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 data center upgrades to enable working from home has created lots of opportunities to lower cloud spending rates and improve data center efficiency without affecting capabilities. How much? Enough to encourage 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 hyper-scale CSPs to offer FinOps tools.
We estimate potential cloud savings at up to $108B in 2023 growing to $217B in 2024. Survey results published in Forbes and by McKinsey suggest that many organizations currently waste 15% to 30% of their cloud spend by not following best practices and good governance. Gartner's Worldwide Public Cloud Services End-User Spending Forecast expects spending to culminate at nearly $600 Billion in 2023, growing to almost $725B in 2024. This estimate does not include savings from better data center housekeeping which should be smaller because data centers are generally better managed than cloud spending, data center spending is growing slower than cloud spending, and data center billing is designed to cover costs, not generate profits.
Basics of Good Housekeeping
Good housekeeping is the melding of best practices and good governance tailored to the service being used. The magnitude of wasteful cloud spending and the economic downturn that many companies are experiencing have made this a good time to implement programs that reduce cloud spending. Whether your focus is short term savings or long term optimization, both journeys begin with obtaining executive support. Without it obtaining interdepartmental cooperation is at best problematic because users with no budget responsibilities are reluctant to put the metrics they are measured by at risk without some benefit: tangible or intangible.
The FinOps Foundation created the FinOps Framework shown in Figure 1. It highlights the need for a FinOps champion; shows that “understanding cloud usage and cost” is foundational; and that an early focus on “cloud rate optimization” should result in early successes achieved at minimal risk. Figure 1 also provides a mission statement, organizing principles, personas (i.e. stakeholders), domains (i.e. projects/objectives), and a walk crawl, run maturity model.
Figure 1. Source: Finops Foundation
Below are relatively low technical risk best practices and elements of good governance that provide a good starting point for optimizing cloud spending.
1. Use reserved instances instead of on-demand instances for baseline cloud workloads.
2. Use spot instances for batch processing, stateless, and fault tolerant applications.
3. Turn off non-production environments when they are not in use.
4. Use Auto Scaling instead of overprovisioning to avoid overbuying.
5. Use cloud cost management tools to monitor and allocate spending, optimize cloud usage, and forecast future usage.
6. 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. Consider repatriating high-cost cloud workloads back to the data center. Virtualization, containerization, ever more sophisticated migration and orchestration tools, and services are weakening vendor lock-ins and making it easier to move workloads.
8. Implement chargebacks.
9. 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.
10. Centralize cloud purchasing to get lower bulk pricing.
11. Create an exception process to expedite special requests and avoid alienating users with delays.
While the value of implementing each of the above recommendations is self-evident, implementing them consistently at scale requires the use of FinOps tools. Below is an incomplete list of potential cloud cost management vendors. Selection criteria should include vendor viability, functionality, automation/ease of use, cost, support, and the willingness of vendors to guarantee their claimed savings. It is also important to note that small vendors may provide superior support for various reasons including easier access to Development and lower customer-to-support representative ratios.
- AWS Cost Explorer and CloudWatch
- Azure Cost Management
- Google Cloud Billing
- VMware CloudHealth
- Cloudera Data Platform
- CloudZero
Bottom Line
Many organizations are spending 15% to 30% more than is needed, potential savings are huge and the need for FinOps 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 15.0% in cloud costs.
Stan Zaffos, Advisor, Lionfish Tech Advisors Inc.
Valdis Filks, Advisor, Lionfish Tech Advisors Inc.
Recommended Reading
The Hidden Costs Of Cloud And Where To Find Overspending (forbes.com)
Lower cloud costs without destroying value | McKinsey
Gartner Forecasts Worldwide Public Cloud End-User Spending to Reach Nearly $600 Billion in 2023
Our thinking: Taking control of cloud costs (kpmg.com)
Maximizing the Value of Cloud Spending with Cloud FinOps |BCG
15+ BEST Cloud Cost Management Tools In 2023 | CloudZero
Title image created by Fotor