Quick Thoughts on Cloud Cost and Cloud FinOps Tagging

One of the tactical problems I get asked about most often is how to manage cloud Infrastructure as a Service within an IT cost management environment. As someone who recommends boh telecom expense management and cloud cost management solutions, I’ve seen that the paradigm typically used for telecom, servers, on-prem software, and other traditional IT assets and services doesn’t work as well for cloud both because of the transient nature of cloud services and that public cloud is often purchased solely by technical buyers, with professional sourcing and finance professionals being left out entirely.

This has led to a new practice that has been called Cloud Cost Management or, alternatively, FinOps (even though the abbreviation FinOps does not refer to the Operations of Finance or the CFO office, but that’s a debate for another time…)

In practice, this means that even the most basic general ledger or Active Directory taxonomy used for the vast majority of business costs is not used for the cloud because the people involved don’t know where to start. From a practical perspective, this means that cloud buyers often don’t get to take advantage of the business structure that most of the rest of IT purchasing has and end up having to recreate basic business categories from scratch.

As you start managing cloud services, you will most likely have to tag your resources within your management solution of choice because of the relative financial immaturity of cloud management solutions.

(There are exceptions: Apptio Cloudability, Calero-MDSL, CloudHealth by VMware, and Tangoe being the best examples)

The basic starting point for tagging is to look both at financial management and operational management.

For financial management, ask your controller or accounting team how they break down IT costs, then use the same categories for your tags. It’s usually some combo of employee ID, cost center, profit center, geography, project ID, General Ledger ID, but every company does its books a little differently.

Then the operational management is based on your IT org’s view of technology management, which could include applications, projects, technologies, staging environments and software supported, cloud service categories, functional IT tasks. This process is well-aligned to an IT Finance or Technology Business Management approach where technology is aligned to specific operational and functional tasks and responsibilities. But you may also need more granular tags that assign each resource to automated governance, security, data transfer or architecturally defined tasks. Each task or function should roll up to a functional manager, project manager, or stakeholder.

In thinking about the operational side of tagging, we recommend looking at Apptio Cloudability, CloudHealth by VMware, CloudCheckr, and Replex as starting points.

These tags end up being the taxonomy for your cloud environment and should ideally match up with existing IT taxonomies across IT asset management, project management, service management, and financial management. Otherwise, you risk reinventing the wheel and using up tags on categorization that only makes sense for yourself or your immediate team.

In addition, after creating these tags, you may also want to group these tags into larger dimensions that are associated with a specific use case, solution, or output with the goal of having shortcuts to manage what can be an intimidating number of services, resources, and tag combinations.

Over the next couple of months, Amalgam Insights will be providing more guidance in this space both with our SmartLists on Kubernetes Cost Management and Market Leaders in Technology Expense as well as releasing our videos on managing cloud costs from our recently completed Technology Expense Management Expo. If you have any suggestions for key issues we should include in these reports, please let us know at research@amalgaminsights.com.

And in case you missed it, here’s our recommendations for managing cloud cost from earlier this year.