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.

Want more FinOps knowledge

Sign up to FinOps Trends

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.

If you are like most, you probably experience IT costs not being stable as they used to be. You might experience some budget overruns or have a nagging feeling that you are overpaying for some of the new cloud services. 

But don’t worry. This blog post will outline a simple roadmap for your FinOps journey, so you can focus on delivering business value.

What is FinOps?

FinOps is a concatenation of Financial Operations, just like DevOps is Development and Operations. It is the name of a new task that all consumers of the cloud must do.

 

In the old on-premises times, optimizing IT costs was mostly about optimizing how you bought technology. You negotiated large hardware or software deals with teams from multiple departments, including legal, procurement, finance, and IT. 

In the cloud, there is no single large purchase. Instead, you buy services continuously as developers deploy workload, and bills are monthly and therefore seem “small” compared to the hardware purchase made once a quarter. 

Make no mistake, though; the total amount is large.

The Cloud Requires You to Think Differently about Cost Management

Before we move on, we have a few statements to consider regarding how IT, finance, and procurement are working together to manage your cloud costs.

In our company we agree that:

This is not the time or place to detail each of these critical questions, but if you want to dive further into these questions, you can read our blog “Five critical elements in your cloud cost thinking.”

Surely, this requires a vastly different approach than in the on-prem world. Welcome to FinOps!

If you do not manage cloud costs with the right approach, you run the risk of overpaying. Maybe this is the reason why the average budget overrun reported in a recent survey by Flexera is 23%!

The Four Key Components in FinOps

FinOps is the practice of managing cloud costs in a variable spend model. Or simply put, FinOps is about managing this equation:

finops

 

In this equation, Price is about keeping your unit costs down, i.e., getting the services you buy today as cheaply as possible. You can do this in many ways, but fundamentally it boils down to: 

  • Optimizing price by working the cloud service catalog, price and discounts models (applies to all organizations), and 
  • Negotiating enterprise-specific discounts and special terms (if you have sufficient scale). 

The great thing about price optimization is that you can do it without impacting the business.

Quantity is making sure that you are not buying more than you need, i.e., by shutting down unused services  (life cycle management) or purchasing the necessary capacity (right-servicing). These types of decisions typically require the involvement of the business owner and come in two maturity levels:

  • Inform the business owner about what they are spending, and this will immediately have an impact on the quantity consumed
  • Manage quantity in a structured process where you monthly or quarterly sit down with the business and go through material costs

A Roadmap to FinOps

No matter if you are a large or small enterprise, private or public, technology-based or traditional products and services, we experience the following roadmap providing the best results:

STEP

01

Optimize Price

In order to optimize price you need to take a snapshot of your current environment, optimize it using a tool with a complete up-to-date service catalogue and price/discount list, validate the findings and make the adjustments in your portal.

STEP

02

Inform about Spend

When you have optimized price – and taken the largest part of the savings available – you can start creating transparency on who spends how much on what.

STEP

03

Manage Quantity

This is where you need to get the business involved to make decisions about shutting down services (lifecycle management), shutting services on/off, and buying the right capacity services (rightsizing).

No matter if you are a large or small enterprise, private or public, technology-based or traditional products and services, we experience the following roadmap providing the best results:a

Want to know more about each of the steps? Read our blog on “Fasttrack Roadmap to FinOps.”

This roadmap provides excellent results because price optimization delivers considerable savings, making it easier for you to move on to business-critical decisions on quantity.

And if you get external assistance, you can optimize price very fast!

Get external help for price optimization

Another reason to start with price optimization is that it is well suited for external assistance.

You can get more savings, you can get them faster, and you need to spend only a 10th of the time or less.

The reason is simple – you share the cost of the time-consuming parts with other companies. Don’t worry about tracking changes, getting your spend, analyzing it, reading the fine print, etc. 

You want to retain control of your environment by validating the recommendations and ensuring that they do not run contrary to any plans you might have.

You might argue that you already have a person or a team doing this. Indeed, they are doing a great job on this. However, ask yourself if they can create more business value if they spend their time on other tasks than price optimization.

FinOps in the Real World

All of our customers have one thing in common – they care about not overpaying and want to stay in control. Some of them have large teams, other just a single person with limited time. They understand cloud technologies and all the concepts required to manage cloud costs. Yet, there is always time and money to be saved.

Let us share with you a couple of examples.

New Possibilities

 A Media client in Azure was spending large amounts on App Services. There had been no ways to save on these services other than reducing the number you ran. In the fall of 2020, Microsoft suddenly introduced reservations. Now, by upgrading these instances from standard to premium and reserving them, clients could save 60+% on these resources. We notified our client, and within one week, the customer implemented the change and saved hundreds of thousands of euros annually. Continuous monitoring of new announcements is an essential part of FinOps – but also one you can easily outsource.”

A highly technical save

One of our global clients run a large data warehouse in the cloud. It runs on massive machines with very high performance. However, on the cloud vendor’s advice, they had configured the environment with so much storage performance that they exceeded the limits of what the database servers could handle. The result: they were paying tens of thousands of dollars for the performance they were physically unable to utilize. The fix? Adjust the performance setting for the storage drives, instantly lowering costs by 50%.

The Aha! moment

We recently facilitated one of the first Showback review meetings for a client. They showed their development teams the costs they were driving, including the resources with the highest spending. What did they find? “That, that has been inactive for at least 18 months, I thought it was gone!”. You would be surprised how often this happens. No-one has the job to review all running services, so even with a team more than willing to help, this is not their priority. A 20-minute online meeting saved nearly $100k, by merely creating transparency and responsibility.”

FinOps is much more than delivering savings

The fact is that most cloud journeys do not have a cost focus. Rather, it is about digitalization, speed, and agility. Therefore, you might state the success of your FinOps journey in the direction of:

  • Getting more digitalization for the same money,
  • Avoiding digitalization slowdowns due to cost overruns,
  • Getting more time in the cloud teams to building and operating your cloud rather than managing costs.

Is this true for you? If so, working with an external partner like Kostner will help you focus more on success and less on the commodity parts of price optimization.

Want to know more?

Hopefully, it should be clear by now that we are here to make your life simpler. You will save more, faster, and your team will spend less time on FinOps and cloud cost management.

To make your decision as simple as possible, we have two completely risk-free ways of finding out if you want to work with us:

  • Book a free meeting, where you can learn about how we would work with you and ask any questions you may have, or
  • Find out exactly how much you can optimize price by taking our free assessment. We will go through our optimization results, and you can ask any questions you might have.

We are looking forward to making your life a little simpler.

In a recent blog post I described why you need a quarterly cloud cost tune-up.  In short: Your cloud environment is dynamic with new services being added continuously. The cloud providers add new generations of services, new licensing options and changed discount programs. Hence, these dynamics requires a dynamic cost optimization approach.

The question of the week is who should be responsible for the quarterly tune-up? And if you remember my question from last week … how do you get it done in 3 hours?

What are other companies doing?

From our research and customer work we have found that the budget more often than not is owned by the CIO, Head of Infrastructure, or in some instances in a Cloud CoE (Center of Excellence). Sometimes procurement has some responsibilities in price optimization as well and even Finance is occasionally involved.

However, what is almost always true is that the teams actually deploying services to cloud are essentially responsible for the cost optimization effort – irrespectively of who has the budget or process ownership.

Is this really the right way?

Or put differently … should the same people who are responsible for deploying new services and their technical operations, spend weeks every month on all the tasks associated with cost optimization, ie. the addition of new services, license models, discount model changes, discount percentages changes, migration options, redundancy options, reservation utilization, reservation rebalancing etc.?

The answer is no.

Why? Because the one thing customers tell us more than anything else is: ”My focus is on deploying to cloud. We are so stretched for resources, we have to keep our focus where we grow the business and put new services and features in play”.

Another option is to turn to the company providing you with cloud services or cloud services operations. We have numerous examples that this from a cost efficiency stand point is not an optimal solution. Consider that they often get paid based on how much you use, and this may have the potential to influence how much of a priority they give to reducing what you pay (and consequently what they make). And again, they too are short of ressources, and prioritize their time in accordance with your priorities – getting things running in cloud.

Either way, the result is that money are left on the table. Money that could be put to much better use.

What are the most successful companies doing?

“The companies that best combine speed and agility with cost efficiency have realized that you should not burden the DevOps or infrastructure teams with an ongoing task of cost optimization. Rather this is done as a Tune-Up, quarterly or monthly, where you review what has been provisioned and ensure this is purchased in the optimal way.”

The most crucial thing is to establish clear responsibility for not only budget ownership, but in particular the process of getting the quarterly tune-up done. This responsibility typically sits in the CIO office, with IT managers/architects or in procurement.

Who is responsible in best-in-class-companies?​

Budget ownership is not the critical part. What really distinguishes successful companies are that there is clear authority to get the tune-up done. This authority is typically held and exercised by the CIO or procurement. They typically rely on external assistance, so that the tech teams can focus on building and operating cloud solutions.

And of the two areas of responsibility, what really distinguishes successful companies are that there is clear authority to get the tune-up done. They do not waste valuable time discussing if it is necessary. They just get it done.

And the way they get it done is always with some level of external assistance.

Why?

Because a quarterly tune-up requires massive data collection and analysis, which is quite generic – and it is simply not cost efficient to do this internally.

To illustrate this: Kostner offers a Quarterly Tune-Up service where you and your team only need to spend 3 hours every quarter on cost optimization. Yes, three hours. The time you free up, you can spend on delivering services to the business. This is a great way of balancing speed with cost efficiency.

What is critical when selecting external assistance?

Make sure the provider is focused on cloud cost optimization, so you do not a) have to pay for “generic” efforts (gathering data or building a tool). b) get recommendations that are not technically feasible, and c) have conflicting interest with your intent to save on cloud

In larger enterprises we sometimes meet dedicated teams, frequently known as FinOps teams. However unless you run a (very) large cloud environment, odds are, you can’t dedicate a person (let alone a team) to this alone.

Even when there is a dedicated FinOps team they almost always rely on external assistance. Typically they focus on the larget ticket items and rely on external assistance for finding additional savings, and providing an independent proof, that they are running a cost efficient cloud setup.

 

What should I do from here?

Well, this really depends on why you are here. A few ideas might be to:

  • Learn more about cost optimization and the quarterly tune-up. You might want to participate in a free webinar on this, or continue reading the blog.
  • Assess your potential for savings. In our universe we would recommend that you simply order a free trial. You will need 2*30 minutes and get a complete review of your environment. No credit card required. No hidden subscriptions. 
  • Discussion with your colleagues if a Quarterly Tune-Up is relevant for you. Again, if you want we are happy to host a facilitated discussion of this where you can ask all your questions. Book a meeting

… or you might want to do something completely different.

Interested? Subscribe to our newsletter or follow us on LinkedIn.

Did you like this article? please share with your friends

Yesterday, I was listening to Kevin Kelly (founder of Wired magazine and other accomplishments) talk about the future of Moore’s law, and how a slowing Moore’s law would indeed be an extremely bad thing for how we use technology. You can see the full talk here.

Moore’s Law a Key Driver in Digitalization

As Kelly states, a key driver in digitalization and the rapid adoption of technology has been the relentless progress summarized by Moore’s law – every couple of years, you get twice the computing power for the same price.

What is Moore's Law? ​

The observation that every two years, compute power doubles – and importantly, the cost is cut roughly in half of each compute unit.

Digital technology has followed this curve, and sometimes even exceeded it as better algorithms have led to even higher increases in performance.

Another key component is that pricing nearly unanimously has been cost+, that is, the cost of production plus an acceptable margin. In this way, customers have always benefitted directly from advances in technology, and as a result, we have ”smart” everything, and digital technology saturates nearly all industries. The role of relative affordability in this digitalization cannot be overstated.

Cloud Subscription Services Changes Who Benefits from Moore’s Law

As a result, it is with some concern I am witnessing the shift to cloud subscription services in the cloud, and the pricing strategies that go along with them.

As customers no longer buy the component parts, but rather a sliced-up portion of hardware or even managed service, they no longer automatically benefit from Moore’s law. They are relying on cloud providers to pass on the savings that Moore’s law gives.

But cloud services are increasingly priced via Value Based Pricing – not cost+. The result? You no longer get twice the technology for the same price every two years. In some instances, price reductions have slowed compared to classic models, in other instances they have stopped, and in some instances, prices increase every year.

As services replace hardware and customizable software, we need to reestablish a competitive landscape that means prices actually drop in accordance with Moore’s law, which has so far driven technology adoption. Otherwise, we run a very real risk of cost becoming a prohibiting factor in further digitizing our companies. This is an outcome that no one other than shareholders of large cloud providers would find attractive.

What Can You Do to Benefit (as Much as Possible) from Moore’s Law?

The first thing you can do is to manage the purchase of your cloud services with higher frequency to ensure that you actually reap the portion of price reductions the cloud providers are passing on to you. You can do this in a quarterly (or monthly) cloud cost tune-up.

What is a Quarterly Cloud Cost Tune-Up?

Every quarter you a) Review the overall growth of the environment, b) Check if there are newer versions of services that offer better performance and lower costs, c) Buy missing reservations and rebalance existing ones, and d) See if there are things that can be combined – decisions that cannot be made when deploying services individually

The other options to reestablish a competitive landscape are a lot trickier. Creating your IT infrastructure to accommodate a true Multi-Cloud setup is where you ensure that you can provision services where they are cheapest. It frequently involves the use of co-connection centres, managed infrastructure services, and building with components like containers, which can run on multiple platforms

Where should I start?

Where to start? The Quarterly Tune-Up is where you can rely on external assistance. Start with that and take the first level of savings here. This can be done in just a few hours per quarter if you choose the right service provider. This will free up resources, budget and time, for you to focus on the other tasks.

Interested? Subscribe to our newsletter or follow us on LinkedIn.

Did you like this article ? Please share with your friends.

Download this paper to learn

Cost-Efficient cloud management

Contrary to popular belief, prices for cloud services generally do not drop over time. Instead, new services, or new generations of existing services, are introduced at lower unit costs.

In fact, this is the primary price reduction mechanism for most major cloud providers.

Making sure you are benefitting from each new service or service generation is an important step in maintaining a cost-efficient Cloud Architecture. With thousands of services available on most cloud platforms, keeping track of new services is a time-consuming task.

Why is "checking for updates services" important?

In the cloud prices generally do not drop. Rather new generations are introduced at better price/performance. Make sure you leverage this. Time consuming? Yes, tools or external assistance can help.

We recommend you review your cloud estate once every 3 months, and see if there are new services, or new service editions available that offer some of the following benefits.

Lower Prices on New Generations

Look for pricing benefits that match your consumption model: New generations of existing services often come with lower Pay-as-you-go pricing. In terms of reservation discounts, newer generations often offer much higher discount rates.

An example of VM pricing across 3 generations of D-series VMs with 2vCPU and 8GB of Memory,
all in Western Europe:

As you can see, keeping up with each generation is a good way to save money.

The Quarterly Cloud Cost Tune-Up​

In the cloud prices generally do not drop. Rather new generations are introduced at lower prices. This is why you need a quarterly tune-up to ensure you get the most out of your budget.

New Price Models Become Available

Not only do new generations of services often mean lower prices, they also tend to open up new price models altogether. This is particularly prevalent on AWS. Here new editions may now be eligible for reservations, which the previous generations were not. In other cases, new editions may now allow for more flexible ways of paying for reservations, i.e. no up-front payment.

An example would be ElastiCache on AWS, a service most of our AWS customers use. Here older service family generations like r3 or r4 only offer the legacy reservation type “HeavyUsage” with 50% up-front fee, whereas the latest generation r5 offers “No Upfront” pricing, where – as you might have guessed from the name – there is no up-front fee.

Better Specifications on New Editions

Higher performing, newer processors, more included storage, access to higher tier external storage, better networking performance, these are all things that come with new editions of services. But, there are sometimes tradeoffs, and understanding what the technical changes to a service are from generation to generation is an important part of deciding whether to upgrade to the latest edition.

An example would be the move from 1 virtual CPU per core to virtual CPU per thread – not something you would suspect, if you didn’t read the technical specifications. Most of the time, this has zero real world impact, and the new service can be adopted – it is, however, one of the things you should check for, when you are conducting your quarterly review of which services to upgrade to the newest generations.

Better Fit Features

Services are often introduced with the highest tiers of gold-plating in terms of redundancy etc. Even though you may not use this high tier of feature on other services, you’ll have no choice on specific services. New editions open up the opportunity for lower-tier features.

A good example of this is the recent opportunity to reduce retention and availability for back-up of SQL Server Managed Instances on Azure. Until recently, back-up was only available in the highest tier of redundancy – far exceeding the redundancy or availability choice taken by the majority of our clients. Now, however, you have a choice, and can reduce the availability of back-up storage to match your other services. Savings? Up to 50% or more.

In Summary

By reviewing your existing service and resource portfolio regularly – we suggest quarterly – you can get lower prices, lower overall cost, better performance, and better specifications.

Don’t forget, however, as you change your environment, you will need to be sure to re-balance your reservations and license choices. 

Interested? Subscribe to our newsletter or follow us on LinkedIn.

Did you like this article? Please share with your friends.

The Quarterly Cloud Cost Tune-Up

In this blog, we will focus on how you can make your life a little easier by getting help on the six crucial elements for the quarterly cloud cost tune-up by implementing a) tools, getting outside help from b) service providers or c) consultants.

The Quarterly Cloud Cost Tune-Up​

The dynamic nature of cloud requires a dynamic approach to cost management to ensure you are not wasting money; A quarterly cloud cost tune-up.To do this you need to have six crucial elements in place, ie. data, tools, and people.

Tools​

Using technology is a must for tuning a cloud spend. Most of our customers generate millions and millions of rows of usage data. Far more than can be managed in a spreadsheet. Some organizations are implementing tools like Apptio Cloudability or Densify. Others rely on Azure Cost Optimizer, or AWS Trusted Advisor, both included in your cloud subscription. Tools are crucial – we’ve made one of our own that we use to calculate savings for our customers.

What tools give us is an overview of things you COULD tune, and you will then need to sort through this to find the ones that make the most sense, have the biggest impact in the shortest amount of time, and that is consistent with your future strategy and limitations.

The real challenge in getting savings done is not the tool; it is mainly time and priorities. There is massive pressure on the teams to deliver with the highest possible speed, which in turn means that the cost optimization moves down the priority list – at least until the cost is becoming a significant issue. Then a lot of money has already been wasted.

Hence, rather than asking yourself “what tool should I use”, the most important question for you to answer is, “should I put a team in place that has the time and priority to drive down our cloud costs?”

When should I implement a tool?

A tool is not a solution to getting savings done. It requires a team with sufficient time, and with savings as their top priority. Hence, implement a tool if you have a dedicated team in place.

Cloud partners / Cloud Service Providers

Some service providers in the cloud space include some form of cost optimization in the price. This is a convenient solution. They know your environment; they know the services and prices with your cloud provider, and they have the necessary access to implement any changes directly.

The feedback we get, however, is is that operationally this approach is not working as well as it could in terms of cost management. Unfortunately, the data we have confirm it – there are nearly always double-digit percentages in savings to be made.

Exactly why it does not deliver the best savings is unclear, but there might be a couple of reasons:

  • The partner is focused on the migration/operations/development of solutions more than cost-optimization if nothing else then because this is where you as a customer focus.
  • Like it or not, there is often a conflict-of-interest. Service providers get a commission based on the money you pay for cloud services. If they also operate your environment, their operational mark-up may also be dependent on your spending. Hence, saving you money will take time for your partner and reduce their revenue significantly.

How do I best handle the conflict-of-interest?

The best way to handle conflict-of-interest is by either a) having an independent third party do a quarterly review, or b) unbundling the cost optimization from the service contract

Consultants

You can use external consultants to assist you in your quarterly reviews. It isn’t easy to categorize different types of consultants, but you should at least consider the following when selecting external assistance:

  • Do they have a tested methodology to get a picture of your environment with existing data without installing sniffers, agents, etc.?
  • Have they already a database with up-to-date services and pricing from your cloud provider?
  • Do they have a tool in place to optimize your infrastructure?
  • Do they have the necessary technical expertise to recommend technically feasible optimizations?
  • Is their methodology well enough tested to save you time, so you only need to spend a few hours every quarter?

These questions are critical because you want the consultants to spend their time on your specific issues – not paying for generic data gathering or the consultants learning about this space.

What is critical when selecting a consultant?

Make sure they are focused on cloud cost optimization, so you do not a) have to pay for “generic” efforts (gathering data, or building a tool), and b) get recommendations that are not technically feasible.

Final thoughts

Years ago, when I was living in the Middle East, I discussed with a personal fitness trainer and friend, “What is the most effective form of training?”. He laughed and said:

You know, I love this question, because many think of this the wrong way. They are looking for me to say, “set a massive goal, complete an Ironman”. That’s not the way at all; the most effective form of training is the one you get done!

With the pressure to deliver with speed and agility, one of the main challenges is not to understand that there are significant savings to be made on your cloud bill – the challenge is getting it done.

In next week’s blog, we will discuss in more detail what it takes to get cloud savings done and who should be responsible for what. Until then, I will leave you with the question, “How do I get cloud cost savings done?”. And could I get it done in 3 hours every three months?

Interested? Subscribe to our newsletter or follow us on LinkedIn.

Did you like this blog post? please share with your friends.

Six Crucial Elements in your Quarterly Cloud Cost Tune-Up

Last week we talked about why a quarterly cloud cost Tune-Up is needed (Find out why). This week we will focus a bit more on what it takes to do a quarterly Tune-Up.

The great thing about cloud is that you can provision new services with focus on speed and agility and leave the cost optimization for this quarterly Tune-Up. And after your quarterly Tune-Up you will see savings materialize immediately.

The Quarterly Cloud Cost TuneUp

Just to reiterate, the reasons why we need the quarterly Cloud Cost Tune-Up are:

  1. Cloud pricing is dynamic. Prices and discount models are changing, and new (and cheaper) services are added
  2.  Your environment is dynamic. You migrate infrastructure, change architecture and add new applications and services.

In a dynamic environment with dynamic pricing you need … dynamic cost management.

The Quarterly Cloud Cost Tune-Up is about taking a snapshot of your current environment and finding the optimal price configuration against the service and price catalog of your cloud provider. Following that implementing the changes is easy and fast – as long as you only implement the material savings . Most changes involve merely adding a few checkmarks in your buying configuration – not changing your infrastructure or services.

The ability to complete a Tune-Up is about data, tools and people. You need to have the following in place to cost-optimize:

✔ Data: A complete overview of your current environment

✔ Data: Knowledge of all relevant services and prices from your cloud provider

✔ Tool: A way to combine these two data sets and use it to optimize your cost

✔ People: A person with detailed knowledge of terms and conditions from your cloud provider and technical expertise

✔ People: A person with insight in your technical environment to verify optimization recommendations before implementing them (typically an IT Architect)

✔ People: A person to implement the recommendations

The key question from here is: How do we get it done?

The challenge is getting it done

Most practitioners are well aware of concepts for optimizing their infrastructure. They know of at least some of the opportunities in reservations, pooled resources, looking for new and cheaper service instances and all the other savings options available. Also, they review the recommendations on cost savings available in their cloud portals.

Referring to the checklist above the do-it-yourself (DIY) approach is challenged on two primary factors:

  • With the pressure for speed in delivery is it then realistic to carve out enough time to not only “do” cost optimization, but to keep track of every new pricing structure, licensing model, service introduction etc. for all cloud providers in use?
  • Would you have the necessary tools in place to optimize? This cannot be done by hand unless your cloud consumption is very small.

To get a direction you might want to know the answer to this question:

How do mature organizations get savings done?

They focus on getting the largest ticket items optimized on an ongoing basis and use external validation of overall cost efficiency and getting the last 10% savings home

What we see in mature organizations where dedicated teams are in place, they focus on getting the largest ticket items optimized on an ongoing basis and use external validation of overall cost efficiency and getting the last 10% savings home. Not only is this a sound business case in its own right, but it also gives confidence to have an independent, external third party and an experienced cloud cost architect to validate the trickier parts with.

Three ways to make your life easier

In next weeks blog we will dive into some of the things you can do to make your quarterly Tune-Up a little easier. In fact we will explore three different ways to reduce the time you need to spend.

If you don’t want to miss out on this subscribe to our blog or follow us on LinkedIn

The fundamental equation for what your monthly cloud bill amounts to is:

cost-efficient cloud Spend management

In this blog, we will focus on Price, i.e., how you minimize the unit prices you are paying for the services you consume in the cloud.

But really, this is not new! No, but … 

It used to be much simpler

In the On-Prem world we have had a quite well-functioning division of responsibilities. IT knew how to architect, build, and operate the environment and every 1, 2 or 3 years procurement ran a process to drive down unit costs.

This all worked well, and with the help of Moore’s law (driving down prices / getting more performance for the same amount) this meant that IT could see costs remain fairly stable or even go down, despite increased consumption from the business..

Buy and Build is changing … a lot

With public cloud a new level of cost optimization is required for a couple of reasons:

  • “Buy” has split into two things: 1. the annual or tri-annual negotiation with major vendors about volume discounts, and 2. The act of buying individual services as you build your infrastructure.
    The volume discounts apply to the public price list and is typically single digit. This should be compared to the discounts you can get leveraging discount and smarter purchase options in the price list that offers far bigger savings potential, up to 70% or more – and this is not only by buying reservations!
  • “Build” is now happening with bigger speed and agility. The pressure to deliver features and performance faster is huge. The individual decisions in the build phase are well made, but the combined infrastructure offers additional price reductions by pooling resources and allocating existing resources efficiently.

A Quarterly Tune-Up of Cloud Cost is Needed

These two factors in themselves drives the need for a quarterly Tune-Up process (or even more frequent) in order to leverage the “buy smarter” options from the price list.

The need for a quarterly Tune-Up is further amplified by the dynamic character of cloud environments and cloud pricing. Let us give you a few examples:

  • Did your cloud provider introduce new reservations you could apply?
  • Did your cloud provider introduce new, cheaper services with better performance? (Yes, that happens almost every quarter)
  • Can you leverage the pooling of services because your environment expanded?
  • Did you provision a new server, where you can save more by applying the BYOL on this new server than where it is used now?

Surely you know of these types of savings, and many of these were considered when you provisioned the service initially, but the changes of pricing and discount models are so plentiful and highly frequent that there is much money to be saved by getting this right. You could say that when cloud providers say that cloud offers speed and agility – this is also very true for their price lists.

What Will You Use Your Savings on?

These periodic Tune-Ups offer significant potential for cost savings.

  • In mature companies spending millions annually, with limited growth and few changes in their cloud environment, and with a dedicated team to manage cost, the periodic reviews generate 10-15% annual savings.
  • In companies at the beginning of their cloud journey, where the focus is on migrating infrastructure and building new services, the savings potential is typically 15-30%.
  • For cloud-native scale-ups focusing on company growth and deploying new features, the annual savings range is even higher at 20-45%.

Even if you do not have a savings agenda for your cloud initiatives, you could surely put the money to better use.

… But How do I Get the Time to do this?

We understand you are very busy, but join us next week where we will explore some of the options of getting this periodic review done faster, whether you are looking to do-it-yourself or with external assistance. Also, we will touch upon the question of who should be doing what internally.

Interested? Subscribe to our blog or follow us on LinkedIn

Did you like this blog post? Please share with your friends