Introduction

Public cloud adoption continues at an incredible pace, with compound annual growth rates (CAGR) exceeding 15% among the major cloud providers.

As part of the adoption is the expectation to reduce core IT costs, but primarily the goal is to create outsized value and innovation.

McKinsey Digital estimates this value created from the cloud to exceed $1trillion in 2030. But despite these numbers, over 80% of CIOs admit they have yet to achieve their projected goals from their cloud migrations, and estimates show that 30% or more of cloud spend is either inefficient or wasted.

As such, capturing this $1 trillion return from the cloud has proven to be a frustrating challenge for many companies. One of the key reasons for this challenge is that the financial operating model remains stuck in with dated processes, mindsets, and technologies.

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Redefining Cloud Metrics

It’s natural for companies that have migrated to the cloud to bring traditional CapEx-type approaches, but many quickly find that traditional IT financial controls don’t work operationally nor accurately when dealing with the cloud’s fluid service dynamics.

Here's a summarized table of the common cloud financial governance challenges relative to traditional processes.

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All of these traditional processes have their respective approach in the cloud, but the approaches need to be more agile and with that – require a new model. Fortunately, the FinOps Foundation has developed a set of processes andKPI’s to help model your business for success – providing the basis for organizational management and optimization that can be deployed and operated to best support modern infrastructure.

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Decentralizing Financial Accountability

FinOps is an operational framework and cultural shift that brings technology, finance, and business together to enable organizational transparency and shared responsibility for managing cloud costs.FinOps requires a cultural and personal mindset shift in which financial accountability is distributed to the edge (the teams). This shift makes it every one's responsibility to ensure that cloud services are consumed in the most cost-effective manner.

The average data center server utilizes less than 50% of its CPU and memory capacity, resulting in significant underutilized capital. Using the default approach to size public cloud infrastructure can create large amounts of over-provisioned capacity and waste, which can account for 30% of excess cloud spend. Given the dynamic nature of cloud infrastructure, it’s critical that companies optimize resources and enable dynamic provisioning to support workload growth. This should only be done by the teams who intimately understand the nuances of their project’s growth and workloads.

In order to address challenges such as this, companies are establishing cloud FinOps capabilities to not only establish effective cost visibility and control, but also to accelerate the dissemination of knowledge to teams to optimize these expenditures at the edge so as not to adversely affect performance with broad guidelines from central management.

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Deploying FinOps KPI’s to Kickstart Journey

There is no single set of metrics that can perfectly suit every business, as each organization, environment, and team is at its own stage of maturity with unique needs. However, modeling the top 10or 20 KPI’s listed on the FinOp’s Foundation is a solid commitment to defining expectations and getting a solid initial grasp on costs.  

Measuring month over month use across all clouds, ensuring all resources are accounted for (Tag Completeness) and then setting initial budgets will begin to harness costs that have been adrift.While learning with the new analytics and controls, teams will naturally initiate requests and communicate when there are issues and this will allow your FinOps practitioners to refine and adjust the model.  Taking a step further, you can begin to empower the teams to automatically act by integrating into messaging systems such as Slack, Gchat, or Teams.  

Here are the top 10 FinOps KPI’s we recommend to start your FinOps practice.

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Cloud Cost:  Total spend on cloud services

• ‍Description: This is the total amount spent on cloud services across all providers. It's crucial for understanding your overall cloud expenditure and forms the basis for many other metrics.
• Comment:  Can be more difficult than it suggests depending on data sync, resellers or other complexities.
  

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Cost per Unit: Expense relative to a business metric

• ‍Description: This metric helps tie cloud spending to business outcomes. It helps you understand if your cloud costs are scaling efficiently with your business growth.  Examples include cost per LLM query or cost per customer acquisition.‍
• Comment: Requires deep understanding of your transaction pipeline and integration with your business systems.

Cost Allocation Accuracy: Percentage of costs accurately attributed to teams/projects

• ‍Description: This measures how accurately you're attributing cloud costs to specific teams, projects, or departments. High percentages ensure accountability and help teams make informed decisions about their resource usage. Works in conjunction with “Tag Completeness”.
• Comment:  Tagging is the keyword here.  No other tool or parameter can provide the fine-grained management and attribution to teams and workloads.
  

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Resource Utilization: Percentage of provisioned resources actively used‍‍

• Description: Show show efficiently you're using the resources you've provisioned. Low utilization might indicate over-provisioning, while consistently high utilization suggests a need for additional or larger resources and/or platform optimization.
• Comment: This isa foundational KPI.  Works in conjunction with rightsizing and Idle resources reporting.

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Resource Reserved Instance Coverage: Percentage of compute hours covered by reserved instances

• Description: RIs can provide significant discounts for established workloads. This KPI shows what percentage of your compute hours are covered by RIs, helping you identify opportunities for further savings.
• Comment:  Commitments are typically the first and easiest way to instantly reduce costs, but they often mask underlying optimization issues.  This KPI ensures you are taking advantage of these RI savings.
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Savings Plan Coverage: Percentage of compute spend covered by savings plans

• Description: Similar to RI coverage, this measures how much of your compute spend is covered by savings plans, which offer discounts for committing to  usage over 1 to 3yrs.
• Comment: Similar to RI’s
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Cost Variance: Difference between forecasted and actual cloud spend

• Description: This compares your actual spend to your forecasted spend. Large or frequent variances might indicate unexpected usage spikes or inefficiencies that should be investigated.
• Comment: Part of due diligence in ensuring you are budgeting and establishing trends.
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Cost Optimization Rate: Percentage of implemented cost-saving recommendations

• Description: This tracks how many cost-saving recommendations you've successfully implemented. It helps measure the effectiveness of your FinOps practices.
• Comment: An operational KPI which helps track ongoing optimization KPIs and team responsiveness.
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Tagging Compliance:  Percentage of resources properly tagged for cost allocation

• Description: Tag completeness and tag hygiene is crucial for accurate cost allocation and reporting.This KPI shows what percentage of your resources are correctly tagged according to your organization's policies.
• Comment: A foundational KPI that is the backbone for establishing resource tracking and cost attribution.
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Unit Economics: Cloud costs as a percentage of revenue or gross margin

• Description: This relates your cloud costs to your revenue or gross margin. It helps ensure that as your business grows, your cloud costs remain proportional and don't eat into your profitability.
• Comment: A high-level KPI which is useful for determining your virtual “COGS”.

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TheFinOps Journey Continues

As your FinOps practice matures and you adopt more sophisticated tools and KPIs, you'll leverage established channels and processes to implement advanced techniques such as rightsizing, anomaly detection, and governance. This approach empowers teams with a distributed method to monitor and manage the metrics tracked by the FinOps team.

Partner with OpsNow to jumpstart yourFinOps journey and optimize your cloud costs. We're committed to the FinOpsFoundation's principles, implementing their strategies and KPIs to fosterFinOps awareness and standardization across your entire organization.

Visit us at OpsNow.io to get started or schedule a live demo.

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