6 FinOps KPIs and metrics to optimize cloud expenditures
IT leaders who adopt FinOps metrics can identify underutilized resources, improve cost allocation and build a tighter connection between cloud investment and business value.
Enterprises have become ever more dependent on cloud infrastructure, but the increase in spending hasn't always come with a corresponding increase in financial oversight.
The COVID-19 era spawned a rapid rise in cloud computing adoption as businesses scrambled to digitalize their operations to accommodate remote workers and an influx of online shoppers. The urgency of cloud deployment, however, emphasized speed over governance.
The result was a glut of hastily purchased cloud applications and services. But factors beyond the pandemic have also contributed to the rise in inadequately controlled cloud expenditures. Cloud inflation, which began accelerating in 2022, has driven up costs across the board, from IaaS to SaaS. In addition, the ease with which users can spin up cloud instances -- a perennial headache for technology managers -- has made cloud costs difficult to corral.
Such challenges have elevated FinOps, a set of best practices for cloud cost optimization.
What are the goals of FinOps practices in cloud computing?
CIOs and CTOs turn to FinOps metrics to get a better handle on cloud investments.
FinOps goals include the following:
CIOs and CTOs turn to FinOps metrics to get a better handle on cloud investments.
Improving cloud cost tracking to make expenditures more visible to decision-makers.
Identifying idle or underused resources to boost cloud resource utilization.
Finding opportunities to improve cloud services.
Promoting wider use of cost-saving measures, such as commitment-based discounts.
Improving communication between technology and financial personnel to align cloud investment with business goals.
Boosting the accuracy of cloud spending forecasts to keep budgets on track.
Such goals help with reducing costs and getting the most out of cloud investments.
6 essential FinOps KPIs for measuring cloud expenditures
IT leaders can use cloud FinOps metrics and KPIs to assess their progress toward those objectives.
Those metrics boil down to general categories, such as cost tracking, cloud usage and budgeting. Within those categories, businesses can tap a multitude of FinOps KPIs. Some FinOps tool vendors and consultancies cite a dozen or more KPIs. The FinOps Foundation, a nonprofit organization that focuses on cloud financial management practices, has identified more than 30 FinOps KPIs.
Here are some critical KPIs organizations should consider building into their cloud cost management plans.
1. Cloud resource utilization rate
Cloud adopters frequently overprovision compute resources and storage. The cloud resource utilization metric determines what percentage of those resources the organization actually uses. IT managers can use cloud cost monitoring tools to flag underutilized resources as opportunities to trim expenses.
For example, a company that gets only 10% utilization out of a particular cloud resource can explore different technical approaches to achieve higher rates and improve its technology ROI. Accrete, an enterprise AI company, determined it could get higher utilization rates by moving many of its Amazon EC2 instances to containers. The company's migration to a Kubernetes-managed environment, along with its use of Kubecost's cost monitoring application, has resulted in a 40% to 45% reduction in AWS spending.
FinOps KPIs can help organizations reach their cloud cost management goals.
2. Percentage of cloud waste
While some cloud resources see limited use, others might not be consumed at all. Indeed, users spin up compute instances that continue to run long after they're forgotten. Orphaned cloud storage volumes -- those no longer attached to a compute instance -- also generate unnecessary costs. Organizations that identify idle resources as a portion of their overall cloud spend can shut them down and claw back the savings.
Enterprises waste nearly 30% of their cloud spending, according to industry estimates. Unsurprisingly, reducing waste was the top-rated priority among FinOps practitioners responding to a 2024 FinOps Foundation survey. Half of the 658 respondents polled cited cutting idle resources as their top objective.
3. Cost allocation rate
Organizations often struggle to interpret service providers' notoriously complex cloud bills. Tracing cloud costs to specific business units can prove particularly vexing. Cost allocation, however, ties cloud spending to individual departments. Techniques such as resource tagging let IT managers identify cost centers and assign costs.
Over time, managers can gauge the effectiveness of allocation practices by tracking the percentage of overall cloud spend that can't be traced to specific corporate users. Rigorous cost allocation can also help cloud buyers identify underused resources, which influences the cloud utilization and waste metrics.
4. Unit cost measurement
The cost per unit metric provides a more finely delineated way to monitor cloud spending. While cost allocation assigns expenses to groups, unit cost economics tracks costs by product or service. Keeping tabs on unit costs helps an enterprise assess efficiency.
JPMorgan Chase's technology group, for example, seeks to generate more compute capacity from each unit of power consumed, which the financial services company measures in megawatts. This unit cost approach is part of JPMorgan Chase's cost control regimen.
Organizations can also use unit costs to build a business case for cloud spending, comparing a new digital product's per-unit costs with its per-unit revenue, for instance.
5. Discounted resources as a percentage of cloud spend
Buyers can purchase cloud vendors' resources at discounted prices if they commit to a term length. Service providers' reserved instance pricing is significantly lower than their on-demand pricing plans. AWS, Google and Microsoft are among the vendors offering reserved instance discounts for one-year or three-year purchase commitments.
Organizations can track the percentage of their cloud spend covered under reserved instances or other discount programs to determine whether they need to expand their use of such cost-saving strategies.
6. Cloud spend variance
For the big FinOps picture, IT leaders must continually monitor the difference between their forecasted or budgeted cloud spend and their actual expenses. A big difference suggests there is ample room for improvement in cloud cost control. That's an issue many businesses face: Seventy-two percent of the cloud decision-makers in a Forrester Research survey reported cloud budget overruns in the last fiscal year. Boomi, an integration platform vendor, commissioned the Forrester report, which polled 420 respondents globally.
Defining FinOps KPIs
Organizations should define FinOps KPIs with financial accountability in mind. But the task -- and downstream benefits -- rely on the availability of accurate data. IT managers must pull together a mix of external and internal data to create a comprehensive set of FinOps metrics. Examples include cloud billing data, cloud utilization data, metadata from resource tagging efforts, budget data and historical data on cloud spending patterns.
Data collection will likely depend on a combination of cloud vendor tools and third-party offerings. It's up to FinOps practitioners to assemble an adequate toolkit. Other considerations include periodically reassessing FinOps KPIs and, potentially, redefining them to stay in sync with an enterprise's changing business needs and evolving cloud deployments.
John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.
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