Cloud Economics (Cloud FinOps) — Framework
One of the key reasons why enterprise migrate to cloud is cost reduction. Many enterprises don’t achieve their goal fully on cost reduction due to lack of Cloud FinOps. Some organizations have FinOps team, but they focus only on charge back and show back, not on cost optimization. As modern enterprises are large, global with complex organization structure, it will be difficult to manage, monitor and optimize cloud cost if there is no matured Cloud Economics framework and robust FinOps processes and framework.
For any organizations with operations in multiple geography, multiple Lines of business / Departments, large teams, complex applications, multiple environments, multiple public cloud accounts, the complexity keeps growing as organization grows. Without robust cloud economics model, it will be difficult to monitor and control cloud costs.
A mature Cloud FinOps has four primary pillars:
Each of the above areas is equally important and will help Enterprises to achieve cost reduction and realize the benefits of migrating to cloud.
One of the key success for Cloud economics team is to align with various stakeholders so that they can govern and control cloud costs. Cloud economics team has primary role in working with various stakeholders to arrive a aligned model of cloud cost monitoring, reporting, optimization framework. Below is a recommended framework for Cloud FinOps.
Cost Governance:
This is one of the key foundation activities before migrating to cloud. Enterprises need to come up with Cloud governance framework and align with various stakeholders in the enterprise. Below are various focus areas / activities on cost governance.
· Billing Entity Hierarchy
· Account Structure
· Tagging strategy and policies
· Naming convention
· Policy for shared services cost (e.g. 3rd party tools commonly used across enterprise, AWS Direct connect etc)
· Show back policy and process
· Charge back policy and process
· Contractual discussions with CSP
· Tool selection for cost management
· Drive Organizational accountability
· Drive cultural change
· Promote ownership and accountability for cloud users across organization
· Governance meetings with Executive leaders, Department heads, Finance, IT Leadership team and Business Leadership team
Cost Engineering:
Cost engineering focuses on creating and maintaining various cost automation activities that will help to expedite and implement cloud economics quickly and efficiently. Below are key focus areas in Cloud Cost engineering.
· Implement Account structure
· Set-up billing entities
· Set-up RBAC Roles, policies for Cost management
· Service control policies
· Tagging enforcement automation
· Preventive and detective controls for cost policy
· Implementation of 3rd party tools for cost management and integration with CSPs and other tools.
· Alerts and notifications
Cost Optimization:
Cost optimization is key focus area in Cloud economics to save cost. Below are key focus areas on cost optimization.
· Usage Optimization
· Cost optimization
· Reserved Instances
· Underutilized resources
· Right sizing
· License Optimization
· Container / serverless architecture
· Volume discounts
Cost reporting:
Cost reporting is very important and changes organization culture towards creating responsibility and ownership towards cost reduction. Below are key areas of Cost reporting.
· Cost Reports
· Custom dashboards
· Monitor cloud spend
· Trend and variance analysis
· Budgets
· Forecast
· Identify opportunities for savings (e.g. unused cloud resources).
· Anomaly detection in cost
· Near real-time reporting and decisioning
· Cost Avoidance
Below is detailed approach for some of key FinOps activities:
Account Management dashboard:
· As Account structure and landing zone is created, FinOps team should create a account management dashboard for FinOps activities.
· As and when new accounts are created, it gets automatically added in FinOps dashboard.
· The dashboard should be customizable.
· The dashboard should show cost spend by
o Geography
o Business unit
o Line of Business / Department
o AWS account
o AWS services
o Environment (Dev, QA, Production)
o Application
o Cost center
Budgets:
FinOps team will work with project team / application team to set budgets by
· Geography
· Business units
· Cost centre
· Application
· Environment
FinOps team will monitor actuals with budgets. They analyze any anomalies. They work with owners to understand reason for budget variance.
Forecasts:
FinOps team is responsible for creating and monitoring forecast. Below are key activities.
· Create forecast at various levels and align with owners.
· Adjust forecast to reflect any new projects, spike in usage etc.
· Predict forecast with ML / AI tools from CSP and 3rd party tools.
· Work with IT Finance team for OpEx budgets and forecasts.
Reserved Instance Monitoring and planning:
FinOps team monitors existing reserved instances for proper usage and identify opportunity for new reserved instances based on usage.
· Monitor usage of on-demand instances and recommend for Reserved Instances.
· Monitor usage of current reserved instances and alert any low utilization
· Distribute un-used reserved instances to other teams.
Right sizing:
FinOps team will
· Analyzes usage metrics and recommend right sizing of instance based on usage.
· Create cost savings report due to right sizing.
User Management:
· FinOps team will manage users for their portal / dashboard based on roles and privileges.
· FinOps team will set-up automated notifications for budgets, forecasts, alerts and reports to various users based on their profile and privilege.
Cost Analysis:
Finops team will analyze the cost by
· AWS services
· Various LoB / Department / Team
· Environment (Dev, QA, Production)
· Business Units
· Cost Centre code
· Application
· Tags
· Cost types
· CSP (AWS, Azure, GCP)
· Accounts
· Regions
· Availability zones
· Resource types
· Pricing model
· Tenancy type
· Days
· Weeks
· Months
· Years
Common expenses cost:
One of the major challenges in Cloud economics is charging back common expenses. FinOps team will come up with charge back process for these common expenses and align with respective teams. Below are some common expenses.
· Direct connect cost
· Managed services cost
· Cost for 3rd party products for cost monitoring
Score cards:
FinOps team to create a scorecard for various LOB / Applications / Teams with below scores.
· Cost spent
· Cost savings
· Cost avoidance
· Cost optimized
· Right sizing
Tagging:
Finops team should create a tagging guideline and apply automation for tagging compliance. Any AWS service cannot be created without tagging. Below are recommended tagging guidelines.
· Tagging Attributes
o Department
o Billing Unit
o Geography
o Data classification
o Environment (Dev, QA, Prod)
o Application type
o Application owner
o Application name
Conclusion:
Any enterprise using above framework and best practices will get benefits of mature cloud economics and FinOps operation.
