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Insights

From cloud cost optimisation to value creation

05th June 2020 by 
Dr. Manzoor Mohammed Insight

Estimated read time: 5 Minutes

Did you move to the cloud and found costs were higher than planned? Then a cloud cost cutting programme was kicked off, did the costs come down? Was a FinOps team established to keep the cloud costs under control on an ongoing basis?

You might think the job's done! Well, Not quite.

Look a bit closer, Your teams are spending more time keeping costs down and performance up. That's because the underlying drivers of cost have not yet been addressed.

But there is another way

These 6 steps can free up your teams to focus on what they are great at: delivering great technology to support the product roadmap.

  1. Ensure your drivers of cost are far lower than business growth
  2. Start measuring cloud cost per business transaction
  3. Benchmark cloud cost per business transaction
  4. Measure cost per business transaction during the development life-cycle
  5. Define an acceptable range of cost per business transaction
  6. Finally, avoid long term financial commitments

1. Ensure your drivers of cost are far lower than business growth

The simple model for planning cloud costs is assuming it increases at the same rate as business. It’s understandable to use a simple model. But you don’t understand the drivers of cost. Understanding the driver means you can control them. It may be that the driver is data retention, code inefficiency, changing user behaviour, business requirement, etc...

Knowing this, gives you a powerful lever to control cost. It saves engineering time reworking technology to mask flawed business requirements.

 

2. Start measuring cloud cost per business transaction

What is the business transaction? It could be a cost per order, cost per user, etc. Once you know it, you can do benchmarks between departments and others in the industry.

In order to measure you need to combine data sets, such as APM, cloud cost information and capacity usage information. By combining these different measurement areas you get an unique view of how the business, finance and technology functions interact.

FinOps teams often look at spend by department or service. That is a great starting point, but what you want to know is whether you are getting good value. You need to measure the cloud efficiency of your services.

 

3. Benchmark cloud cost per business transaction

Once you know cost per business unit is higher than the industry’s benchmark, you need to find out why. It may be the engineering teams are unaware that they have a problem. Is it a business requirement, technical constraint, skills– or a different issue?

This insight will tell you how your teams and technology work. You will no longer limit yourself to cost. You will get into the guts of why things are so expensive and why they are taking so long.

 

4. Measure cost per business transaction during development life-cycle

You now need to roll this measurement as part of your existing processes the same way you measure performance, security etc.

Your team will find that the numbers don’t match what they observe in production. Suddenly a light shines on how the development life-cycle is not aligned with real world usage. When your engineers start measuring cost accurately in development, they will bring down high costs before you even know about it.

 

5. Define an acceptable range of cost per business transaction

Based on your company’s business goals, define acceptable ranges, for example, a hyper-growth disruptor would aim for industry leading efficiency to win market share. Your teams will be on board because they already are aware of the insights that are causing the inefficiencies.

 

6. Finally, avoid long term financial commitments

Finance teams make long term financial cloud commitments. They focus on getting the best discount but don’t understand the technology and your product roadmap. You end up being locked into technologies, which loses you flexibility and opportunity to use better or cheaper technology in the future.

 

Why change?

The longer you accept the status quo, the harder it will get in the long term. You will find keeping the show on the road and keeping a lid on costs is going to get tougher and tougher. The board are an unsympathetic lot and will expect you to deliver more, but you won’t be able to do it because of the constant drag of sub-optimal working practices.

You can benchmark your organisation against best practice using our Cloud Diagnostic Tool.

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