Imagine a scenario where you’re given a credit card to use where you don’t have to pay the bill or even see the bill, and you’re not even sure how much things cost. Now imagine a second scenario where you were given a credit card, but were also shown the bill each month, urged to keep a close eye on your spending, maybe even had a budget to track against, and learned to research the cost of services and resources. Suddenly, there's a tangible link between action and cost.
According to a study by McKinsey, companies can reduce their cloud spending by as much as 30-40% if they implement cloud cost management practices such as Showback and Chargeback. This illustrates the significant potential for cost savings when there is greater visibility and accountability of spending. Which scenario now seems more likely to promote responsible spending? In the following discussion, we'll delve deeper into these concepts within the context of cloud computing costs.
Showback: Accountability in the Cloud
One of the most exciting parts of cloud computing is the democratization and decentralization, which allows us to distribute the power to deploy resources out to a greater number of users and teams. As a result, it promotes speed, agility, and innovation. But despite the fact that more people are making cost related decisions & pulling the levers, by default, the bill for those resources still goes to some central team for payment. And the people who pulled the levers are abstracted from the costs associated with their actions. Many consumers of cloud IT resources are coming from a place so disconnected from cost that they consider the datacenter a free resource.
That absence of visibility and accountability is a major contributor to cloud overspending. No matter how much we optimize specific resources and services, we will always be playing catch-up with a model that does not address the root cause.
The credit card analogy is one aspect of what’s broken. Another factor is that if we come from a typical on-premise environment, we are not used to such a strong correlation between resource use and cost.
A typical procurement cycle usually lasted several months and involved large capital expenditures. After those resources were deployed, turning them off, or sizing them optimally, or utilizing them more efficiently didn’t appear to have a direct correlation to saving money. You still spent tens of thousands of dollars on those servers, hundreds of thousands on those storage arrays.
Practically speaking, showback means giving the individuals designing or performing cloud deployments visibility into their spending. This moves us toward distributed ownership, which will allow us to make better decisions. To hold people accountable for their spending, we must equip them with the tools they need to view & monitor their costs, create forecasts, and pursue optimization opportunities.
Showback in Action
In practice, Showback involves the following characteristics from the perspective of end-users or teams who are being held more accountable for cloud spending:
1. Monthly Reporting to Enhance Visibility
Monthly reporting is integral to cultivating financial responsibility in cloud spending. It's all about rendering cloud costs visible in a manner that's tailored to each team, product, cost center, division, or any other categorization that aligns with your organization's structure. Regularly pushing these custom reports to the respective parties is key. This proactive approach is crucial, especially given the novelty of the idea and the potential unfamiliarity users may have with this new method. Various tools can assist in facilitating this process; for instance, Azure offers features such as Cost Analysis Subscriptions, enabling the efficient delivery of tailored cost reports.
2. Ability to Drill down on the Data
Given the diversity of teams and the variety of services they utilize, it's inevitable that they encounter unique situations in their cloud resource usage. This multifaceted usage pattern often intertwines with the complex nature of cloud service pricing, making a thorough analysis crucial. Teams need to be equipped with the ability to delve deeply into their services, resources, transactions, and usage patterns to uncover meaningful insights and potential optimization points.
To empower teams with this level of scrutiny, it's essential to provide them with robust analytical capabilities. The goal is to facilitate comprehensive slicing and dicing of cost and usage statistics, enabling each team to extract information that's most relevant to their unique circumstances.
Various tools can aid in realizing this, such as Cost Analysis and Power BI, which are designed to present data in visually compelling, easily digestible formats. These tools offer functionalities like filtering and grouping, which further streamline the process of data analysis.
3. Budgeting and Alert Systems
Establishing a budget is a potent motivator when fostering financial accountability. Particularly in cloud resource management, setting expenditure targets plays a vital role in guiding cloud resource owners towards mindful spending habits. Consistently managing spending against these predetermined targets helps ensure that costs don't balloon unexpectedly.
A key element of effective budget management involves alert systems. As we inch closer to meeting or potentially exceeding these budget forecasts, it's important to provide timely notifications to the relevant users. Such alerts allow them to take swift, appropriate actions to rein in spending or reallocate resources if necessary.
Tools like Azure Budgets support this proactive management approach by providing functionalities that allow for budget setting, tracking, and alert notifications.
4. Empowerment Through CCoE-Driven Education
For teams to effectively manage and optimize their cloud consumption, a comprehensive understanding of the services, operations, metrics, and pricing models involved is critical. This is where the Cloud Center of Excellence (CCoE) plays a pivotal role.
The CCoE serves as a knowledge hub, leading the charge in disseminating relevant training and advocating for best practices. By doing so, they empower teams with the skills and knowledge needed to scrutinize their resources meticulously and comprehend their consumption patterns.
In other words, the CCoE's role transcends mere guidance—it seeks to arm teams with the insights necessary to take proactive steps towards optimizing their cloud environment. The end goal is not just about fostering awareness; it's about empowering action rooted in knowledge, leading to a more efficient, cost-effective cloud ecosystem.
5. The Shift Towards Decentralization - Role of FinOps and CCoE
The shift towards embracing Showback as part of a comprehensive cloud cost management strategy is a significant cultural change. It necessitates the solid backing of the FinOps team and the CCoE.
The FinOps team provides much-needed guidance to help stakeholders navigate the Showback process. They aid in comprehending the responsibilities associated with it and assist in adjusting to these fresh cloud concepts. Meanwhile, the CCoE offers a vital support mechanism, enabling the new cloud operating model to function effectively.
As cloud adoption continues to rise, so does the decentralization of resource provisioning. This shift has necessitated a corresponding decentralization of cloud spending ownership. The traditional centralized provisioning system, marked by cumbersome service request tickets and lengthy delays, is fast becoming a relic of the past.
Instead, we're moving towards a model that aligns with the dynamic, agile nature of cloud operations. The aim is to integrate a cost management strategy that complements this distributed way of working. Showback plays a pivotal role in enhancing accountability in this setting.
However, while Showback indeed offers improved visibility and accountability, it's crucial to recognize that costs still reflect as a central entry in the financial ledger. This scenario still leaves room for enhancing accountability. Consequently, many organizations leverage Showback as a transitional stage towards a more stringent method of accountability, known as Chargeback. This disciplined approach to cloud cost management further drives home the accountability aspect, ensuring that cloud costs are as transparent as they can get.
Chargeback: The Next Level of Accountability
Consider the previous Showback scenario, where you were given a credit card to use but were not required to pay or even see the statement. In contrast, we then presented a situation under Showback where you were not only given the credit card but also shown the bill with a request to monitor your spending carefully. Taking it one step further, Chargeback is a strategy wherein the company charges a proportionate amount of the overall cloud bill to the cost center that you're responsible for. Does this new scenario appear to foster more judicious spending?
Chargeback is a financial management strategy in cloud computing that assigns the cost of cloud resources to the departments, teams, or users who own or utilize them. It's essentially an internal billing mechanism where cloud service costs are divided based on each entity's usage. This method ensures each department or team is held accountable for its cloud resource consumption, thus enhancing visibility and control over cloud spending.
The paradigm is shifting from a central IT department footing the bill to a system where individual business units are accountable for their costs. The moment cloud resources transition from being perceived as free and unlimited to becoming an expense that needs to be managed, a broader set of individuals start to pay attention. They begin to ask questions and take a keen interest in understanding where their money is going, what it's being used for, and how to optimize its spending.
As this financial responsibility is transferred away from a centralized team - which may be less connected to the application or business area it supports - and given to those directly responsible for the actual cloud resources, it places the decision-making power in the hands of those with a deeper understanding of the infrastructure. This familiarity equips them to make the most informed decisions, avoid unnecessary costs, and optimize resource usage.
Chargeback provides several key benefits, which include:
Informed Decision-Making: With better visibility into cloud costs, organizations can make informed decisions about resource allocation, budgeting, and cost management.
Encouraging Efficient Usage: When teams are aware of the costs associated with their cloud usage, they are more likely to use resources efficiently and reduce waste.
Fair Distribution of Costs: Chargeback ensures that departments are billed fairly, based on their actual resource consumption.
Cost Optimization: Chargeback enables organizations to identify inefficiencies and implement cost-saving strategies, such as shutting down unused resources or right-sizing instances.
Streamlined Financial Reporting: Accurate and detailed cloud cost allocation simplifies financial reporting and makes it easier to track spending against budgets.
Here are just a few ways that implementing a Chargeback system can dramatically reduce cloud costs and save money:
Identifying High-Cost Services: By analyzing Chargeback reports, organizations can pinpoint high-cost services & resources and evaluate whether these expenses are justified or if cost-saving measures should be implemented.
Monitoring Usage Trends: Chargeback enables organizations to monitor usage trends, identify patterns, and predict future costs. This insight allows for proactive cost management and optimization strategies.
Encouraging Cost-Consciousness: When teams understand the costs associated with their cloud usage, they are more likely to explore ways to optimize resources and reduce expenses.
Budgeting and Forecasting: Chargeback data can be used to establish budgets and set targets for cloud spending, helping organizations to stay on track and manage costs effectively.
Some businesses start with Showback and then mature into Chargeback. This approach allows teams to become informed on cloud pricing structures, establish a habit of monitoring their expenditure, and resolve any allocation concerns before going to the complete Chargeback model.
Effective cloud cost management requires a comprehensive and adaptive approach that combines regular reporting, detailed data analysis, strict budgeting, robust education, and cooperative management. By empowering teams with the right tools and insights, organizations can significantly enhance their visibility and control over cloud spending.
The implementation of strategies such as Showback and Chargeback serves as a powerful tool in promoting accountability and wise spending. Reflecting on a quote from tech thought leader Marc Benioff, “Speed is the new currency of business,” we understand the necessity of this transition. It enhances understanding and allows faster, more informed decision-making, driving optimized resource utilization.
Ultimately, ensuring everyone comprehends their role and responsibility in this new model is paramount to its success. By applying these principles, organizations can fully leverage the benefits of cloud services while effectively managing their costs.
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