cloud cost management Archives

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.

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.