Business Metrics For Cloud Cost Optimization

  • June 15, 2021

As a business, you want to get the highest value out of each and every dollar you spend in the Cloud. One of the best ways to do this is to prioritize business metrics or, in other words, employ a FinOps strategy. FinOps combines systems, best practices, and culture to better understand costs in the Cloud. It can break down silos much in the same way that DevOps has done for development. Through a new set of processes, FinOps brings together technology, business and finance professionals in order to increase the value of the Cloud. 

Traditionally, finance and development teams do not work together. FinOps seeks to change that and wants to ensure innovation while keeping business concerns top of mind. A FinOps team will push your organization to invest in the resources for Cost Optimization or Cloud Financial Management to achieve business success.

 

Pay For Usage

One of the primary benefits of implementing a FinOps strategy is paying only for what you use. To do this, put in place the Consumption Model, which means you only pay for the computing resources you need and increase or decrease your usage based on business requirements. One example of this is only starting test and development resources when those environments are used during the eight-hour workday. As a result, you would pay for 40 hours instead of 168 hours of usage for a savings of 75%. 

Workload Output and ROI

The Cloud allows you to identify usage and costs. Another important consideration is the workload output and all the costs associated with delivering it. By using this metric, you will identify any gains made from increasing output and reducing costs. You will be able to transparently attribute IT costs to individual owners of workloads. 

Since cloud costs are based on how much the cloud is used, everyone using the Cloud is incurring costs. Your organization can embrace cloud spending accountability meaning everyone from department heads to individual engineers takes ownership of what they spend in the Cloud. This gives you a true measure of the ROI. Workload owners will then have the opportunity to optimize their resources and help reduce costs across the board. 

 

KPIs

When measuring for FinOps, you will need to identify your KPIs. All KPIs should be backed by data. Do not make assumptions. They should be S.M.A.R.T. which means Specific, Measurable, Achievable, Relevant, and Time-Based. You will want to prioritize efficiency over cost. At this point in development, you are investing in something new and may be spending more money. However, you are planning on accomplishing more with that money. There is a bigger picture when it comes to your KPIs. When presenting KPIs, you will want to provide context as to how they relate to broader business decisions. 

KPIs should be defined at the high level or business level and at the low level. The business KPI is usually a single metric. Some examples are:

  • If your business charges by pageview: Cost per pageview
  • If your business charges by client account: Cost per account
  • If your business is an ecommerce charging by products sold: Cost per product.

If your business sells more, your costs will scale up, so total costs will not work for this evaluation. 

Once you define the business or high-level KPI, you can define the low-level KPIs. Some examples of effective KPIs that your organization should consider include:

  • Percentage of the environment with proper tagging in place 
  • Percentage of bill from untagged resources
  • Forecasted cost against the cost of cloud resources per team
  • Total spend against the cost of cloud resources per team
  • Percentage of revenue that is spent on the Cloud
  • Total cost against the cost of unused resources in the Cloud
  • Average price of compute per hour
  • Variance between forecasted spend and actual spend
  • Money saved on Savings Plans or other discounts against the total cost of cloud resources
  • Percentage of infrastructure covered by discount vs. running on-demand measured per hour
  • Percentage change in the cost of cloud resources over time

Your organization will want to set targets for your KPIs and outline the actions the business will take to achieve those goals. You will want to involve multiple people from across teams, including engineering, product development, accounting, pricing, marketing, and more, to reach your target KPIs. Implementing FinOps and taking business metrics into account will help you base your decisions around the business value of the cloud. Once your teams are working together and optimizing costs, you can increase the business value you do get out of the Cloud.