FinOps – Amalgam Insights

Posted on September 6, 2022October 31, 2022 by Kelly Teal — 1 Comment

Cloud Cost Management Part 3: Exploring Why Cloud Cost Vendors Sound Similar

We Look at Two Ways in Which Providers Message Similarly to One Another

In the first two blogs in our series on cloud cost management, Amalgam Insights dove into why cloud costs are hard to manage and the challenges that impede many organizations from implementing disciplined cloud cost management and optimization. Those installments set the stage for this post, which lays out the value of relying on third-party software and services for cloud cost and lifecycle management. From there, we begin to explore the similarities observed among vendors, so organizations may spend less time and energy identifying the best fit(s).

Wait — Why Use a Vendor at All?

Any technology calls for proper oversight to ensure its best use and to assure optimal financial stewardship for the organization. To meet this need, dozens of companies provision software, and/or professional and managed services. When it comes to cloud cost management and optimization, these third-party offerings intentionally replace in-house counterparts. Surprisingly, a number of global organizations still rely on internal staff and piecemeal technologies to oversee and monitor their cloud environments.

Given the rapidly growing amount of cloud computing consumption, and the cost overages that easily accompany that usage, a homegrown approach must evolve, and quickly. Organizations must gain financial and operational visibility into their cloud environments. That starts by implementing a cross-departmental practice Amalgam Insights frames as Technology Lifecycle Management.

Figure 1: Technology Lifecycle Management

A Cautionary Note

Newcomers to the world of cloud cost control often are surprised to learn that using a cloud cost management and optimization platform may not inherently save substantial amounts of money on an ongoing basis.

In many cases, that is not, in fact, the overarching point.

Rather, the software will give IT — and finance and engineering — the data and recommended actions to make sure all cloud environments are running at their most optimal, are in use, and that they serve the organization’s needs.

Think of the matter this way: managing cloud computing does not mean cutting spending to the bone. Rather, organizations thrive when they support employees with the correct infrastructure and applications. (And, yes, that can call for putting more money into the cloud budget as tech serves as a driver for revenue creation.)

Many enterprises experience significant savings after first deploying a cloud cost management and optimization platform. Ttransforming an uncontrolled or poorly controlled environment into an efficient one will naturally lead to that outcome at first based on the IT Rule of 30. But as optimization continues, those gains fade because the platform is keeping the cloud environment at its most efficient.

Contrary to how it might sound, watching those gains disappear over time by creating an optimized environment actually is the goal. The right vendor will enable the organization to achieve that aim.

With that in mind, we now explore the first two ways in which many cloud cost management vendors end up sounding the same. The next blog will present more similarities among these providers. Amalgam Insights takes this approach so enterprise buyers are empowered to make their vendor selection processes more efficient and productive.

Sifting Through the Benefits Statements

With a couple of exceptions, cloud cost management and optimization vendors tend to make the same benefits statements to potential customers. Yet, once enterprise buyers understand those similarities, they will be better equipped to pinpoint important differentiators. In fact, later in this series, Amalgam Insights will publish a number of vendor profiles. The intent is that, by the time those go live, organizations will have the knowledge to create a matrix that will help narrow down the ideal choice.

Similarity 1: Continuous Optimization

Cloud management platforms must support continuous optimization as cloud performance and transactional activity accelerate, and as companies become increasingly susceptible to peak usage and other cost challenges associated with the flexibility of cloud computing.

The greatest benefits of an always-on optimization effort that pulls billing information directly from the cloud provider are the prevention of overspending and the right-sizing of consumption.

Unless a vendor delivers professional services rather than an actual platform, enterprises have the right to expect the cloud management software to perform constant right-sizing actions on a daily basis, or even more frequently, leading to the best use of the cloud environment. This capability has become table-stakes within any technology management platform and a vendor that overemphasizes continuous optimization may be lacking in other important areas.

Similarity 2: Automation and Artificial Intelligence

Continuous optimization relies on some level of automation, which is vital in a cloud cost management and optimization platform. After all, reducing human intervention is key to achieving more accuracy and efficiency. Given the massive volume of cloud computing billing and usage data, it is not humanly possible to manually check all of the data that comprise a cloud bill — at least, not without automation and an algorithmic-checking approach.

Note this important caveat: Most vendors will refer to their automation as “artificial intelligence,” largely because of the sophistication and modernization the term calls to mind. However, most of the automation in question is actually algorithmic processing with some aspects of basic regression to identify correlation and trends. Amalgam Insights sees that the majority of “AI” in this particular market typically lacks the feedback mechanisms, model training, and ongoing data science required to be considered modern AI. This isn’t necessarily an issue, as cloud computing usage is often driven by discrete and specific business needs or by the developer team’s needs. But the obvious advice here is to always follow up on AI claims, as there is no current standard on what constitutes AI in this market.

Enterprises would do well to inquire about how each platform automates data, and how it learns from recommended and implemented actions. If the software just imports information and populates fields, that — while handy — is rudimentary and standard.

Consider, as well, that a cloud cost management and optimization platform should remove the need for excessive manual manipulation, both to reduce the potential for human error and to foster any intelligence that will help the software learn from actions.

In the next installment, get more insight into more similarities among cloud cost management and optimization vendors.

Need More Guidance Now?

Check out Amalgam Insights’ new Vendor SmartList report, Control Your Cloud: Selecting Cloud Cost Management in the Face of Recession, available for purchase. If you want to discuss your Cloud Cost Management challenges, please feel free to schedule time with us.

Posted on August 30, 2022August 31, 2022 by Hyoun Park — 2 Comments

An Important Side Note on FinOps and Cloud Economics

Organizations sometimes describe the job of cloud cost management as a “FinOps” role (an abbreviation of “Financial Operations” or “Financial Cloud Operations”) or as a Cloud Economics position. Amalgam Insights finds that there is confusion about these terms. Here’s why.

The common-sense definition of Financial Operations belongs to the Finance team responsible for financial close, budgeting, planning, treasury, tax, and accounting. Meanwhile, the concept of “economics” typically applies to the ecosystem of the production and consumption of value. In many cases, that goes beyond the scope of a standard “cloud economics” role, which focuses on cloud optimization and cost management.

However, in practice, these terms of FinOps and Cloud Economics are often used interchangeably to refer to managing costs, as well as inventory and governance. This is misleading on a variety of levels. The appropriation of “FinOps” to be cloud-specific is confusing enough, especially since a separate “FinOps” is starting to emerge for financial applications used to assist with planning, budgeting, close, consolidation, treasury management, and other financial tasks requiring some strategy, workflow, or collaboration to complete. The Cloud Economics term is a challenge for a different reason: it is an inaccurate term as economics should refer to the financial and business value associated with cloud deployments, including sales bookings and support costs at the microeconomic level and the environmental impact and ecosystem costs at the macroeconomic level. Economics, finance, and accounting are three separate concepts that the IT department needs to understand.

Amalgam Insights acknowledges that this is a common occurrence and hopes this note provides clarity for the reader who may find herself already acting as a “cloud economist” or “FinOps practitioner” based on activity around managing cloud costs while perhaps not being familiar with this terminology. The biggest concern Amalgam Insights has with these inaccurate terms is that the use of these terms may lead to the trivialization of these roles as FinOps or cloud economists are typecast as “cost analysts” rather than personnel who understand the business repercussions of cloud on the business as a whole. Cost analysts are a cost center while business analysts who understand revenue root causes are often a profit center.

In this light, what can FinOps and cloud economics personnel do to avoid being pigeonholed? Here’s Amalgam Insights’ advice.

1) Talk to the finance team in charge of organizing and managing IT costs. Somebody at the finance team has to either articulate the value of IT or rolls IT up into general and administrative costs or cost of goods sold. Understand how IT is categorized in your organization, as cloud may be miscategorized.

2) Understand the full lifecycle of cloud costs. This includes vendor sourcing, contract negotiations, optimization, service rationalization, and the security and governance concerns associated with technology vendor selection. Do not be stuck within one small section of Technology Lifecycle Management within a complex spend category such as cloud unless you are seeking to be commoditized over the next few years.

Finally, understand the economics associated with cloud. ESG (Environmental, Social, and Governance) is an increasingly important and strategic topic for businesses seeking to improve branding and reduce their risk to any operations that may lead to future concerns. If you want to be associated with economics, understand not just the services and technologies supported but their impacts on the environment and to the service provider. This allows you to be a resource not just for IT, but also for the CFO, Chief Strategy Officer, Chief Procurement Officer, and other strategic vendors.

Posted on August 30, 2022September 7, 2022 by Kelly Teal — 2 Comments

Cloud Cost Management Part 1: Understanding Challenges to Optimal Cloud Management

Since the start of COVID-19 more than two years ago, cloud computing infrastructure and platform spend categories have collectively increased 48% per year. That makes the related costs both an outlier in IT and a key target for potential expense reduction, especially as a recession — caused by the pandemic — hovers on the horizon.

All in all, in 2022, global spending on cloud computing — including infrastructure and software — will total more than $350 billion, according to Amalgam Insights. As such, organizations require expert guidance for making the most of their cloud computing environments while, at the same time, trimming unnecessary outlay.

Cloud Computing By the Numbers

Amalgam Insights estimates that organizational investments in cloud computing infrastructure and platform services will continue to increase 25% per year for the rest of this decade. The reasons for shifting to cloud technologies mostly tie to the ongoing COVID-19 pandemic, and concurrent digital transformation and modernization projects that support workforce flexibility.

The reality of that momentum shows in the 48% annual growth of public IaaS and PaaS from 2019 to 2021, based on estimates from Gartner, IDC, Apps Run the World, and Amalgam Insights’ research that represents a $90 billion increase worldwide.

And a third of that $350 billion total is waste.

Understanding the IT Rule of 30

Amalgam Insights has done the math that demonstrates that unmanaged IT spend categories average 30% waste, due to the inherent lack of governance, sourcing immaturity, and lack of expense visibility. Given that public cloud computing constitutes a spend area covered by the IT Rule of 30, organizations are collectively spending billions of dollars unnecessarily. In the cloud computing world, waste often creeps up due to service duplication, and the unmanaged growth of production and sandbox resources. The combination leads to outsized cloud computing bills ripe for optimization and management.

Deterrents to Good Cloud Computing Governance

Because cloud computing represents the fastest growing subcategory of technology spend in most businesses, this outlay requires strategic oversight from the finance, IT, revenue, security, and governance departments.

But consider some of the common barriers organizations face:

• Finance and line-of-business executives in charge of budgeting need to understand that cloud computing costs are nuanced and cannot simply be slashed in proportion to the budget as a whole;

• IT must choose and manage platforms, and assign and monitor users and consumption;

• Software development and IT architects need to tag and track resources as cloud computing services are spun up and down;

• Data experts have to ensure that the organization’s information within the various cloud resources stays in line with privacy laws such as Europe’s General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), and the Personal Information Protection and Electronic Documents Act in Canada.

Finally, we discuss three other important realities that hamstring a cohesive and effective cloud computing management and optimization strategy.

Ch-ch-ch-Changes

First, cloud vendors tend to create new services rapidly with little to no prior notice — and they retain the right to change billing structures on an ad-hoc basis. For example, Amazon Web Services alone has 226 products across analytics, compute, containerization, database, developer tools, machine learning, networking, security, storage, and a variety of other technical capabilities. The vendor usually adds 20 or more new products every year.

Even if adjustments benefit end users, they can prove hard to track. That means organizations can have a hard time ensuring that even just a single vendor’s billed costs match actual consumption and contractual terms. Imagine what happens when an organization relies on multiple cloud providers.

Inconsistency

Along those lines, the second challenge lies in using the data delivered by the cloud providers themselves. While the information — which can comprise usage, expenses, taxes, permissions, and consumption by user for each product — is vital, Amalgam Insights’ big caveat is that cloud computing vendors do not usually maintain consistent detail. This makes defining services ownership and usage — especially across specific projects and employees — difficult. After that, the burden of accurate project and departmental tracking falls on how well the organization has set up internal tags and tracking — typically a hit-or-miss proposition.

Siloes

The third is that when organizations institute cloud computing management and optimization, they tend to do so through software and managed services specific to the various components of cloud computing — think items including infrastructure (e.g. virtualized desktops, containerized workloads), software/applications, storage, compute, and networking. Such a siloed approach contributes to ongoing lack of visibility and communication among decision-makers, and sets the stage for less-than-optimal stewardship of the cloud environment.

Overall, these financial, operational, and governance requirements create complexity that can quickly morph into a full-time job for a software developer, cloud architect, or data manager. And each of these professionals is likely being paid handsomely to help grow the company — not track inventories, bills, and service orders. (Learn more in our companion piece, “An Important Side Note on FinOps and Cloud Economics”)

Tackling the Cloud Computing Management and Optimization Problem

For the most part, organizations recognize the need to better
manage their cloud computing environments. The impetus to do so increases amid
the threat of a global recession. Amalgam Insights contends that organizations — especially those using hybrid clouds or multiple public clouds — can gain significant
value, even during a worldwide economic slowdown, by using third-party
management tools. These platforms (and in many instances, associated consulting
and managed services) offer the cleanest insight into the cloud environment
while simultaneously assuring the wisest spending and delivery of more
sophisticated services to corporate and external clients.

In Part 2 of this series, Amalgam Insights will discuss the reasons to turn to a third-party cloud computing management and optimization partner, versus trying to go it alone and/or rely on vendor-generated data.

Need More Guidance Now?

Posted on February 8, 2022February 8, 2022 by Kelly Teal — 1 Comment

Upcoming Amalgam Insights Report Alert: “Control Your Cloud”

The Big Takeaway: Cloud computing spending has reached new heights. Organizations need guidance to avoid wasting money. The “Control Your Cloud” SmartList will provide guidance for enterprises struggling to manage cloud costs.

Amalgam Insights forecasts that global spending on public cloud computing — including infrastructure and software — will total more than $350 billion in 2022. Driven by the ongoing COVID-19 pandemic and concurrent digital transformation projects, organizations will continue to invest in the cloud, to the tune of more than 20% this year. And the greater the investment made in cloud, the more room for waste.

Savvy stakeholders, especially those who already pay attention to expenses in other technology categories (mobility, telecom, Software as a Service), know that uncontrolled cloud computing will significantly reduce any return on investment. Just as with wireless or networking or other strategic IT spend categories, department heads must come together to craft a strategic approach to overseeing cloud computing deployments and expenses. The stakes are too high.

Consider the wider perspective: Between 2020 and 2021, spending on public infrastructure as a service (IaaS) and platform as a service (PaaS) soared 37%. In numbers, that totals a $60 billion increase.

Kelly Teal, Senior Research Analyst, Amalgam Insights

COVID-19, of course, served as the impetus for much of that growth. Anecdotally, cloud computing vendors have reported that the demand they expected to serve around 2030 hit a decade earlier because of the pandemic. As governments worldwide mandated lockdowns, organizations had to rush to support work-from-home setups for employees. Cloud computing delivered many of the capabilities businesses needed; IT teams scrambled, often cobbling together solutions that met staff needs but were not cost-effective. Leaders spent much of 2021 trying to rectify those issues, yet more cleanup remains to be done. Contractual obligations, employee preferences, and heavy lifting associated with a technology shift all can slow the process.

At the same time, organizations face new challenges in 2022. Inflation rose by 7% by the end of 2021, just in the United States, according to the Consumer Price Index. Everyone is paying more for the same products and services, and wages are not keeping pace. Revenue may not make up for the gap, either. This leaves executives and line-of-business leaders more aware of spending than perhaps ever. Cloud computing represents a major area ripe for attention.

Cloud computing also accelerates the ability to bring new ideas to market and execute on business opportunities. At a time when the attention and relationship economies require deeper and more data-driven understanding of customers, cloud computing allows access to the analytics, machine learning, and relevant connections that achieve that. Organizations need to translate new ideas into fully-fledged business units without investing millions of dollars in upfront cost on computing assets.

However, IT should not act alone when it comes to deciding how to manage cloud computing expenses just for the sake of getting the job done in a convenient way. Cloud computing, just like its wireless and telecom counterparts, impacts the entire organization. Therefore, the finance, IT, revenue, security, and governance departments all must be involved, on some level, in overseeing cloud computing investments. For example, executives in charge of budgeting need to understand cloud computing costs; IT must select and manage platforms and assign and monitor users and consumption; software development and IT architects need to tag and track resources as cloud services are spun up and down; and data experts have to ensure that the organization’s information within the various cloud resources stays in line with laws such as Europe’s General Data Protection Regulation (GDPR).

Cloud computing is complicated. Executives across the organization need a deeper understanding of the intricacies so they can work together to spend wisely while ensuring no critical aspect goes overlooked. Amalgam Insights is stepping in to guide organizations through these considerations with our upcoming Vendor SmartList, “Control Your Cloud: Why Organizations Need Cloud Cost Management Capabilities in 2022.”

Executives seeking to control cloud expenses need to read this report because it will provide expert analysis on the key cloud cost containment challenges of 2022 and the differentiated approaches to reduce and optimize cloud costs. The report also will features vendor profiles that cut through the hype and show why each vendor is different in a sector where marketing messages all seem to focus on the same starting points of reducing cost, providing financial visibility, and improving cross-departmental collaboration. This last issue emphasizes an important point: The profiles do not rank the providers that brief with Amalgam Insights. Rather, Amalgam Insights explores what makes each vendor different and offers guidance on why that vendor is currently chosen in a crowded marketplace. This level of detail gives organizations the knowledge to pinpoint which vendor(s) might best meet their needs for cloud computing cost management.

The following stakeholders all will need to read and act on the report: Chief Technology Officers, Chief Information Officers, Chief Financial Officers, “Shadow IT” managers in sales and marketing, DevOps Directors and Managers, IT Architects, Vice President/Director/Manager of IT Operations, Product Managers, IT Sourcing Directors and Managers, IT Procurement Directors and Managers, IT Service Providers and Resellers. Each of these roles is crucial to achieving cloud computing success throughout the organization.

“Control Your Cloud: Why Organizations Need Cloud Cost Management Capabilities in 2022” will publish in the second quarter of 2022.

Tag: FinOps

An Important Side Note on FinOps and Cloud Economics

Tackling the Cloud Computing Management and Optimization Problem

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