Organizations of all sizes rely on cloud computing for its agility, scalability, and innovation, but effective cost management is crucial for all organizations.
FinOps is a practice that can help organizations optimize their cloud spending while still delivering business value.
One of the critical aspects of FinOps is setting and tracking cloud cost targets, which helps businesses stay focused on their cloud cost goals and make informed decisions about resource allocation.
So, why are cloud cost targets important for Business Leaders?
It is essential to set targets for cloud costs for several reasons. Firstly, it helps to align cloud spending with business objectives. Business leaders can avoid overspending on unnecessary services by setting specific targets for cloud resources and applications. All too often, targets are often set when costs have spiralled out of control.
Secondly, targets increase transparency in cloud spending. By keeping track of progress against targets, business leaders can pinpoint areas where costs can be reduced or where more resources are needed.
Lastly, targets encourage employees to be financially responsible when it comes to cloud computing. By being aware of the organization's cloud cost goals, employees are more likely to make informed decisions about their use of cloud resources.
What are some common cloud cost targets?
There are many different targets that organizations can set. Some common targets are shown below:
Note: For Utilization rate target, you want to maximize resource utilization while ensuring you get a better bang for your buck and your system still meets your operational requirements. Therefore it is critical to conduct performance testing to identify the optimum utilization rate.
The most common targets I have encountered in my career are Total cloud spent, Cost per application, Cost per workload, and Cost per unit of output (e.g., Cost per Order). However, there are still other valid targets that different organizations may employ that are not on this list.
How can business leaders set effective cloud cost targets?
When setting cloud cost targets, business leaders should consider the following factors:
Business goals: What are the organization's overall business goals? How can cloud computing help to achieve these goals?
Current cloud spend: How much is the organization currently spending on cloud computing? Without cost visibility, how are you going to set up cost targets?
Target cost reduction: What percentage of cloud spend does the organization want to reduce? This can be challenging, as it requires a deeper understanding of their cloud spending and application design. Nevertheless, there are various strategies to aid in this endeavor. It's important not to make vague claims to reduce a certain percentage without collecting data to support your proposal. This is too often a scenario I have encountered.
Risk tolerance: How much risk is the organization willing to take in order to achieve its cloud cost goals?
To ensure success, business leaders should collaborate with their FinOps team to create a tracking plan and adjust it as necessary. If a FinOps team doesn't currently exist, it's helpful to seek out advocates/champions within the organization to help establish a team during the early stages and eventually create a dedicated FinOps team as the organization evolves.
Benefits of setting and tracking cloud cost targets
There are several benefits to setting and tracking cloud cost targets. These benefits include:
Improved visibility into cloud spend: By tracking progress against targets, business leaders can identify areas where costs can be reduced or where additional resources are needed.
Increased accountability: When employees know that their cloud spending is being tracked and they are accountable for their application/system, they are more likely to make informed decisions about how to use cloud resources more cost efficiently.
Enhanced financial discipline: A culture of financial discipline around cloud computing can help to ensure that cloud spending is aligned with business goals.
Improved agility: By reducing cloud costs, organizations can free up resources to invest in new initiatives and to respond more quickly to changing market conditions.
Enhanced competitive advantage: Organizations that are able to efficiently handle their cloud expenditures can enhance their competitiveness by decreasing expenses and improving agility.
Key Takeaway
Cloud cost targets are an essential tool for business leaders to manage cloud costs and achieve business goals. By setting and tracking targets, business leaders can improve visibility into cloud spend, increase accountability, enhance financial discipline, improve agility, and gain a competitive advantage.
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