Welcome to week eight of the Managed Services Monday with VMware Aria series. By now we may have our consumers all set up to embark on their multi-cloud journey. They can get a secure cloud landing zone with GitOps capabilities and service catalog to deploy resources across VMware Clouds, AWS, Azure and Google. And they have a range of managed infrastructure, managed applications, managed networking and managed security services to layer on top from their trusted provider. Now is probably a good time to start looking at managing the cost of this multi-cloud stack. Cloud financial management or FinOps is the service that providers can deliver in that area.
FinOps, Cloud Financial Management, Cloud Economics
To set the stage, let’s understand the different terms, practices and goals around financial aspects of the cloud. Depending on who you speak to, the terms cloud financial management (CFM) and FinOps may be used interchangeably. Some people describe FinOps as one approach to implement cloud financial management while others see it as a set of tools inside the wider and strategic CFM practice. For the sake of simplicity, we will use both terms as synonyms within this blog post. Let’s assume the following definition:
“Cloud financial management (CFM)—sometimes known as FinOps or cloud cost management—is a function that helps organizations align and develop financial goals, drive a cost-conscious culture through best practices, establish guardrails to meet financial targets, and gain greater business efficiencies. However, cloud financial management isn’t a one-time exercise; it’s a continuous process. With the ever-changing nature of cloud, the goal of CFM is to continuously optimize and align cloud investments to strategic business initiatives.”
eBook: Building a Successful Cloud Financial Management Practice – VMware
Another term that may come up in the context of costs and cloud, is cloud economics. Cloud economics is the study of cloud computing’s costs and benefits and the economic principles that underpin them. As a discipline, it explores key questions for businesses: What is the return on investment (ROI) of migrating to the cloud or switching current cloud providers? And what is the total cost of ownership (TCO) of a cloud solution versus a traditional on-premises solution? Cloud economical decisions can be supported by numbers and data from CFM practices or FinOps tools. Yet they are usually one-time exercises to support strategic or tactical business decisions, compared to ongoing FinOps processes.
Like we have seen with other services during this blog series, partners and customers usually distinguish between different types of managed services for CFM. The base service consists of providing and managing the right tools for customers to conduct FinOps by themselves. Value-added services focus on achieving the FinOps goals using these tools on the customers behalf.
Introducing VMware Aria Cost powered by CloudHealth
Within the Aria suite of solutions, the main tool to conduct CFM and build a base managed service is VMware Aria Cost powered by CloudHealth. It’s a global leader in multi-cloud cost management, helping over 20,000 customers around the world optimize and control over $20 billion in multi-cloud spend. As of writing, it processes over 2 billion cloud resources every day.
Aria Cost is a robust multi-cloud management platform that ingests and normalizes data, delivers actionable insights and recommendations. It offers policy-based governance to keep cloud environments aligned with customer policies and compliance frameworks. Besides ingesting data from cloud platforms and containerized or data center environments, it also pulls data from third-party tools like application performance management, provisioning, configuration management, and more. From here, VMware Aria Cost aggregates and normalizes all the data and maintains a resource inventory list.
Aria Cost Use-Cases and Capabilities
VMware Aria Cost powered by CloudHealth can help customers and providers with the following FinOps activities, amongst others:
- Gain visibility into cloud spend and report by cost center.
- Drive accountability with accurate chargeback and budgeting.
- Rightsize cloud infrastructure to eliminate wasted spending.
- Get sophisticated recommendations for purchasing and managing commitment-based discounts.
- Create custom policies and receive alerts on costs, budgets and spending
- Set automated actions when policy conditions are met to ensure continuous governance.
Figure 1: VMware Aria Cost powered by CloudHealth overview
VMware Aria Cost is delivered as a SaaS solution. Providers can onboard their customers to it using the familiar Cloud Partner Navigator. By giving customers access to the tool and supporting them with connecting their cloud accounts, they can deliver a base managed service for customer self-service FinOps. This enables a managed multi-cloud cost management platform. To build a similar set of capabilities with native cloud offerings from hyperscalers, the customer or partner would have to rely on a range of tools. Those include AWS Billing and Cost Management, Cost and Usage Reports, Cost Explorer, Trusted Advisor, Azure Cost Management and Billing, Usage Details API, Advisor, as well as GCP Cost Management and Recommender.
Integrating Aria Operations Cost Sources
On a high-level, Aria Cost may seem to have some overlap with the cost management capabilities included in the Aria Operations suite. Yet looking deeper into both tools’ capabilities, they are actually complementary when it comes to multi-cloud financial management. Aria Operations provides very deep insights into VMware vSphere and VMware Cloud utilisation combined with cost optimization, planning, forecasting and financial migration assessment capabilities. Aria Cost, on the other hand, has industry-leading cost analysis capabilities for hyperscale public clouds, including AWS, Azure, GCP and Oracle Cloud.
To bring the two together, we leverage in-depth integration between them. The integration consists of two management packs. One pulls public cloud data from VMware Aria Cost powered by CloudHealth and into VMware Aria Operations. The other ingests vSphere-based data from VMware Aria Operations and into VMware Aria Cost powered by CloudHealth. Through this integration, we leverage the best tool for both worlds, but create a single source of truth. That source has relevant costing data across the whole multi-cloud environment:
Figure 2: Integration between Aria Cost and Aria Operations
This approach becomes particularly important in environments where the provider delivers value-added FinOps services or handles federated billing for customers. It can also serve as the basis to ingest consumption and cost data holistically into the providers rating and billing systems via API. For managed services providers, the Aria Cost Partner API is an important tool, that allows partners to get reports, metrics, and assets for their customers.
Value-Added FinOps Services
Value-added services for FinOps and CFM can rang from basic resource cost allocation services to continuous optimization in alignment with business goals. Let’s look at these in more detail, understand the KPIs and practices required, as well as the value-add that provider can deliver for each of them:
Figure 3: Common maturity stages for value-added FinOps services
You can also learn more about each stage in this eBook.
Visibility: Allocate Cloud Costs for Showback or Chargeback
Lack of visibility is a common problem in multi-cloud financial management. In practice, it leads to false or sub-optimal cloud migration decisions and poor cost predictability. Further, cost allocation, showback or chargeback of resources to projects, teams and cost centers becomes inaccurate. Or almost impossible without the right level of visibility, in some cases. Partners can improve the visibility into cloud spend for their customers as a value-added service using Aria Cost. Common tasks to conduct on the customers behalf include the following:
- Develop a consistent tagging strategy to better identify and allocate spend and usage.
- Utilize dashboards and trend reports to analyze information based on tags and business groupings.
- Gather clean, relevant data for customer teams and enable everyone to work from the same, accurate data set, and agree on key performance indicators (KPIs) and metrics that will be measured on an ongoing basis.
- Set budgets, align cost drivers to business decisions, and alert customer stakeholders of changes in cost and usage proactively through governance policies or alerting tools.
- Establish best practices such as chargeback and showback across various teams to standardize operating in the cloud.
- Benchmark against industry peers to show how customers can improve their cloud consumption.
Customer benefits from such cost visibility services include more predictable cloud bills, faster time to closing the books, and overall improved top-down confidence in cloud initiatives. Additionally, as customer lines of business and teams gain awareness of spend and cost drivers, they’ll naturally start to reduce spending. Other benefits include better budget alignment, improved forecasting and smarter decision-making.
Optimization: Find Opportunities to eliminate Waste
Once visibility into resources and costs in the multi-cloud environment is available, the next step is optimization. The value-added service here includes finding opportunities in the customer infrastructure to be more efficient, reduce spend, and/or save time. The cloud gives organizations flexibility to scale up and down while paying for what they consume. Yet not having the right toolset in place to help manage the cloud might lead to overspend and/or over-provisioned resources. Provider can help their customer implement the best practices to reduce spend in multi-cloud environments. These best practices include:
- Making use up upfront commitments: Most public cloud providers offer incentives for making an upfront commitment in exchange for a discount. These commitments, often called Reservations or Savings Plans, can offer up to 80 percent plus savings compared to consuming infrastructure on demand.
- Removing unused resources: Zombie assets are infrastructure components that are running in the cloud environment but are not being used for any purpose. Those assets can come in many forms, such as VMs, databases, unattached storage volumes, and more. They should be isolated, evaluated and terminated.
- Rightsizing: Provider can analyze the utilization and performance metrics of customer cloud infrastructure. They then determining whether or not they’re running efficiently, and what actions should be taken to improve efficiency. Depending on the service, they can also take appropriate action to implement the changes.
- Utilizing low-cost compute options: One of the ways to optimize cost most aggressively is to adopt short-lived compute options, such as spot instances or preemptible VMs. While these options can reduce costs by up to 90 percent, they’re also potentially the most disruptive to applications because infrastructure can disappear with relatively short notice. Partners can help identify or build applications to tolerate this disruption, and realize potentially significant savings that way.
You can find a walk-through of the tasks a provider could conduct on their customers behalf here:
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Governance and Automation of Cost Control Measures
Partners can help with defining the ideal state and implement alerts and policies to notify the right customer stakeholders when environments drift out of compliance. Governance is key to the successful execution of a cloud strategy and includes for example the following:
- Setting and monitoring budgets
- Defining an unacceptable cost increase
- Defining how much infrastructure should run on demand
- Specifying what constitutes a zombie infrastructure
- Defining which environments can be shut down during off-hours
These are only a few examples of the types of governance policies that partners can help their customers set up. After defining governance policies, the goal for many organizations is to automate as much of their environment as possible. This helps free up employee time for more critical tasks.
Therefore, another value-add is to automate steps of the process, including:
- Manage existing reservations, such as converting reservations to the latest offering, or alerting owners of expiring reservations.
- Terminate low-hanging fruit, such as unattached storage volumes, unassociated elastic IPs, and aging snapshots through policies.
- Automate lights-on/lights-off tasks for non-production infrastructure on weekends or weeknights through scheduling.
Business Integration: Continuously optimize Cost based on Business Strategy
The last value-added service is integrating customer cloud processes into business processes. This can for example include aligning cloud costs into go-to-market strategies for packaging and pricing. Or it is about transparent KPIs that cascade down from the business to the customer level. The overall goal is to have customer cloud costs fully integrated into finance systems to enable chargeback. But business integration isn’t just about numbers and systems. It’s also about people across different functions working together through adoption of effective communication. Partners at this stage can therefore use their expertise to help develop the collaborative culture and a do-it-right-first-time attitude in the customer organization. This includes for example:
- Undertake cross-organization optimization efforts using cost initiatives to help drive change in behavior and development across teams.
- Develop reports and dashboards for team collaboration (e.g., time required for projects/sprints, time lapsed before action was taken on a ticket).
- Automate entries for financial chargebacks and accruals through APIs and integrations.
- Align financial management metrics to business metrics such as gross margins and cost of goods sold to establish common goals.
- Integrate third-party tools, such as Slack and Jira, for effective alerting and communication.
The role of KPIs
All of these phases require the implementation and improvement of the right key performance indicators. In a managed services setting, these can also be the outcomes that success and charges of the value-added service are measured on. Besides charging an hourly or fixed rate for implementation and delivery of the above measures, partner can thereby implement a compelling outcome-based pricing model. Example KPIs to implement, and potentially align managed services changes on, are the following:
Figure 4: Sample KPIs for each services area
Conclusion
FinOps or Cloud Financial Management is an important but also challenging practice for multi-cloud customers. This makes it high in demand value-added managed services that partners can deliver by adding Aria Cost powered by Cloudhealth to their managed services platform. Besides building a compelling set of managed services, they can further use the Aria Cost partner platform to enable and federate billing and optimization across their customers.
Stay tuned for next weeks post on how to build additional managed services with Aria. If you have questions or want start building your managed services business, please don’t hesitate to reach out to your account team.
