtual servers in the cloud on the Microsoft Azure platform. Moreover, throughout the last three months, more than 2.000 new entities – laptops and smartphones – have been set in use and give all employees access to exactly the systems they need.

“We’ve created a digital ecosystem, to eliminate the number of errors in the future. Hence, it is important both hardware and software are integrated. On top of the cloud transition, the employees need access to the Microsoft 365 platform and all existing computers and tablets need to be changed to Microsoft Surfaces… Our whole set-up is built on an ecosystem with Microsoft hardware and software. This means that all employees use the same Microsoft devices and have access to software and applications from Microsoft Azure and Microsoft 365” says Kim Ladegaard.

Pilot attempts before going full cloud

The municipality completed three pilot attempts before moving all servers to the cloud.

The first pilot attempt was the “Jobcenter”, with their systems being moved to the cloud.

After that, to test the devices with the new setup, the digitalization department completed a wide pilot in the organization with 45 employees from different departments – administrative personnel, sosu-assistants, physiotherapists, project leaders and nursing staff. As a management tool Herlev Municipality uses e.g. Microsoft’s Intune, which gives the option to customize the applications that the employees need.

Herlev Municipality has made an internal subscription scheme, where the departments pay for the equipment that their employees use.

“It becomes very clear for the different departments, what they get and what they pay for. There is complete transparency on the matter. On top of that we get all our devices registered and have better control over them in the future” says Kim Ladegaard.

Cloud Cost Management

In the municipality’s journey towards the cloud, Kim Ladegaard has used Kostner. He decided to bring Kostner along for the journey right from the beginning to use their FinOps service. Kostner analyze the economy in the municipality’s cloud journey and give recommendations based on this on how to keep costs down.

“As Head of IT, you risk losing the economic overview, when you give out more than 2.000 new devices to employees, who have customized access to Microsoft’s many different products, and at the same time move servers to Azure. It’s easy enough to create new servers, licenses, and services, but if you don’t manage it tightly, you risk that the economy runs wild. We have made a deal with Kostner to analyze the economy of our cloud environment once a quarter. Here they give recommendations on how we can keep our costs down.”

 Head of IT and Digitalization, Kim Ladegaard.

Already at the first analysis, Kostner saved Herlev Municipality 140.000 kr. – and that was only based on the small part which they ran in the cloud at the time. “That saving came before we started using Microsoft 365 for several thousand employees” Kim Ladegaard adds.

Kostner has collected a lot of data on license agreements and costs for services in an algorithm and then crosses and compares these with the municipality’s actual usage. That way, the algorithm can find changes that can affect the costs for the municipality.

Big potential

There is a big potential in taking advantage of the options in the cloud, as it gives the option for working in new ways.

“Some ask me if it isn’t more expensive to have all servers in the cloud instead of on-premises. But I think you need to consider the whole setup and solution. Not only focus on the price of the servers. You must look at all costs and what the organization gets out of using the whole palette. In the new set-up, we are removing ourselves from the idea that one’s work must be physically tied to one place. Instead, we will look at it as an activity that can be done from anywhere. In this regard, flexibility is one of the keywords in our digital transformation” says Kim Ladegaard.

This article was first published in KITA in Danish and has been translated to English by Kostner.

Many companies experience that cloud costs grow faster than anticipated. As a result, this slows down cloud adoption and/or creates budget overrun. 

A frequent reason for cost surprises is not taking full advantage of all the options for savings available in Azure and assumed in the original business case. 

So, we will take a practical, financial approach. You will benefit from reading this even if you do not have a technical background. 

If you are an experienced cloud cost manager, you will know the concepts. Still, you might learn a thing or two from the real-world examples and how to get it done. This includes a list of free tools like Azure Pricing Calculator, Cost Management Service, and Advisor.

Savings option #1: Azure Reservations

What are Azure Reservations?

We know, we know, you already know about reservations. Yet, even our best customers would benefit from using even more reservations.

Buying Azure Reservations (Azure Reserved Instances) is committing to purchasing a service for a one- or three-year period. Doing so will give substantial discounts, typically 60%+. 

Moreover, you can exchange reservations within each of the 19 categories. So it is not like buying a specific piece of hardware. In some situations, you can even get an unused reservation refunded.

With this level of flexibility, it is essential to approach reservations in the right way. Ask not “Will this VM, Database, Disk, be running in 2 years”. Instead, ask “Will my use of ALL compute on Azure (VMs, Functions, Containers, etc.), be even just 2/3rds of what it is today in 2 years?”. If so, buy the reservation and balance them often.

It is also worth noting that the reservations now do not need to be paid upfront, so it is not a problem from a cashflow perspective.

You can read more about reservations in a recent blog post.

Reservations in the real world

Every company we have worked with uses reservations to some degree, but no one leverages the full potential:

  1. There are a total of 19 categories of reservations, each with multiple different reservation types. 
  2. Every quarter new reservation-types are added or changed. 

Add to this a few “tricks” you must know to master reservations, and you understand why.

A very cost-focused client exercised great discipline and always bought the right-sized VM, which unfortunately could not be reserved. However, a cheaper solution was to upgrade to a more expensive VM type and then get the 65% reservation discount, delivering a 45% saving compared to the cheaper, less performing VM.

A large enterprise client was shutting down servers every weekend to save costs. However, buying reservations and keeping the servers running saved them 20%.

While these examples are not hard to understand the nevertheless illustrate that your task when managing cloud costs is managing a very large number of combinations. The real challenge is not understanding what needs to be done – rather it is finding the needle in the haystack which delivers the the largest savings.

Savings option #2: Azure Hybrid Benefits

Another way to get significant savings in Azure is Azure Hybrid Benefits (AHB). This is a strategic move from Microsoft to get on-prem clients to move workload to Azure by allowing the same kind of licenses to be used on-prem in the cloud. So, this means you can leverage existing licenses with active SA. You can also benefit from renting or buying new licenses.

These savings are huge, in some instances close to 90%! Hence, understanding and leveraging this option is another must-do.

The implementation is straight forward – it is simply a checkmark in the server configuration that you are bringing your own license. Again, do make sure you own that license or rent or buy new ones before setting the checkmark.

AHB in the real world

Managing AHB is quite complex because you need a detailed understanding of licensing types and options. We often see results of non-compliance or deferred decisions.

A cloud-native startup had no on-prem licenses and thought that AHB was not an option for them. They were not aware that they could rent the server licenses from their cloud service provider and use them for AHB. This saved them 92%.

A large, global enterprise customer was leveraging AHB systematically. Based on external advice, they were about to purchase Windows Server Enterprise licenses for AHB, where Windows Server Standard would suffice. Buying the Standard edition meant a saving of 84%.​

Whether you are a startup or a global enterprise customer make sure that you get external advice on licensing – and make sure it is from an independent expert who is not directly or indirectly making money on your Microsoft spend.

Savings option #3: Azure Elastic Database Pools

This is the third of the must-do savings types because the potential savings are significant, 60%+. 

Nearly all customers use SQL Server in Azure. And for most customers, it’s one of the top 5 expenses.

Azure has the problem that frequently, the minimum size of the database you can buy is too big for the workload you want to run. The answer to this problem (and quite a few other problems) is elastic pools.

We will not go into the technical details here, but it is a way for you to get economies of scale and only pay for what you use.

Elastic Pools in the Real World

Elastic pools is the most important way to get some economies of scale in the cloud – make sure you understand all the options here.

A small Software-as-a-Service customer was spinning up a SQL Database for each new customer who ordered a trial. With the smallest standard database cost of €12.4 per month, that adds up. However, none of these customers use the performance available even in this, the smallest instance, and most are very rarely accessed at all. Creating a small vCore Elastic Pool saved them more than 75% of their Azure SQL Database cost and allowed them to keep adding customers with nearly 0 marginal costs.

Other Ways to Save in Azure

There are many other ways to save. To mention a few:

  • Use the newest version of a service. This is how Microsoft introduces lower prices. New versions are cheaper than the versions they replace.
  • Use Azure discounts for test and development servers. If you have Visual Studio Subscriptions for your developers, set up a Test/Dev subscription and avoid paying for Microsoft products.
  • Find the right model for paying for data egress (that is, data you pull out of the cloud). 

And we have not even moved into how you can save by reducing how much you buy. If you are interested in diving a bit deeper into this subject, you can read our article on Finops.

The bulk of savings are made from the top three categories. Therefore, our advice is clear and simple:

“Make sure you master Azure Reservations, Hybrid Benefits, and Database Elastic Pools, and make quarterly systematic reviews of these”

What about pausing resources? Or rightsizing?

One of the intuitively great ways of savings in Azure is the ability to shut down resources when they are not in use. And there are a number of tools out there that promises you to do it without hassle.

The reasons why we do not recommend you to start here are multiple:

  • Of the three largest categories only virtual machines can be paused. Storage and Databases do not offer this option.
  • The business case is not strong because when you pause a VM your pricing is “pay-as-you-go”. Hence you need to pause the VM more than 12 hours per workday and the entire weekend to compete with a typical reservation
  • Pausing workloads would require sign-off from the business. The time spent having this dialogue and the management of pausing VMs must be built into your business case.
The latter point is equally true for rightsizing.
 
Pausing, and even more so rightsizing, should definitely be in your toolbelt (the pro version), but we do not recommend you to start here. 
 
Pausing and rightsizing resources works best in an environment where you are using chargeback to the business and for resources driving material cost.

How to get savings done?

It should be clear that there are substantial savings opportunities in Azure, but you probably recognize one or more of these challenges:

  • Time and Priority: Your focus is delivering and operating cloud services, not managing costs.
  • Complexity and Changes: It is hard to get a complete overview of the options and new services and savings opportunities.
  • Knowledge: Even when you set aside enough time to identify savings, you frequently run into a question you would like to get answered before implementing it.

If so, you are not alone. 

Azure tools can help you with some of the savings

Azure offers a comprehensive suite of tools that can help you to get the job done. 

  • Azure Pricing Calculator can help you estimate the costs of a service you consider setting up. Remember to include things like Storage and Back-Up (these are not  included by default)
  • Azure Cost Management and Billing can help you understand your utilization and cost in your environment. We haven’t touched on the benefits of saving on how much you use of each service in this blog, but it can be substantial.
  • A note on Azure Advisor. While this tool is supposed to include cost optimization recommendations, we find it often actually increases costs. Be careful when following the advice for cost recommendations.
  • Cloudyn is now free for your Azure spend, and you can get it to cover your AWS, and Google Cloud spend as a paid service. 

No tool will deliver savings

… just like your bathroom scale in itself doesn’t lose you any weight. 

If you google azure savings, cloud cost management, finops, or other keywords related to saving on Azure and other public clouds, you will find an endless list of tools. You will find Apptio, CloudHealth, Densify, and many more. They are all great tools!

Even if you stick to the free Azure tools it is clear that the problem is not getting data points, ideas, and recommendations.

The problem is that you don’t have the time to properly understand the recommendations or filter through the multitudes of options to find the ones that make the most sense.

So then, how do you do that?

Well, consider this. What if you were getting a service where you quarterly scheduled a couple of hours in your calendar to go through a finite list of material savings recommendations with a guide that can answer any questions or concerns, you might have? You know, like the Kostner Cloud Cost Management Service

Final Reflection: Managing Azure Cost is just one of a New Trend

If you look around your company, you buy more and more technology “as-a-service”. There are good reasons for this, but it introduces a new paradigm for cost management that matters for everything you buy as a service. If you want to read more on this, please download our whitepaper on “Digital Transformation: Everything-as-a-Service”.

For each of these new services you are buying you will be left with the choice: Should you do it yourself or get external assistance.

Surely, you could do it yourself, but with more and more services, is managing costs really what you should be spending your time on?

Deltag i vores kursus: Microsoft licenser i Azure!

Kurset giver dig et klart overblik over:

… derudover har vi masser af tricks til, hvordan du gør det så nemt som muligt for dig selv.

Microsoft har annonceret prisstigninger i 2022 på de fleste 365-produkter i størrelsesordenen 10-15% – men mange virksomheder kan eliminere effekten gennem tættere omkostningsstyring.

Microsoft har annonceret prisstigninger på 10-15% på de fleste 365-produkter.

Selvom mange virksomheder ikke har et reelt alternativ til Microsoft, og de forhandlede rabatter selv for større virksomheder er faldende, så er der et betydeligt potentiale for at imødekomme de annoncerede prisstigninger:

”Det overrasker de fleste, at der i gennemsnit er 14% inaktive brugere i et Microsoft 365 miljø – og det er selvom licensstyring ved til- og afgang af medarbejdere er automatiseret.” (Mikkel Næsager, Chief Innovation Officer Kostner)

”Hertil kommer den gruppe af brugere, der sidder på en forkert licens, hvor der betales for funktioner, der slet ikke bruges og derfor kan nedgraderes til en billigere licens” fortsætter Mikkel Næsager.

Hvis din virksomhed starter nu, kan effekten af prisstigningerne begrænses eller elimineres. Det kan måske lyde tidskrævende, men der er mange genveje at tage og karrieremæssigt kan det være en god idé at forstå, hvordan principperne i FinOps kan bruges på Microsoft 365.

 

Inaktive brugere koster dyrt

Selvom de fleste organisationer har automatiseret tildeling og fjernelse af licenser når medarbejdere starter og stopper er der ofte mange inaktive brugere i miljøet af flere årsager: eksterne konsulenter, orlov og længerevarende sygdom og brugere der opretholdes for at have adgang til data mm.

Arbejdet med de inaktive brugere er et stort potentiale – enten ved helt at fjerne brugerne, eller at tildele en billigere licens, der passer til det aktuelle behov.

Ud over at det er en omkostningsmæssig byrde skal du også være opmærksom på, at inaktive brugere er en latent sikkerhedsrisiko – en angrebsflanke, hvor brugeren pga. inaktivitet ikke vil opdage, hvis kontoen bliver kompromitteret.

En væsentlig opgave er derfor, at du har overblik over dine inaktive brugere.

Mange brugere kan klare sig med en billigere licens

Mange virksomheder har en tendens til at tildele alle medarbejdere den samme M365 licens.

Dette er typisk for at lette administrationen, selvom der er medarbejdergrupper, der måske kunne klare sig med en billigere licens, f.eks. dem, der aldrig bruger desktop-udgaven af Office suiten.

Ofte er det svært at nå en endelig beslutning om at differentiere licenserne fordi ingen har fuldt overblik over, hvem der udnytter hvilken funktionalitet.

En af de gode muligheder ved Microsofts overgang til de cloud-baserede 365-produkter er, at der nu er betydelig bedre mulighed for at se, hvilke dele af de tildelte licenser, der faktisk udnyttes – og dermed også hvilke brugere, der kan klare sig med en billigere licens.

FinOps - en ny måde at tænke omkostningsstyring på

Dit Microsoft 365 miljø er dynamisk. Du har eksempelvis eksterne konsulenter tilknyttet i en periode eller medarbejdere på sygeorlov. Du har derfor brug for en dynamisk måde at styre dine omkostninger.

Hver måned eller hvert kvartal bør du gennemgå dine brugere for at fintune dine automatiseringer og licenstildeling.

Denne løbende styring bliver ofte kaldt FinOps – et begreb, der oprindeligt er opstået i forbindelse med økonomisk styring af cloud services som Azure, men som er velegnet for alle typer af IT-ydelser, der købes som services med løbende betalinger.

Mikkel Næsager anbefaler kraftigt, at du investerer i at lære mere om FinOps, så du kan være på toppen indenfor dit felt.

”Uanset om du er IT-chef, licens-manager, cloud-udvikler så vil det styrke din karriere at forstå principperne for FinOps til omkostningsstyring – og hvordan det kan gøres tidsmæssigt effektivt. Om 5 år vil alt blive købt som services.”

Tag styringen nu og vær klar til at imødegå Microsofts prisstigninger i 2022

Som nævnt har Microsoft annonceret prisstigninger på 10-15% pr. 1. april 2022.

Hvis du går i gang nu med at få set på inaktive og brugere med forkerte licenser har du gode muligheder for at mindske eller helt eliminere effekten af prisstigningerne.

Og som Mikkel Næsager slutter af:

”Så behøver vi jo ikke at yde velgørenhed til Microsoft ved at betale mere end nødvendigt – det seneste regnskab tyder ikke på, at de er økonomisk nødlidende”.

Azure Hybrid Benefits (AHB) is the second most important way to reduce your costs in Azure (reservations being the most important one). A main challenge when using Azure Hybrid Benefits (AHB) has been to ensure compliance and a time-effective way to manage assigned licenses, without risking non-compliance.

Microsoft just introduced scope-level management of Azure Hybrid Benefit. For SQL-servers now but hint at expanding to other areas later. The capability allows for centralized management of AHB and removes the most common excuse for not applying AHB for SQL workload.

Why is AHB important for me?

Azure Hybrid Benefits (AHB) reduces your costs in Azure in several ways:

  • You can leverage licenses you already own – and have active Software Assurance (SA) on – in Azure.
  • You can procure additional licenses on your existing EA, EAS, SCE, or CSP agreements, often at a substantial discount compared to the prices paid in Azure Pay-As-You-Go.
  • For Windows Server or Core Infrastructure Suite datacenter you have dual use rights, where you can use the license on-prem and in the cloud at the same time. For other license types, it’s either or.
  • Windows server licenses are cheaper to buy or rent, than purchase as pay-as-you-go licenses directly in Azure. You save anywhere from 76% to 96% after the cost of the license.

AHB is the second most important price reduction mechanism in Azure after reservations and one you must apply if cost matters, and you do not like to overpay Microsoft for their services.

Why is scope level AHB important news?

Until now AHB had to be assigned at resource level, ie. each individual server, managed instance. This meant that typically the developers should assign the license by indicating AHB during configuration.

The main issues with managing AHB at resource level are:

  • It’s a manual process and responsibility is unclear
  • Difficult to get a fast answer whether there are available licenses to use for AHB
  • It is easy to end up in a non-compliance scenario.

With Scope-level management, you can now essentially state how many excess licenses are available for AHB to use. Scope level management allows you to assign a pool of licenses within a specified billing scope, ie. account or subscription level. You no longer need to assign each license to a specific resource.

It will in essence work just like a reservation.

Hence, the team responsible for licenses only need to manage how many licenses are available for AHB, and Azure assigns the licenses on an hourly basis to the resources, and discounts the costs. Different resources can be covered each hour.

Scope level AHB will make the lives of developers and license managers much simpler.

Who should use scope level AHB?

Scope level AHB is currently in preview with enterprise customers on most SQL resources (at the time of writing: SQL Databases, SQL Managed Instances, SQL Elastic Pools, SQL Server on Azure VMs). You can read this article about which agreement types and resources the scope-level AHB applies to.

Our recommendation would be that you take a closer look at this if you:

  • Have excess SQL Server Licenses today
  • Are not leveraging SQL AHB today
  • Have good, negotiated discounts on your SQL Servers + SA
  • Struggle with getting a robust and fast license overview in Azure

If you are a Microsoft Software Asset Manager, you will appreciate this new feature. If you are in your DevOps team you want to let your SAM know that this feature is available, so you don’t have to worry about this anymore.

What should we be aware of with scope level AHB?

Also, only SQL workload registered as such can be covered. This is automatically done for PaaS SQL services, or VMs deployed from a standardized SQL image. But for VMs with a SQL Server instance that you install, it must be flagged. This can be done using Azure’s management agent, or manually.

The one thing you must consider is how your chargeback/showback will be impacted. We know that Azure will assign licenses on an hourly basis. The method is not described in the documentation.

However, you will likely experience that the same resources will vary in hourly price – depending on whether a license has been assigned the specific resource or not. This may lead to some of the internal customers seeing varying costs – even in a stable environment. And this may lead to wasted time explaining the variations.

If you have not used AHB for SQL server before you will additionally see that the Azure price is going down – and the true software cost is sitting in a different budget.

The showback/chargeback issues can be dealt with by using blended rates, ie. fixed rates for a resource type. These are not calculated by Microsoft, but it is one of the services we offer.

How do we get started with scope level AHB?

If you are the DYI type a great place to start is this article from Microsoft: https://docs.microsoft.com/en-us/azure/cost-management-billing/scope-level/overview-azure-hybrid-benefit-scope#qualifying-azure-resources

We will discuss the options as part of Kostner’s Cloud Cost Management service, so if you are an existing customer, we will discuss this on the next decision meeting and set up implementation workshops if relevant.

Deltag i vores kursus: Microsoft licenser i Azure!

Kurset giver dig et klart overblik over:

… derudover har vi masser af tricks til, hvordan du gør det så nemt som muligt for dig selv.

With Microsoft moving from being a classical perpetual software provider to an “as-a-service” provider with Microsoft 365 subscriptions and Azure as the pivot of their growth strategies you need to adapt to a drastically new reality when negotiating your next deal.

If you are in doubt … just think of the announced increase in price from 32$ to 36$ per user per month for M365 E3 with around 20% on top if you want it as a monthly subscription and not a pre-paid annual subscription. In effect this is a 35% increase in price.

In this blogpost we will examine Microsoft’s strategies and why getting the largest discount possible might be very expensive. Our goal is that whether you are from procurement or IT, by the end of this post you will see the next renegotiation in a new perspective …

What can you expect from Microsoft?

Microsoft is very transparent about their strategies:

  • They want you to move to a bigger M365 bundle, so if you are currently on E3 they want you to move to E5.
  • They want you to move as much infrastructure to Azure as possible – with a monetary commitment.

So far nothing surprising.

However, you will experience a significantly toughened climate for negotiating discounts.

For example, you should expect quite small discounts on Azure – and even if you increase your commitments, you can only expect marginally improved volume discounts. Microsoft has some valid arguments for that, particularly that other discount options provide significant savings.

Before we move on let us quickly examine what successful cost management looks like in Microsoft’s “as-a-service” universe.

How do I save the most? Welcome to FinOps

The fundamental equation that is governing IT service cost management aka. FinOps is

cost-efficient cloud Spend management

When you negotiate a discount this obviously affects “Price”, but almost always also put some constraints on “Quantity” through some sort of commitment – or even on “Total Cost” when you make a monetary commit. And this is where you should exercise caution.

In Azure, we see an optimization potential by leveraging reservations, licensing options, and other price discounts, typically reducing costs with 15-25%. Another 10-30% comes from shutting down services (ie. reducing quantity). Hence an optimized Azure environment is 50% cheaper to run than a non-optimized environment.

We tend to see that early in the Azure journey the focus is on moving new areas into Azure and only later the focus shifts to a FinOps responsibility applied consistently. You need to know how much untapped savings potential there is to not overcommit in total spend.

FinOps for Microsoft 365

Similarly in your Microsoft 365 environment there will most likely be significant cost reduction opportunities you need to factor in. One example is inactive users. Undoubtedly, your IT department has full control over employees joining and leaving the company, but what about external consultants and temps? In the companies we work with typically 10-15% of the total licenses assigned are to inactive users.

This comes as a big surprise to all our customers!

The other area in Microsoft 365 you need to understand is if you can do with cheaper licensing options than today, ie. by having some employees work with smaller bundles or downgrading churned employees.

This takes longer to implement but makes it even more important to not commit to E3 or E5 bundles for all employees if there is a major potential here. The last few percentages in discount can be very expensive.

The main take away here is that in the future you will save more money on your ongoing cost optimization than what discounts you can negotiate.

So, in light of this what is the framework for renegotiation?

How do I negotiate the best deal for my company?

In a world where you will save more money on the ongoing cost management than what you can get at the negotiation table … how does the best possible deal look like?

The key here is to understand what you can commit to, and where you need flexibility.

How much can you save on Azure? Make sure not to commit more than your current spending minus savings and protect your right to the annual true-up. We have seen too many examples where a three-year monetary commitment was not used – because IT-projects do tend to take longer than planned!

Similarly, you need to be able to answer how many inactive users you have, and if there are options to serve some user groups with cheaper bundles.

With this in mind, your four steps to the perfect deal are:

  1. Understand untapped optimization potential
  2. Define your maximum commitments in main categories
  3. Negotiate the best possible deal
  4. Work professionally with FinOps driving down total costs – getting the benefits of the flexibility you negotiated

Having worked with the largest private companies and public organisations, and all types of organisations the one question that is the hardest to get a firm answer to is “What is our untapped optimization potential?” – particularly in a project which is demanding in itself and with short deadlines.

So how do you do that?

The secret sauce to the perfect deal…

If you want to understand where to find future cost savings, you can equip yourself with an army of consultants with Excel and a thorough knowledge of Microsoft prices, discounts and terms & conditions.

Or you can look for a standardized solution.

When you think of it: Your problem is identical to many other companies, and all data to solve your problem is available in standard format in your portal (Azure, M365).

So, you should be able to find a solution that:

  • Takes no time to implement
  • Is reasonably priced
  • Will provide you with the information you need to understand your commitments and need for flexibility

So, everybody is doing this, right …?

The elephant in the room

Having worked with all types of large organisations and analyzed billions of IT spend we see that only the most advanced organisations are understanding the new rules of the game – before, during, and after the enterprise agreement (EA) renegotiation.

Too many organisations measure procurement on negotiated discounts. No wonder, this leads procurement towards maximum commitments and discounts, despite this will be costly in the three-year period.

Very few organizations have a professional FinOps approach nor measurements of price optimization or a process to avoid waste.

Working with the new way to manage IT service costs is a team effort and everyone needs to be on the same page. While IT and procurement try their best, the leadership teams must also embrace this way to manage IT services costs – just as they have already taken the consumption of IT services as Azure and M365 fully on board.

Once, FinOps is implemented it makes perfect sense. Just as we are getting speed and agility into developing new services, we are getting speed and agility into managing costs as well.

If you only remember one thing, this should be this…

In the future you will save more in the ongoing cost management than in your Microsoft renegotiation! Make sure you do not over-commit to Microsoft and maintain the flexibility you need in your FinOps team.