Cloud economics – A FinOps journey through the nuances of TCO

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Public cloud platforms have disrupted the way in which we purchase, manage, and operate our infrastructure. Flexible revenue models and manifold deployment choices offered by public cloud providers require a whole new financial approach to maximize business value and increase operational efficiency in the cloud by unlocking its true potential. Hence the need for a new paradigm and renewed focus on cloud economics.

One of the most compelling arguments behind any public cloud adoption strategy is the flexibility offered by the “pay-per-use” economic model – an economic model that unlocks endless possibilities and new avenues for innovation, agility, and cost savings. But somewhere along the cloud journey, many organizations experience a storm in the cloud, a bill shock, a moment of realization that prompts them to explore and investigate the difference between “what is used” and “what should be used” in the cloud. It is a difference that could wreak havoc on their cloud adoption plans and even lead them to question their own cloud strategy.

So, what went wrong?

In traditional environments, decisions attributed to infrastructure purchases are made by a smaller subset of people and the frequency of those decisions is limited to quarterly or half-yearly reviews. The advent of public cloud and pay-as-you-go models disrupted the traditional IT procurement process and created a fundamental shift in how costs attributed to IT are managed and handled within organizations. Cloud spending and cost management are no longer limited to a small group of people but are, in fact, everyone’s responsibility. This introduces additional complexity and necessitates a fundamental shift that requires enhanced cost transparency, the introduction of new tooling and capability, and embedding a culture of cost accountability and awareness across the organization. The aforementioned bill shock, or a mammoth deviation from the initial budget, are familiar landfall moments for many businesses that decide to embark on their cloud journeys without incorporating and embedding necessary FinOps best practices into their target operating models.

I’m listening, tell me more

There is a familiar expression – “the technology is the easy part.” Like any major IT transformation strategy, this expression applies to public cloud adoption and attains a whole new level of complexity when we start to explore the topic of cloud economics.

Cloud economics is an emerging discipline that is slowly gaining momentum and the recognition it deserves as a result of increasing demand for public cloud adoption and ever-evolving capabilities within public cloud platforms. It is important to understand the significance of this discipline and embed cloud financial management and cost governance best practices into the cloud target operating model right from the beginning. In this blog, I will guide you through the concept of this FinOps transformation from a unique perspective and demonstrate how it reinvents and redefines traditional concepts while challenging the status quo, as we navigate through the cloud financial maturity curve – what I would like to call “a journey from TCO to TCO.”

Total cost of ownership

The first stop is stage zero or the inception phase when you start considering and evaluating a cloud strategy and explore ways to consolidate your belief in that strategy. This is arguably one of the most complex phases in larger organizations, in which there is a prevalent culture of grazing and nurturing infrastructure as you would a pet in their very own data centers. In this phase, you approach the process of building a cloud strategy from a strong sense of ownership – a sense of ownership that stems from the culture of grazing and managing infrastructure. Hence, you approach the costing exercise from a “total cost of ownership” perception.

Total cost of operation

As you start operating in the cloud, you encounter a fundament cultural shift dealing with transient instances and different service models. Transitioning from a mindset of treating your infrastructure as you would a “pet” and shifting towards identifying and treating it like “cattle” instead. This is a crucial cultural transformation that needs to be cultivated within every organization. Somewhere during this transition, you realize that what matters more and what is relevant is the cost of operation. This shifts your perception towards the metric of “total cost of operation” and the need to implement enhanced cost transparency. A core aspect of cost transparency is getting data into the right hands at the right frequency to drive the right behaviors. The right behaviors could range from basic housekeeping, such as turning off your instances when not required, tagging your instances correctly, and using just enough instead of architecting for the peak.

Principles linked to tagging, cost attribution, and account/subscription management must be carefully evaluated to appropriately and accurately allocate cloud costs to relevant cost pools and departments within the business.

True cost of operation

Architecting in a lean and cost-aware manner in a cloud is a highly complex problem that requires consideration of various factors. The multiplicity of deployment options, coupled with various tenancy, revenue, and license models makes it difficult to cost optimize the initial deployment. For That’s why it is highly unlikely that an application in its infancy is running in the most cost-optimal manner. This leads towards the concept of the “true cost of operation” – a new form of TCO that explores effective techniques and cost optimization levers to help you formulate the degree of cost optimization you can achieve by improving overall cost efficiency.

“Through 2020, 45% of organizations that perform lift-and-shift to cloud IaaS without optimization will be overprovisioned by as much as 55%, and will overspend by 70% during the first 18 months.” – Gartner

Cost optimization in the cloud is not a one-time task, it is an ongoing procedure that involves continually monitoring, investigating, and implementing necessary techniques to attain the most cost-optimal level. There are various degrees of well-architected assessments you will be required to carry out before reaching the most cost-aware configuration. Unlike traditional architectures, cloud architectures should evolve. They should be changed over time by applying principles of elasticity, right-sizing, and right-service adoption based on feedback gathered through monitoring solutions and constantly striving to attain the best configuration possible. Depending on the resource usage profiles and adoption plans, different revenue models, ranging from on-demand, to reserved, to spot must be carefully mapped and implemented as part of the purchasing strategy.

Summary

Cloud financial management is a subject that often gets undermined during the early stages of adoption due to a lack of awareness of this discipline. As a result, it fails to get implemented or,in some cases, even recognized until an organization starts to question its cloud strategy after experiencing the first storm in the cloud. It is crucial to understand the significance of this discipline early on in your cloud implementation and start embedding FinOps disciplines within your cloud target operating model from day one.

Thanks for reading. Next time I promise to be back to address some of the concepts discussed in this blog in further detail.

Meanwhile, please reach out to me with any questions you may have at vivek.enniriyil@capgemini.com  or LinkedIn

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