Cloud Cost Governance: Starter Guide

Migration to the cloud is one of the greatest technological changes that has ever occurred in business today, and will provide a level of agility and innovation that has never been possible before. But with this transition has also come about a new complicated financial reality. The same properties that make the cloud impressive-its on-demand attributes and decentralized access- has the potential to give rise to out-of-control cloud spending and a loss of alignment between technology investment and business value. To survive in this terrain, companies should abandon the mere practice of cost reduction, and adopt a highly strategic and systematic practice called Cloud Cost Governance.

Read about: Data transfer cost in the cloud

Cloud Cost Governance

Cloud Cost Governance is a problem with a sense of urgency due to the perfect storm of trends that make uncontrolled cloud spending a dangerous risk to organizations, as well as their financial sustainability.

• Digital Acceleration: Intense growth in cloud resource usage the move to a digital-first paradigm worldwide has experienced a dramatic increase in the use of cloud resources. Firms that previously meticulously documented out data center growth spin up 1000s of cloud resources every day with minimal or no supervision.
• Decentralized Resource Provisioning: The cloud democratizes the process of resource provisioning, so that developers and data scientists can deploy high-powered infrastructure by clicking a few times. This speeds up the process of innovation, but comes with the risk of shadow IT which goes out of control and runs off, just because it cannot be seen centrally.
• Complex Pricing Systems: Cloud providers offer a wide product mix that is individually priced and highly complex. The combination of on-demand instances, spot pricing and reserved capacity and savings plans may be confusing and lead to the loss of optimization opportunities.

Absent a proper cost governance framework, organizations will be unable to compute the true cost of goods sold (COGS) of their digital services, and will find it difficult to make sound strategic decisions. Competitiveness is the direct result of weak governance.

Read about: Azure Cost Management tools comparison

What is a Cloud Cost Governance Framework?

Cloud Cost Governance models are the strategic alliance between people, processes and policies to control, manage and optimize cloud spending, on an organizational scale. It is not a complete cost-cutting exercise but it is a fully-integrated system that will focus on instilling financial responsibility, and it will also ensure that it is using cloud assets in the most financially responsible and compliant way possible. The overall objective here is to ensure that every amount of money directed to the cloud is used to benefit the business and to give value.

Governance vs. Cost control

One must recall the distinction between the governance, and the plain cost control.

Cost control is reactive, and it often manifests in the form of a finance team mounting pressure on engineers to reduce cost following a budget overrun. The practice decelerates innovation.

However, cloud cost governance is proactive and enabling. Automated guardrails enable staff to be innovative quicker than ever and operate within financial and compliance limits. It provides the answer to the key question: How do we have financial discipline at a time when any employee can make a difference in the bottom line?

Common Framework Examples

Whilst most organizations might design their own frameworks, they find some motivation in the existing structures, which offer them the organizational ideas and techniques.

Microsoft Cloud Adoption Framework (CAF)

The Azure cost governance model is best represented in Microsoft’s Cloud Adoption Framework (CAF). The relevant discipline within CAF is the so-called Govern, which provides a framework of the process to establish policies that would govern cost, security, compliance, and consistency within cloud resources. It says that this should follow an iterative direction by initially developing governance with a minimum viable product (MVP) and improving it over time.

Read about: Finops Foundation Principles

FinOps is a technology, finance and business culture and new way of operating that enables companies to become experts in the economics of unit pricing in the cloud. Whereas governance offers the what (the policies, the rules), FinOps offers the how (the culture of cooperation to follow the rules). It is developed on the basis of a number of principles:

• FinOptimization requires cross-functional collaboration: FinOps dismantles the walls that exists between engineering (spenders of the money) and finance (payers of the bills).
• Distributes responsibility: It encourages everyone to own their cloud usage where staff now takes ownership of their cloud costs as financial implications of their code.
• FinOps is led by a centralized team A Cloud Center of Excellence (CCoE) or dedicated FinOps team advocates good practices and acts as a centralized source of knowledge.
• Decision making depends on the value of the cloud to the business: The question becomes ” What is that cloud costing us in business terms?” What is the payback on our investment in cloud?

Together, FinOps culture and cost governance frameworks create a balance of accountability and agility.

Key Pillars of Cost Governance

A holistic Cloud Cost Governance is based on several key and interconnected pillars. Weakness in both of these aspects will undermine the functioning of the entire system.

Pillar 1: Visibility and accountability.

What you can not see you can not control Transparency is the ultimate of governing. The pillar will focus on transforming complex information related to billing to intelligence. The second is accountability, which is assigning those costs to any of the per-team, per-project, or per-product levels. This solves the issue of shared kitchen, where overutilization of a shared resource occurs due to lack of personal responsibility.

This is largely through a regulated and similar distributed resource tagging policy. Resources may be tagged by labels (metadata), distinguished by a tag name and frequently a tag value (cost-center:finance, project:q3-campaign), and used to classify and trace the costs of those resources. Based on this, it can create showback or chargeback model in the organizations. Backback gives accountability with its reports to teams on what they have consumed, chargeback gives the teams direct financial responsibility with its formal identification of costs in their budgets.

Pillar 2 Budgets and Limits

This pillar will focus on changing the organization so that it is proactive as opposed to reactive in financial position. To ensure organizations do not suffer a bill shock, it is important that organizations can accurately predict future cloud costs and it can plan cloud costs as part of a budget and it can align cloud cost with financial planning periods.

A key part of this is the process of introducing automated alerting mechanisms that will inform the stakeholder that expenditure is heading in a direction that is likely to exceed the budget. This may be fixed before the end of the billing period. It is so due to the fact that the changing cloud embodies a more dynamic and incremental character of the financial planning, which is formed as a result of new forecasts formed on the basis of the latest consumption data.

Pillar 3: Implementation and adoption of policy.

Where the other pillars are the originators of a good government, good government; this pillar provides the implementing. It enables applied policies not only to be prescriptions but to be enforced consistently throughout the enterprise, typically in an automated way. The adage goes that without enforcement there is no governance. The rule of law exists to instruct us on what to do (Governance). But it has to be backed up by enforcement of the rule of law (Enforcement).

The most effective solution to this is policy as Code where policies are written in code and deployment pipelines are involved. This could allow automated systems to act as guardrails e.g. by:

• The preventive deployment of resources that will not be tagged appropriately.
• Terminating the use of unnecessarily big and expensive instances without approval.
• Ensuring that resources are mobilised in ICSC approved and ICSC-compliant geographic areas only.

The same pillar also ensures that the financial performance will not have any impact on the security and adherence to the regulations like the GDPR or HIPAA regulations like in the case of the organization.

Real-World Governance Scenarios

The following is the functionality of these pillars.

Example 1 Cost Constraints By Business Unit.

A large company with various divisions of marketing, research and development, and sales wants to allow its various departments to access the cloud without the risk of straining their budgetary allocations.

1. Visibility & Accountability: The FinOps creates a mandatory tagging which each resource should be tagged using a department tag.
2. Budgets & Limits: They will be created on a cost management platform and will include a separate budget per department (e.g. 10 000/month in marketing). Instead, they established notifications, which will make the FinOps team and the department head aware of the spending that will deduce 50, 75, and 90 percent of the budget.
3. Policy Enforcement: The system gives an automatic policy in warning when the marketing team shall exceed 500 dollars in expenditure on any of the resources deployed within the month. A more restrictive rule may be used as a trigger to automatically cease additional deployments to that department until a manual override, once the budget reaches 110%.

Example 2: Not tagged resources alert.

Cost allocation within an organization is struggling because the engineers forget to tag the new resources most of the time. This pollutes the data in their books and it cannot be made showback.

1. Policy Enforcement: This will be applied by the IT security team, by creating a policy, which will be executed after every 24-hrs. The policy will scan a new compute instance, database or storage bucket with no cost-center tag as per the requirement.
2. Automation & Accountability: When an untagged resource has been found, the policy will automatically send an email (or Slack) notification to the creator of the resource, and allow 48 hours before deletion.
3. Escalation: Once the resource has failed to be brought into compliance after 48 hours, further policy can be applied, such as a quarantine tag that limits network access or – in non-production systems at least – a quarantine tag that automatically bogs the resource until it comes back into compliance.

Turbo360’s Role in Enabling Governance

No one can doubt that native cloud tools are just an early solution, yet in most instances, a mature and multi-cloud governance needs its own platform. Existing governance frameworks can be applied to Turbo360, whose task is to provide the automation technology layer, which can be used to execute a policy.

• Granular Control with Custom Policies: Granular Control as used in Turbo360 rises gears above the generic rules shown by native tools. It has versatile policy building that includes your highly custom logic. You can as an example configure a policy that will automatically add a tag to non-production SQL databases being created on a premium tier or have a policy that all resources with an environment:dev tag will automatically shut down automatically at the end of business hours. This makes the pillar Policy Enforcement possible.
• Automated Tagging Rules: The issue of untagged resources can be addressed using Automated Tagging rules (Turbo360 assists with ensuring tagging hygiene). The parent resource groups can be used to automatically define non-compliant resources, and they can be tagged using those groups or owners can be informed to undertake the remedial process. This is the foundation to Visibility and Accountability.
• Smart Budgeting And Forecasting: Turbo360 not only provides advanced budgeting capabilities, but crosscuts across a variety of clouds as well, giving you a single view of cloud spend. Its forecasting engine provides superior predictive ability on what lies ahead through months and years of past data, and its alerting can be fine-tuned to minimize financial-induced surprises, which drives the Budgets and Limits pillar.

Since Turbo360 lets you automate implementation of tags, policies, budgets, it will become the control plane of your governance strategy, and your FinOps and engineering teams can work on the optimization strategy, as opposed to the formidable task of oversight.

Conclusion

The cloud migration has turned the financial nature of the modern day corporation upside down. Cloud Cost Governance is a positive rather than a penal process and it serves the important strategic purpose of guiding the way through the latter reality. It is the science that allows businesses to use the full innovation power of the cloud and still be economically disciplined to operate within regulation compliance and generate as much business value as possible.

Having a framework in place based on the pillars of visibility, accountability, budgeting and policy- facilitated by a managed and shared FinOps culture – organizations can reorganize their historic cost-cutting paradigm to value optimization. Any firm that can commit such tenets into its workflows will be in a position to turn cloud spend into a thorny liability into a thriving under control strategic asset and will be in a position to move more rapidly as the digital economy gets off the rails in the innovation cycle.