How to Set Effective Cloud Cost Management KPIs

5 Min Read

To align your people and processes towards successful cloud financial management, it’s important to set effective KPIs. In a previous article, we listed some benefits of setting effective goals—such as measuring progress, and aligning and motivating your organization—but you may be left wondering: how do I determine the right KPIs?

While every organization is different, there are common principles of effective KPIs that hold true, regardless of the size of your company, your industry, or the makeup of your cloud environment. In this article, we identify features of effective cloud cost management KPIs and examples to think about setting within your organization.

Hierarchy of cloud management metrics

Before diving into features of effective cloud cost KPIs, it’s important to understand what we actually mean by KPIs. KPIs, or Key Performance Indicators, could refer to different things depending on the organization. At CloudHealth, we help our customers achieve business outcomes by following a hierarchy of cloud management metrics, which includes KPIs:

  • Objectives: The broader business outcome you’re hoping to achieve as a result of your effort and actions. Example: Improve gross margins
  • Key Performance Indicators (KPIs): A measure of output, activity, cost, or resources over time to track performance and progress towards objectives. Example: cloud spend as a percentage of revenue
  • Targets: The KPI result that you’d like to achieve. Example: 15%
  • Initiatives: The actions you’ll take to achieve all the above. Example: Deploy CloudHealth to help reduce wasted cloud resources and cloud costs

Although the examples we provide below are specific to cloud financial management, the hierarchy of metrics can be applied to a variety of disciplines to help achieve desired business outcomes.

Features of effective cloud cost management KPIs

Now that we’ve covered what exactly a KPI is and how it fits within the metric hierarchy, there are a few features of effective cloud financial management KPIs that you should follow.

  1. KPIs should be S.M.A.R.T. If you haven’t heard of S.M.A.R.T., it stands for Specific, Measurable, Achievable, Relevant, and Time-Based. Even if a KPI is specific, measurable, achievable, and time-based, if it isn’t relevant, then it might not be worth tracking. As you’re setting KPIs, refer back to the acronym to ensure they’re S.M.A.R.T. 
  2. KPIs should always be based on efficiency, not just cost. This is because if you’re making new investments, you may be spending more money, but you’re also planning on accomplishing more with what you spend. So don’t just measure cloud cost, measure efficiency. 
  3. KPIs should be backed by data. KPIs should be based on data, or proven using evidence-based reasoning. Making assumptions may set you up for failure in reaching your KPIs, or far behind the results you could have achieved. 
  4. KPIs shouldn’t stand alone. Effective cloud financial management KPIs support decision-making. If you identify or present KPIs without context into how they relate to business decisions or broader business objectives, then you lose value—or possibly even the time and energy spent measuring them.

Examples of more and less effective cloud cost management KPIs

To help demonstrate the types of KPIs you should consider setting in your organization, we’ve listed examples of effective cloud financial management KPIs below. The FinOps Foundation is also collecting good examples of cloud financial management KPIs. In comparison, we’ve also listed KPIs that are less effective—they’re not necessarily bad, but may not help you drive your program forward or show meaningful progress the way you'd like them to.

Less effective cloud cost management KPIs More effective cloud cost management KPIs
Number of untagged resources (n) Percent of environment with proper tagging in place (%)
Cost of all untagged resources (n) Percent of bill from untagged resources (%)
Cost of cloud resources by team ($) Cost of cloud resources by team against forecasted (%)
Cost of cloud resources by team against total spend (%)
Total cloud spend ($) Cloud spend as percentage of revenue (%)
Average price per hour of compute ($)
Cost of unused cloud resources ($) Cost of unused cloud resources against total cost (%)
Forecasted spend ($) Forecasted spend variance (%)
Money saved on Reservations, Savings Plans, or Committed Use Discounts for cloud resources ($) Money saved on Reservations, Savings Plans, or Committed Use Discounts against total cost of cloud resources (%)
Total number of Reservations, Savings Plans, Committed Use Discounts, etc. (n) Percent of infrastructure running on-demand vs. covered by discount or Spot, measured by hours (%)
Cost of cloud resources over time ($) Percentage change in cost of cloud resources over time (%)

As you review this list, think about the KPIs you’re currently tracking in your organization. Could they be more effective? Should you remove or replace certain KPIs entirely? Do you need additional resources or tools in order to track effective KPIs? These are all questions to consider with your cloud financial management team or broader Cloud Center of Excellence.

If you’re interested in learning more about how to get the visibility you need into your cloud environment, please feel free to connect with one of our cloud management experts.

And for more information on how to set effective KPIs and optimize your cloud costs, download our in-depth whitepaper: Building a Successful Cloud Financial Management Practice

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Lauren van der Vaart, Senior Content Marketing Specialist

Lauren is a member of the Digital Marketing team at CloudHealth by VMware. She focuses on delivering valuable, relevant, and actionable content for customers on their cloud journey. Before joining CloudHealth, Lauren held various roles across digital and field marketing for global technology organizations.

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