Exstratus President, Philip Flesher, challenges finance and engineering leaders to overcome the fact that most “software companies are failing in the cloud.” Watch below as Philip explains why companies are struggling with Cloud cost management and shares how thinking like an operator can help overcome these challenges as companies scale.  

Finance leaders share common complaints about managing cloud costs: We don’t know what we don’t know, so we don’t know where to start. Constantly changing infrastructure means that by the time we figure it out, it’s changed. Even when we know where we’re spending, we don’t know how changing the spending might impact our engineering operations. Unfortunately, the inability to resolve these challenges is not only costing your company money today, but also having trickle-down effects – inaccurate forecasts, overstated margin assumptions, and uninformed pricing decisions as you scale. Macro focus misses micro opportunities Preventing these business- crippling problems is fundamental to Cloud FinOps and starts with a better understanding of how cloud dollars are being allocated. Many companies do not evaluate their cloud spending at a granularity that aligns with their ability to take action. When companies aggregate cloud costs across their organization, while granular cloud spending decisions are being made by individual employees or teams, there’s a disconnect between the provided data and the people who can affect change. As a result, when cost concerns arise, there’s no clear accountability for resolving the problem. Knowing how far to drill down into your cloud bill will depend on the structure and division of responsibility within your organization. Ask yourself these questions: Are there line items in your cloud bill that are aggregated together in a way that hinders your ability to assess where usage or costs are coming from? Do you have a clear division in your cloud costs between product/service delivery and investment/R&D? Can you report unit costs (cost-per-usage/volume) and derive unit margins for all cloud services/products? Can you forecast unit costs (cost-per-usage/volume) and derive unit margins in scenario planning and what-if analyses? People will resist. Keep moving. Answering these questions is a start, but real change will be driven by your people. However, people think they are too busy for change. When it comes to initiating a FinOps initiative, “too busy” translates into “too afraid of what will be found when you dig deeper.” This is because most conversations about cloud spending start with questioning why costs are so high and what infrastructure decisions drove the increase. (See 5 Mistakes to Avoid When Starting FinOps). Even if these decisions were planned and justified, people will still react defensively to protect decisions they’ve made to deliver on their assigned objectives. What they hear is you changing the game by asking about cost and efficiency. They will resist. They will resist adding responsibilities that do not align with their current objectives. They will resist gathering the data that helps you unlock your cloud spending. They will resist tagging and mapping exercises that reveal how costs are allocated. They will resist speculation about how future work will impact costs. None of this resistance is because they don’t believe in FinOps or want more efficient cloud spending. It is because they are afraid that you will tell them that they are wrong, make them jump through more hoops, or ask them […]

The lure of reducing cloud costs makes investment in the people, services, and tools to discover and accelerate these savings an easy sell to your leadership. However, many organizations see these savings wane without a philosophical shift from controlling cloud costs to investing in efficient cloud operations. To address this shift, organizations are increasingly adopting FinOps – the strategic practice of optimizing cloud operations for maximum business value at scale. So, what’s the difference? First, it is important to remember that cloud cost optimization is an important part of FinOps. This means that if you’ve already started or gone through cycles of cost optimization, you are on the path. That said, the outcomes of a cost optimization program versus a FinOps initiative are very different. Unlike cost optimization alone, which will measure success by dollars saved over time, FinOps success is measured by the business value metrics it improves. What should I expect from FinOps? Rethinking your Cloud KPIs FinOps asks you to think differently about the business value of your cloud investment. No longer are you thinking in terms of spending; instead, you’ll focus on maximizing cloud profitability and ROI. The way to start this is to change the KPIs you use to talk about the cloud. What’s the KPI that you should be measuring? That depends on your business. The best first metric is the one that tracks overall cloud costs most closely as the product/service usage scales. This may be cost per license, user, login, or something else unique to your business. The reason for this change is to begin to look at the efficiency of your spend as opposed to just the magnitude. Real-time, regular reporting Most cloud cost conversations are happening reactively, such as when a business leader asks “Why did costs go up so much?” This rear-view-mirror thinking about cloud costs can be due in part to the fact that costs are only being reviewed monthly or even quarterly. A Cloud FinOps approach positions you to look at cloud usage and costs in near real-time to identify the incremental spikes that may blow your budget. This allows you to either course correct or communicate the anticipated increase in cost. Remember that a large part of FinOps is building transparency between Finance and Engineering in a way that eliminates the finger-pointing at the end of the month or quarter. Armed with regular data, these conversations evolve to look at the reason for the cost increase and can quickly be linked to action if necessary. Adding in architectural considerations Most cost optimization initiatives have two main triggers to drive down costs: change the rate being paid or change your usage. These are great tactics for lowering costs, but have diminishing returns. FinOps takes optimization a step further by digging into architectural infrastructure to identify efficiency improvements at scale. For example, discovering that a centralized database scales poorly and is fundamentally inefficient at high scale, then rectifying the architectural flaw proactively, can have a dramatic forward impact […]