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.

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… 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

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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?

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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.

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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.

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:

cost-efficient cloud Spend management

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.

Download Kostner Quarterly Insights for Q4

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

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

Kostner Quarterly Insights Q4

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.

The three questions leaders care about when discussing cloud costs

If you can’t measure it, you can’t manage it. Hence, reporting on costs is always the first step in cloud cost management.

The challenge is that when you are working with the leadership team, their focus is on managing strategy and growth. Cost management is a necessary evil.

Your success depends on the leadership team having to spend as little time as possible on the budget, and they are looking to get an affirmative answer to these questions:

  1. Are we in control of our total spend? 
  2. If no, can you solve the problem in the FinOps (or cloud) team?
  3. If no, (deep sigh) do we need to involve other parts of the organization? And how?

The first “yes” will let them lean back and refocus on growing and developing the business. So what does that mean for what you should include in your management reporting?

What is the core of cloud cost reporting?

Your colleagues have these common elements in their cloud cost dashboard:

  • The total spending over time and compared to the budget.
  • Top 5 spenders 
  • Top 5 growth areas 
  • Top 5 savings

The total spending is the main graph to understand if spend is in control. The top 5 spenders and top 5 growth areas are looking for any signs of cost areas that may drive future costs. The top 5 savings are to see if we have made significant savings somewhere that are hiding a general increase in spending – and make sure to highlight your contributions in driving down costs.

You must be prepared for additional questions on any deviations, particularly if you experience any budget issues or your organization is under general cost pressure.

Warning

Generally, our recommendation is not to provide more detailed reporting or drill-down functionality for the leadership team. Focus on the high-level dashboard, discussing the numbers and demonstrating your knowledge and ability to find solutions.

The One Question You Must be Able to Answer.

You will eventually run into a budget problem, and the leadership team will look at you and ask question number 2, “Can you solve the problem for us?”.

Going back to the fundamental equation of cloud costs: Total spend = Price * Quantity, you are left with two options to reduce total cost. Either you can reduce the unit prices you pay, or you can reduce the quantity. (see also our recent blog post on how to take control of your cloud costs).

The responsibility for unit prices typically is with you as a FinOps professional. Hence you must be able to credibly answer if you and the team can solve the problem by applying Azure price optimization techniques. If there is untapped potential in price optimization, this is the fastest route.

But if you and the team can’t solve the problem, then what?

Warning

We strongly recommend that you have a firm grip on how to demonstrate that you are in control of prices – you don’t want to get the blame for cost overruns.

Decision time – Increase budgets or work with the business?

When you go into the budget review meeting, you already know that the meeting will require the leadership team to make one of two decisions:

  • Do we increase the budget (or allow an overrun), at least for a while? or
  • Do we go to the biggest spenders and work with them to reduce their consumption?

If the decision is the latter, get explicit support from the leadership at the meeting, and agree that they communicate it clearly to all stakeholders.

So much on the process, the next question you should consider is what could derail the discussions?

Warning

For the meeting and decision process to go as smoothly as possible, you should know which projects or departments you recommend doing a consumption review.

Some pitfalls in cloud cost reporting you are likely aware of

Firstly, let us reiterate how powerful it is to document that you control price optimization. Without this documentation, it is only too easy to point at you to find the solution. (sign-up to get a notification at the bottom of this article – we will be addressing this topic in a separate post)

Besides that, the most common issue in cost discussions is the numbers. To mention a few

  • Disagreement with Finance about what the cloud spend is in a given month.
    There can be many valid reasons for that, i.e., prepaid reservations, derived costs for licensing etc.
  • Discussions about spend changes even when the consumed quantity is the same. The reason can be that a reservation has run out or has moved to another resource. As billing is per hour, February can seem 10% smaller than January, even if there has been no change in the environment.
  • Dissatisfaction with the size of non-allocated costs. “Why didn’t WE benefit from reservations”
  • Concern about derived costs. If you bring your own license (i.e., Azure Hybrid Benefits), the license cost will not appear in your billing – only the lower price for the resource.

We will leave these questions for now and return to them in a later blog post on showback and chargeback.

Warning

These pitfalls may appear technical – and they are. However, they lead to genuine discussions about the validity of the numbers. Hence, getting to the right solution will become more challenging and reduce your credibility and impact.

How to get started?

By now, you might have a lot of ideas about what you want to do, what tools to implement, etc. But in the early phases of a cloud journey, where budget is not yet seen as a significant issue, getting funding for cost management tools is not always easy.

We recommend that you start by reporting the monthly cost in a normalized form compared to the normalized budget. It will create awareness about any increase in spending, free from month-length noise, and you can discuss some of the challenges in getting accurate reporting in place.

There are free tools in all cloud portals to help you get started, although these tools do not offer normalized costs. You can read more about the Azure tools in one of our recent blog posts, which links to Azure for additional detail. Read more about AWS Billing and Cost Management on the AWS site.

You will likely soon experience that the monthly reporting becomes a time-consuming effort, and you want a better solution. Then what?

Use Power BI or similar tools to report on cloud costs.

Even though you only present high-level data to the leadership team, you need a firm grip on the underlying data. Otherwise, you cannot answer the leadership team’s questions or present the business with relevant data on what areas they need to reduce consumption.

You must ensure that all internal reporting is consistent from top to bottom, and you only do that if you have one consolidated data source.

You can use the same Power BI tool to:

  • Produce Management Reporting
  • Investigate variances
  • Make custom reports
  • Create chargeback files for your ERP-system
  • Produce showback reports with drill down to your internal customers
  • And much, much more

The data you need is your cloud detailed billing data (read how to get data for your finops), your hierarchies for reporting, and any derived costs you want to include. We recommend you review options for third-party tools – it is not entirely trivial to build something like this yourself.

Want additional resources on cloud cost management?

Over the coming weeks, we will be issuing a handful of blog posts going into more detail about FinOps core disciplines, roles and responsibilities, and how to create a roadmap for your FinOps journey.

If you want an alert when a new post is out, leave us your name and e-mail below. You can also join our free live webinars or book a meeting if you want to discuss your specific issues with one of our experts.

All the best on your FinOps Journey.