Cost efficiency is the name of the game for all enterprise departments right now, but cloud spending has been a particularly ripe area to make needed reductions. Gartner projects that worldwide cloud spend will top half a trillion dollars ($592 billion) in 2023, on 21% year-to-year growth. At the same time, 82% of enterprises named managing cloud spend as a top cloud challenge in the most recent State of the Cloud Report, claiming the survey’s top spot for the first time in more than a decade. Combine that with macroeconomic pressure, and it’s clear something’s got to give.
For many organizations, though, change has been easier said than done. Cutting cloud costs without impacting your applications can be tricky—at best—if you don’t have a clear plan of attack.
Achieving effective cloud cost controls requires an intentional approach to cost optimization, one that targets the right metrics in adherence with best practices. To pursue this goal, organizations should consider starting with the following cloud cost KPI primer.
Target Relevant CloudOps Cost KPIs
Successful cloud cost optimization begins by first identifying KPIs that are specifically relevant to your business’s cloud operations and represented by clearly quantifiable (and accurate) metrics. Organizations can quickly fall down destructive paths if efforts to eliminate overspending are guided by incorrect or incomplete KPIs. In many cases, organizations are also overlooking cloud cost KPIs that tie to more budget-impactful opportunities. The cost is often high: in the State of the Cloud Report, enterprise leaders confess to wasting a self-estimated 28% of their total cloud spending.
Organizations should focus on monthly cloud bills for their initial KPIs; everything begins there. Specific KPIs should include the percentages of cloud infrastructure utilizing on-demand instances, versus reserved instances or other resources covered by discount rates. The effective cost-per-compute-hour—and savings due to rightsizing optimization—are important KPIs as well.
To calculate these KPIs, review monthly bills regularly with an eye out for inefficiencies, as well as increases and decreases in cloud costs over time. Doing so will reveal waste centers, and lead to new practices that will keep costs in check. Closely track cost projections compared to actual monthly billed costs, and treat internal forecasting accuracy and gaps between budget projections and reality as crucial cloud visibility KPIs. Utilizing specialized CloudOps tools, such as Spot by NetApp and others designed to interpret cloud usage data and identify cost optimization recommendations, can help streamline these processes and get to savings more quickly.
KPIs such as the number of incidents or failures that occur in production (tracked by application and team), the percentage of deployments that revert, and the mean time to repair failures, can indicate valuable improvement opportunities. Further KPIs associated with cloud governance can help track progress along the optimization process, including: costs optimized over time, reservations automated, time to deploy, and service availability percentage.
Next, organizations should consider both general staffing and IT staffing personnel costs as a crucial cloud cost KPI. It remains one that many businesses neglect to monitor. Not every cloud cost appears in an organization’s monthly cloud bills: employee workloads and time investments represent important expenditures into which many leaders lack the necessary visibility. For example, members of a finance team might be straining under the weight of burdensome IT cost analysis, ultimately resulting in added staffing costs or costly limitations to overall productivity. The IT operations team might face similar strains, with rising staffing costs or delivery struggles that should be assessed as part of overall cloud costs.
Energy costs are another valuable—and underrated—KPI to consider: completed cloud migrations should be accredited with the savings they deliver versus traditional data center or on-prem infrastructure. Servers, storage, backup, cooling, and other systems all add to electricity costs that migration to the cloud eliminates. To turn this into a KPI, compare past on-prem benchmarks with current cloud operations costs. Then look at those past and current costs as a proportion of total business spending, measuring whether overall infrastructure costs have risen or represent savings.
Budget variance is a useful KPI in itself. If cloud spending expectations and goals are realistic, budget variance will keep relatively steady over time. If not, take steps to form more accurate and useful expectations. To that end, the State of the Cloud Report reveals that 72% of enterprises now have a dedicated FinOps team in place to collect cloud cost management KPIs, conduct cost analysis, and actively pursue savings. Another 14% plan to implement such a team over the next year.
Don’t Forget to Track Cloud Cash Flow KPIs
Put simply: successful cloud operations will positively influence your organization’s business performance, and overtly tying the two together will help. As a best practice, leverage KPI figures that correlate cloud transformation to customer and sales growth. Similarly, track revenue associated with cloud-based applications, savings gained by implementing cloud-based solutions, and net profit since cloud adoption. Tracking cloud IT cost per transaction as a KPI—especially in juxtaposition with sales patterns—will demonstrate whether the organization is leveraging its potential cloud efficiency. Lastly, align IT and finance teams to regularly examine operating cash flow: the shift from on-prem CAPEX spending to cloud OPEX ought to meaningfully improve an organization’s cash flow.
Make Cost and Cash KPIs Your Cloud Strategy Guideposts
Those that achieve cloud cost efficiency ensure they have the visibility in place to recognize shifts in the correct KPIs, and have their teams ready to capitalize on the opportunities they illuminate. By assembling the right metrics and levers, enterprises can confidently proceed with informed cloud optimization practices that don’t affect application performance, and continue to grow their businesses with far less unnecessary spend.
Anil Inamdar is the VP & Global Head of Data Solutions at Instaclustr