KPIs to Evaluate your Cloud Cost Management Strategy
Evaluating the effectiveness of a cloud cost management strategy is an integral part of measuring the overall performance of your cloud infrastructure. There are many KPIs teams teams can choose to track and analyze, but the question remains - which KPIs are the most important?
If you are just beginning your cloud cost management journey, we highly recommend starting with these four KPIs:
- Commitment Coverage
- Net Savings Rate
- Committed Dollar Risk
- Dollars Lost from Inaction
A number of different frameworks, including the FinOps model, use Commitment Coverage to measure cloud maturity. Commitment coverage measures what percentage of your infrastructure is covered using longer term commitments such as AWS Reserved Instances (RIs) and Savings Plans instead of being purchased On-Demand.
Commitment coverage is a good starting point and provides great high-level insight on whether your organization is missing opportunities for savings because of On-Demand purchasing. But this metric measured alone will not give you complete insight into the effectiveness of the commitments used to cover your infrastructure. A higher coverage rate does not automatically translate to a higher percentage savings.
That’s why we encourage cloud users to also measure their Net Savings Rate which is the percentage savings generated by the covered infrastructure.
In addition to understanding how much you are saving with contracts, it is also important to know how much you have committed to spending with a vendor. Committed Dollar Risk is important for cash-flow analysis and business planning.
The final metric to evaluate is Dollars Lost from Inaction. This refers to the accumulated dollar savings lost from waiting to execute a commitment purchasing strategy. In other words, what would your team have saved if commitments were purchased earlier? This is an important measure when assessing opportunity costs and shifting organizational mindsets towards a cost conscious culture.
These four metrics help measure different aspects of cloud cost management. Commitment Coverage and Net Savings Rate help teams evaluate whether a selected commitment purchasing strategy is effective in generating savings. Committed Dollar Risk helps understand what portion of the budget is tied to commitments to generate these savings and how the remaining budget should be allocated. Dollars Lost from Inaction is a good indicator of whether the processes used to manage cost are efficient.
Your team can calculate these values manually using data from AWS Cost Explorer and Cost and Usage Reports (CURs). If your team is looking to save time and avoid spreadsheets, you can also look into tools like Archera which measure these KPIs for you in addition to managing your cloud resources.