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Put Cloud Spending on a Diet

with Good FinOps


· drafts

Add More Capacity and Capabilities with Better Housekeeping

The long-predicted recession has arrived and put greater than normal pressure on CIOs to cut costs. Fortunately, 3 years of COVID driven spending with CSPs and investing in onsite datacenter upgrades to enable working from home has created lots of opportunities to lower cloud spend rates and improve data center efficiency. How much? Enough to encourage many consulting firms such as KPMG, McKinsey, and BCG to create Financial Operations (FinOps) practices; venture capitalists to invest in startups that monitor, analyze, report, optimize, and forecast cloud spending, the Linux Foundation to create the FinOps Foundation, and even the hyperscale CSPs to offer FinOps tools.

Using research from McKinsey and IDC sizes potential cloud savings at up to $177B in 2021 growing to $325B in 2025. More specifically, McKinsey research that claims that “…technology leaders can quickly cut as much as 15 to 25 percent of the costs of their cloud programs while preserving their value-generating capabilities.” Figure 1 abstracted from an IDC report, sizes Whole Cloud spend at $706.6B in 2021 growing to $1,301B in 2026. This estimate does not include savings from better datacenter housekeeping which should be smaller because datacenters are generally better managed than cloud spending, datacenter spending is growing slower than cloud spending, and datacenter billing designed to cover costs, not generate profits.

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Figure 1. Source: IDC

Basics of Good Housekeeping

Reducing excess spending on the cloud, or in the datacenter begins with obtaining senior management support. Without it obtaining interdepartmental cooperation is at best problematic. Another reason is that asking users who have no budget responsibilities to change operational behaviors is a big-ask because it may put the metrics they are measured by at risk. Figure 2 shows the organizing principles and stakeholders that should be enlisted into the teams that will maximize the value of cloud spending.

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Figure 2. Source: FinOps Foundation

Staffing to this model is a time consuming and resource intensive process. Hence FinOps champions should follow the crawl, walk, run advice shown in Figure 2 and initially task FinOps teams with pursuing savings that have little inherent risk and create opportunities for early successes to build upon. Among the more obvious opportunities are:

  1. Plan ahead - use reserved instances instead of on-demand instances for baseline cloud workloads.
  2. Turn off the lights - and non-production environments when they are not in use.
  3. Charge your EV when electricity is cheap – and use spot instances for batch processing, stateless, and fault tolerant applications.
  4. Chargebacks improve efficiency - use cloud cost management tools to monitor and allocate spending, optimize cloud usage, and forecast usage.
  5. Don’t overbuy - when economics dictate use Auto Scaling instead of overprovisioning to meet application performance needs.
  6. Oil the squeaky wheel - monitor data transfer costs to identify hybrid cloud workloads that could benefit from the use of reserved instances, different data transfer methods, compression, migration to the cloud, or repatriation.
  7. Practice makes perfect - centralize cloud purchasing to get lower bulk pricing.

Cloud Cost Management Vendors

Below is an incomplete list of potential cloud cost management vendors. Selection criteria should include vendor viability, functionality, automation/ease of use, cost, and support. It is also important to note that small vendors may provide superior support for a variety of reasons including easier access to Development and lower customer to support representative ratios.

  1. AWS Cost Explorer and CloudWatch
  2. Azure Cost Management
  3. Google Cloud Billing
  4. VMware CloudHealth
  5. Cloudera Data Platform
  6. CloudZero

Process Best Practices

  1. Create policies and procedures that empower FinOps and Purchasing to negotiate more aggressive discounts and soft benefits such as lower exit fees, installation, configuration, report customization, guarantees, etc.
  2. Create an exceptions process to expedite special requests and avoid alienating users with delays.
  3. Work with analysts to create a shortlist FinOps solutions.
  4. Ask vendors to guarantee their claimed savings or have Dev/Ops and Finance validate cloud cost management vendor saving claims.
  5. Hire consultants to address skills shortages when they return a positive ROI.
  6. Publicize and reward successes.
  7. Consider repatriating high-cost cloud workloads back to the datacenter. Virtualization, containerization, ever more sophisticated migration and orchestration tools and services are weakening vendor lock-ins and making it easier to move workloads.

Bottom Line

Many organizations spend more on the cloud than their datacenters. With excess cloud spending frequently in the 15% to 25% range potential saving are huge. Hence the need for FinOps is self-evident. Even if FinOps is only able to recapture half of an organization’s excess cloud spend that is the equivalent of Purchasing negotiating an additional discount of 7.5% to 12.5% in cloud costs.

(C) 2023

Stan Zaffos
Valdis Filks, VeWhat AB


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Cover image source: ClipDrop Stable Diffusion