Optimizing Cloud Costs with Spend Segmentation & Chargeback

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Many public cloud customers are struggling to control costs, facing common challenges such as budget overruns or a lack of visibility into the drivers of spend. While elasticity in peaks and valleys of usage is a major benefit of a cloud environment, that same flexibility can cause costs to be incurred and budgets to be overrun in advance of organizations’ ability to control them.  In order to effectively control cloud costs, the right combination of measurement and governance tools will be needed.

[Download the Improving Cloud Cost Transparency and Management guide to learn more.]

Eliminate Cloud Waste by Accurately Segmenting Cloud Spend

As practitioners of a relatively nascent discipline, some FinOps professionals are developing basic forms of cloud cost chargeback. Others have implemented automated governance, using software to enforce best practices. However in order to truly manage key business metrics like product or service gross margin, these two practices need to be combined into a holistic approach that integrates chargeback with incentive compensation packages. Implementation of segmentation strategies that will accurately trace the cost of resources back to specific departments, products, or services is the first – and most critical – step in this process.

Thankfully, the ability to segment IT spend with granularity is one of the great benefits of cloud computing relative to the comparatively imprecise process of allocating a large block of central IT spend to products or services as an overhead allocation. Once cloud spend is completely allocated, organizations will achieve the following advantages:

  • Greater Transparency into Cloud Spend: Segmentation makes cloud spend data much more useful to managers who want to identify cost drivers. For example, if you’re responsible for budgeting and forecasting, segmentation can help to clearly show what areas are driving costs so you can plan accordingly.
  • Ease of Management: FinOps practitioners will find the process of managing and optimizing their cloud spend is easier when it is segmented and traced to technical and financial Responsible Parties (“RPs”). If you’re seeing red all over your monthly cloud bill, thoroughly segmented cloud spend will allow you to quickly identify those areas that are creating the most expenses to help you triage budget overruns with greater accuracy and speed.
  • Opportunity to Optimize: When costs are accurately traced to individual technical managers, businesses can surface and execute on new optimization opportunities in real time. By relying on technical performance data (as opposed to financial cost data), these benefits can often be realized before budgets are significantly exceeded.

Learn more about best practices for creating segmentation and chargeback of cloud spend data in the Improving Cloud Cost Transparency and Management whitepaper.

The End Game: Managing Profitability

For every FinOps professional, the ability to quickly and accurately manage and measure directly on the gross margin should be the ultimate goal. By creating greater insight into cloud spend through segmentation, business leaders across the firm have the ability to better measure and manage product and service profitability and can facilitate far superior governance, budgeting, and forecasting. This is why it’s essential that anyone considering moving to the cloud has a well-developed strategy for segmenting cloud spend. That strategy begins with assembling the right combination of FinOps capabilities.

Onica’s FinOps team can help, by providing Cloud Financial Analysts to assess and optimize your internal FinOps capabilities, while providing high-impact, near-term recommendations for optimal cost savings. If you’re ready to get started with implementing measures that can help you assess and optimize your cloud spend, contact us to learn more.

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