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Guide: How To Overcome Tagging And Accelerate Cloud Cost AllocationSee guide
You're not alone if you are experiencing the following FinOps challenges. Here's how you can overcome them and improve your FinOps practice.
Companies migrate to the cloud to become more productive, respond to market changes, and be flexible — while spending less on cloud infrastructure. But there is one thing that many cloud-based organizations have learned: Cloud costs add up. Fast.
Other respondents have expressed their frustration and challenges with FinOps in different polls by the FinOps Foundation, CloudZero, Last Week in AWS, and AWS' own blog.
This guide will cover the challenges FinOps teams face in organizations just like yours. Then, we'll share some of the simple and immediately actionable advice that's already helped CloudZero customers optimize their cloud costs.
We've talked about what FinOps is already here in this guide. However, here's a quick primer on FinOps before we dive into specific challenges you may face.
FinOps, short for Cloud Financial Operations, is a set of practices that help optimize cloud spend.
With cloud FinOps, the goal is to restrain cloud costs while promoting growth in the dynamic, scalable, and sometimes complex cloud environment. To do so, you follow cloud cost management best practices. You can also dig deeper into the roles and importance of FinOps here.
What challenges do teams working in cloud FinOps face? How do you handle those challenges like a pro to realize your cloud initiative fully?
Here's the deal. If you've had trouble understanding a cloud bill, wondered precisely what factors are driving cloud expenses, and/or are nearly giving up on getting everyone to tag cloud resources correctly, you are not alone.
The following are some challenges you may be familiar with, along with solutions you can use to solve these challenges.
The term "cloud waste" refers to incurring unnecessary cloud costs. The vast majority (88%) of respondents to a survey on the State of Hybrid Cloud and FinOps in September 2021 reported incurred unnecessary cloud costs.
Most cited workloads that exceeded agreed capacity as the most significant cost driver. Overprovisioning resources and buying excess or underutilizing reserved instances are two other common reasons FinOps teams incur cloud waste.
When workloads exceed capacity, it's not always bad; it can also be a sign of growth. Therefore, aiming to reduce cloud spend by all means, such as disabling auto-scaling, can have the detrimental effect of preventing revenue growth.
Instead, deploy a cloud cost intelligence platform that allows you to monitor cloud spending in real-time. But don't stop there. Make sure your tool can also alert your FinOps team about trending costs (cost anomaly detection) to catch abnormal cost movements and overspending.
Getting started with a FinOps model can be overwhelming. These challenges include determining which workloads to move to the cloud, how, and why and assigning responsibility for FinOps.
Create a cross-departmental team that includes everyone who affects cloud spending. Think of developers, operations, testers, finance, and a cloud consultant if you need additional support.
As a team, analyze the case for and against utilizing the cloud so you can develop solid goals that can be used to measure your FinOps initiative's success. You can then create a thorough strategy for managing cloud financial resources.
Choose which workloads to migrate and which ones not to. Some teams prefer not to move some mission-critical workloads from on-premises data centers.
They cite security, management, and compliance concerns:
Consider a hybrid model if you have concerns about vendor lock-in, cost savings, and other flexibility issues. Migrate data, applications, and workloads incrementally to prevent overwhelming your team and instead enable them to fix errors as they arise.
A typical cloud bill contains thousands of rows of data that are difficult to digest on spreadsheets. You may not have a clear picture of who, why, and where your cloud budget was spent. It doesn't end there.
Most SaaS companies are under pressure to release new features, optimize the existing customer experience, and increase revenue, users, and market share. Startups are particularly vulnerable.
Cost optimization often takes a back seat, only mattering when cloud spend approaches $1 million. Overspending is inevitable when cloud cost visibility and follow-up is that insufficient.
Consider cloud cost as a first-class metric. What does that mean?
Prioritize cloud cost optimization best practices alongside engineering velocity, Monthly Recurring Revenue (MRR), Churn, and other SaaS value metrics. Introduce the stakeholders responsible for cloud spending in your organization to the impact their actions have on the bottom line.
Choose a tool for tracking, monitoring, and reporting cloud costs once you have that buy-in. Also, ensure you select a platform that can break down your costs into unit costs. These are granular insights that the different stakeholders, such as engineers, will understand.
It is easier for engineers to understand numbers such as cost per feature, cost per deployment, or cost per development team than cost per customer, which is more relevant to finance, or gross margins, which investors understand better.
Kubernetes labeling and manual tagging are time-consuming and challenging tasks for many FinOps teams. Besides, tagging resources correctly for cost allocation involves other challenges, including inconsistent tagging. Many cost tools still rely on tagging to produce accurate reports despite this.
Create a comprehensive tagging strategy and use tagging best practices to improve results. However, some resources cannot be tagged. So, how do you allocate untaggable and untagged resources?
In addition, many cost tools analyze only application data, leaving out a great deal of environmental data and metadata, which often compromises the overall accuracy of their analyses.
To overcome endless tagging, collect accurate cost data, and factor in the cost of untagged resources, you'll need a platform that doesn't rely entirely on the tags.
Instead, you should be able to combine infrastructure metadata and other sources to enrich and enhance the data you already have on the tagged resources. This platform should fill in inconsistencies so untagged, and untaggable resources can be allocated accurately.
A lack of accurate cloud cost forecasting can cause over-provisioning, overbuying, and paying for unused cloud resources. This is often because the FinOps team did not have accurate or sufficient cost data to help them allocate just-enough resources to curb cloud waste.
Examine how your application, workload, and data work. You can analyze historical usage data on how you've used on-premises resources in the past. You can then use that as a baseline for your trial cloud budget.
Monitor how the cloud environment uses up the trial cloud budget once it is operational. This information can help you uncover areas where you can cut costs without compromising customer experiences or engineering work.
You can also consult an expert to get started.
Finance and engineering can be quite disconnected, even when teams implement DevOps, especially without dedicated FinOps teams overseeing cost accountability. Finance is often in charge of making cloud purchasing decisions, but engineers often use these resources.
But because engineers concentrate more on speed, security, and releasing better code, they unintentionally make architectural choices that raise costs, much to the chagrin of finance.
In fact, getting engineering to take action is the biggest obstacle to cloud cost optimization, according to the FinOps Foundation.
Engage teams in cloud cost management discussions to raise cost awareness.
You don't want limited collaboration to hinder your cost optimization efforts. Make sure you provide them with information illustrating their cost impact — and in a language they understand. As mentioned earlier, provide engineers with the cost per product feature, cost per software testing project, or cost per deployment.
By raising their cost awareness, they can be more proactive, including collaborating with FinOps before implementing engineering decisions. As you measure and reveal the cost metrics regularly over time, it can motivate engineering to develop more cost-effective solutions.
Keeping track of cost indicators in a shared environment can be challenging. This is because it may be difficult to distinguish individual clients' metrics from each other. Companies with such a setup often leave things to chance.
It can be impossible or highly time-consuming to determine which tenant used cloud resources in such an environment.
Instead, use a modern tool to automate the process and correctly assign the correct data to the right tenant. Some cloud cost services don't do this, so you'll need to confirm your choice provides cost per tenant pricing.
Here’s the thing. According to a recent HashiCorp survey, 72% of respondents use more than one cloud provider (multi-cloud strategy).
In a separate poll, 62% of respondents said they had cobbled together different tools, systems, and custom scripts to try and analyze cloud costs within a hybrid cloud model (sharing an application, data, and workload between an on-premises data center and cloud-based platform).
But this approach is similar to the shared/multi-tenancy approach in that maintaining peak cloud cost visibility is difficult.
Often, a multi-cloud approach is not cost-effective. Rather, take up a multi-service strategy, which engages your FinOps team without blinding them to cost accountability. You can learn more about the differences between a multi-cloud and a multi-service approach here.
A tool that's clunky, manual, and inexact is the last thing anyone wants. Unfortunately, most cloud cost tools are just that. In addition, you must have perfect tags for them to work correctly.
Embrace modern cloud cost intelligence instead. Using this approach, you can break through the tag barrier and slice and dice cloud bills. FinOps teams can also better understand cloud spend by mapping cost insights to actual business activities.
Using CloudZero, FinOps teams can map costs to business activities, empowering them to know where, why, and what is driving their cloud spend. Additionally, CloudZero sends recommendations to help prevent wasteful cloud spending.
CloudZero offers anomaly detection to help teams prevent overspending before it happens. Also, CloudZero's continuous monitoring helps gather enough accurate data to forecast and budget cloud costs.
You can also use CloudZero to access unit costs that are easy to understand, such as costs per customer, per feature, per project, per team, etc.
In doing so, you can cultivate a cost-aware culture, empowering stakeholders to check their own spending, communicate cost goals in a shared cost language, and innovate more cost-effective solutions.
CloudZero doesn't need perfect tags or Kubernetes labeling to obtain accurate cost insights, either. It provides insights into untagged, untaggable, shared, and multi-tenanted resources. to see how CloudZero can transform your FinOps program.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.