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:
- Are we in control of our total spend?
- If no, can you solve the problem in the FinOps (or cloud) team?
- 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.
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?
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?
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.
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.