Creating a Culture of Cost Transparency and Accountability
AWS Whitepaper

From Cloud Cost to Cloud Value

Publication date: March 2018 (Document Details)

Abstract

This is the fifth in a series of whitepapers designed to support your cloud journey. This paper seeks to empower you to maximize value from your investments, improve forecasting accuracy and cost predictability, create a culture of ownership and cost transparency, and continuously measure your optimization status.

This paper discusses the tools, best practices, and tips that your organization can use to create a lean cost culture and maximize the benefits of the cloud.

Introduction

Migrating to the cloud is an iterative process that evolves as your organization develops new skills, processes, tools, and capabilities. These skills build momentum and accelerate your migration efforts.

The prospect of moving to the cloud does not need to be a daunting or arduous proposition. Establishing the right cultural foundation to build on is key to a successful migration. Because cloud services are purchased, deployed, and managed in fundamentally different ways from traditional IT, adopting them successfully requires a cultural shift as well as a technological one inside organizations.

Culture consists of the attitudes and behaviors that define how a business operates. Organizations can improve cost optimization by promoting a culture where employees view change as normal and welcome responsibility in the interest of following best practices and adapting to new technology. This is what lean cost culture means.

In traditional environments, IT infrastructure requires significant upfront investment and labor. The decision to incur these costs typically must go through multiple layers of approval. In legacy IT models, IT purchases are ordered and managed through a central services model at significant expense. What’s more, the sources of these costs are difficult to identify and allocate, in part because of limited transparency.

The cloud presents an entirely different situation. IT infrastructure requires more limited capital investments, and labor can focus on undifferentiated work as opposed to managing infrastructure. You can easily spin up cloud services without IT intervention using a departmental credit card. Specialist teams are not always required to get infrastructure to a functioning state, and business units can more easily deploy their own technology needs. While the initial costs might be lower, they are also easier to incur. Without the right infrastructure and processes in place, costs are not always easy to manage.

There’s also a major difference in how cloud services and data center infrastructure are paid for. If you create a virtual machine on a physical server in a data center, there’s no inherent way to measure the cost of that action. If you create this machine in the cloud, costs immediately begin to accrue. Cloud costs are tightly coupled with usage, often down to the second. Most actions have a hard-dollar cost implication.

Because cloud resources are easier to deploy and incur usage-based costs, organizations must rely on good governance and user behavior to manage costs—in other words, they need to create a lean cost culture. This is especially important because, with the cloud and modern agile DevOps practices, implementation is a continuous cycle with new resources, services, and projects being adopted regularly. A lean cost culture is essential when architecting cloud-based solutions and should be part of planning, design, and development. Cost management should not be delegated only after the technology has been developed.

Fortunately, in many ways, creating a lean cost culture is much easier to do in the Amazon Web Services (AWS) Cloud than in the data center environment. You can closely track the costs incurred by specific individuals, groups, projects, or functions. Your teams can share information through consoles and reports. Rich cost analytics and management tools are built into the platform, and cost-saving management automation is relatively easy to implement. By using the tools, best practices, and tips detailed in this paper, your organization can maximize the benefits of the cloud while keeping costs under control.

Ultimately, the goal is to move from thinking about cloud costs to understanding cloud value—the return on investment (ROI) your organization obtains from various initiatives and workloads that leverage the cloud. It’s important to understand not just what you’re spending, but the value you’re getting in return. A bigger bill doesn’t necessarily indicate a problem if it means you’re growing your business, your margins, or your capabilities.

Therefore, your organization needs to clearly identify key performance indicators and success factors that are impacted by cloud adoption. In the absence of well-identified metrics, determining success is complicated and it can be difficult to derive value. Examples of categories that can help define success are business agility, operational resiliency, and total cost of ownership.

One example of how to evaluate cloud value is by looking at unit cost. The unit can be any object of value in your organization, such as subscribers, API calls, or page views. The unit cost is the total cost of a service divided by the number of units. By focusing on reducing unit cost over time and understanding how spending and margins are related, you can concentrate on getting more for your money. Arriving at this level of understanding can be an incremental process. Best practices that can help get you there are discussed in the following sections.

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