As enterprises continue to leverage the cloud to innovate and accelerate digital transformation, they need a smarter approach to managing and optimising cloud costs to avoid bill shock and drive better return on investment. That’s where FinOps enters the picture, offering companies cutting edge practices for measuring the costs and value they are getting from the cloud and enabling them to continuously improve business outcomes. At their most mature, FinOps metrics are not just a way to control costs, but a way to get technology spending and business results into tighter alignment.
FinOps enables organisations to gain more transparency into cost-based performance indicators in the context of cloud spending. This will guide different functions and departments in the business to make wise decisions about allocating and optimising cloud spending. In a mature FinOps environment, decisions can be made based on real-time insight and accurate forecasts. In line with recommendations from the FinOps Foundation, let’s take a look at three of the FinOps metrics that companies should track to be smarter about their IT spending.
One of the core principles of FinOps is that everyone should take ownership of their cloud usage. To understand cost of ownership, an enterprise thus needs an accurate, transparent way to allocate shared costs across the business. As businesses accelerate adoption of public cloud, it will become harder to allocate costs fairly to different business units and to forecast and budget without a strategy and processes in place to allocate shared cloud resource costs. At the highest levels of FinOps maturity, shared platform/service owners can fully recover costs generated by internal customers as well as categorise and allocate costs directly to an organisational unit. They can surface the percentage of cost that cannot be categorised and allocated directly as well as report on shared costs to inform forecasts and budgets.
The FinOps Foundation defines anomaly management as “the ability to detect, identify, clarify, alert and manage unexpected or unforecasted cloud cost events in a timely manner, in order to minimise detrimental impact to the business, cost or otherwise.” Anomalies are unexpected increases in cloud spending that are at variance. Organisations can manage anomalies with tools and reports that identify unexpected spending and allow for the investigation and resolution of anomalous usage and cost. This enables the FinOps team to rapidly respond to restore spending to the expected level. Automated, machine learning–based anomaly detection is key to getting it right.
Many knowledgeable practitioners see smarter unit economics as the nirvana of FinOps. In unit economics, an enterprise can measure direct revenues and cloud costs down to a per-unit basis. This ultimately reveals the business value of cloud spend. For an airline company, the unit might be a seat; for a hotel, a room booking, and for a retailer, an ecommerce transaction. By benchmarking cloud spending against revenue at a unit level, an enterprise can better guide its spending. With unit costing, the business can see the variance between marginal cost and marginal revenue, so it can determine where cloud operations break even and begin to generate a profit. According to the FinOps Foundation, unit economics shows how profitable a business is or how soon it will achieve profitability. It also helps companies to understand whether their product is overpriced or undervalued.
FinOps and your cloud journey:
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