Tag: Cloud cost control

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:

Making wrong business decisions due to flawed understanding of costs
Wasting time on internal cost decisions
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, 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:

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

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

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

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.