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Tag: Budgets

  • Survey: Much Greater Focus on Reining in IT Costs

    Survey: Much Greater Focus on Reining in IT Costs

    A survey from Vega Cloud found 62% of respondents are more closely monitoring all IT costs, with more than half (52%) more closely evaluating their cloud service provider options.

    The survey polled 100 vice presidents from organizations with more than 1,000 employees and was published today by Vega Cloud, a provider of a platform for managing multiple clouds.

    Overall, nearly half of respondents (48%) said they expected to reduce their IT spending a little or a lot in 2023, with 65% identifying the reduction of cloud spending as a specific goal. Three quarters (75%) are looking to cut cloud costs by 10-50% in 2023, the survey found.

    A full 93% reported they have invested at least a fair amount of money on tools to optimize cloud costs, with 82% having invested in FinOps staff or people with FinOps experience. The challenge is that 70% of respondents said it was difficult to find people with these skill sets, the survey found.

    The best way for organizations to reduce cloud costs is to become more informed about what they’re spending (40%), and 33% said that the best approach is to consistently optimize use of cloud resources. A total of 61% identified reserved instances/savings plans as the best way to optimize cloud use, while 55% said optimization was best achieved through waste elimination followed closely by right-sizing (54%).

    Vega Cloud CEO Kris Bliesner said it’s clear the days when organizations allowed developers to consume cloud resources at will are coming to an end as cloud services consume a much larger percentage of the IT budget. In fact, the survey noted that 91% of respondents are spending at least one million dollars annually on cloud infrastructure alone.

    The issue is that finance departments not only want to reduce cloud spend but also want cloud spending to become more predictable from a budget perspective. Nearly half of survey respondents (45%) said they’d received a surprise in their cloud bills “a number of times” over the past 12 months, with 70% of respondents noting surprises have happened at least a half dozen times in the past year.

    A total of 40% admitted they had exceeded budgets multiple times in the past year, and 38% said they had to modify their forecast cloud spending budget numerous times over the past 12 months. More than half of respondents (55%) said database costs are the metric that matters most when looking at cloud usage followed by bandwidth costs (51%), storage costs (49%) and compute costs (47%). Nearly two-thirds (64%) said they track metrics at least somewhat often, while 46% said they have somewhat optimized their cloud use. A total of 11% said they’re not optimized at all.

    A full 88% said they’re using artificial intelligence (AI) at least somewhat to optimize cloud use and costs, with nearly three-quarters (74%) noting they think ChatGPT or a similar generative AI tool could be used to optimize cloud use/costs further. Specifically, 42% said they thought it could improve decision making and 30% said it could automate decision making.

    Among the cloud service providers, Google is cited as doing the most to help customers manage and reduce cloud costs (38%), followed by Amazon Web Services (34%) and Microsoft (28%)—but a full 85% said they could all be doing more.

    Of course, changing economic conditions are naturally driving organizations to look harder at cloud spending. Well over half of respondents (56%) said they are concerned about the economy, and 95% of those respondents said those concerns have, at least somewhat, impacted their IT strategy.

    It’s not clear whether organizations will continue to exercise greater control over cloud spending should the economy recover. For now, at least, there’s clearly more desire for control than ever.

  • Exploring the Emerging Role of FinOps

    Exploring the Emerging Role of FinOps

    Cloud overspending is becoming a top-of-mind budget item for the modern CFO. To direct resource utilization in the cloud, some organizations are turning to increased automation and more diligent cloud procurement processes. As part of this momentum, new roles are emerging to oversee cloud financial operations.

    Amid rising cloud costs, FinOps is emerging as a helpful discipline. It is not always a specific role but more often a culture that blends engineers, finance and business areas to participate in dynamic cloud cost management. But getting all these players on the same page isn’t always easy — new findings say influencing developers to actually make optimizations is a top challenge.

    The FinOps Foundation recently released The State of FinOps 2022 report, a deep exploration into the role and the state of FinOps adoption across 1,000 companies worldwide. Below, I’ll highlight the key insights from the report to understand current trends and consider how organizations might implement similar tactics to better operationalize their cloud impact.

    Who Is Practicing FinOps?

    What type of person is involved in FinOps? Well, folks come from diverse backgrounds, spanning cloud financial management, IT or DevOps or consultants. Many are also new to the practice in general—the average career tenure is roughly three years. FinOps tends to be a well-paying field—45% of practitioners report salaries of over $100,000 annually.

    FinOps also tends to be associated with larger enterprises—45% of respondents came from organizations with 10,000 or more employees. In terms of industry, it is most common in financial services and IT companies, although studies show the practice is proliferating in many other sectors too. Geographically, FinOps is most adopted in primarily adopted in North America and Europe.

    Team Dynamics

    The average team size is five people, although many feel they’re a “one-person show.” Interestingly, more mature adoption tends to involve a larger team, upwards of 20+ members for established teams. There’s also a notable increase in FinOps within organizations managing between $50 million and $500 million of cloud costs.

    FinOps must interface with many levels of the company, sharing projections with both development and executive leadership. Most FinOps teams report directly to the CTO or other C-suite members. This makes sense, as an executive directive was found to be the most common way to promote a FinOps culture, followed by organic and grassroots adoption.

    Technology and Tools

    In general, FinOps tends to be achieved through cloud awareness and dedicated tooling. The most mature practitioners are “all-in on cloud.” The largest subgroup (24%) runs 1,000 to 5,000 computing instances in the public cloud, hosting technology like virtual machines, containers and serverless functions. Simply put, the average FinOps practitioner has a lot on their plate.

    In terms of tooling, there’s not one cloud cost management suite to rule them all. Teams use an average of 3.7 tools. A variance of tooling here is likely due to rising hybrid multi-cloud architectures and the need to manage costs separately within each cloud environment.

    As such, FinOps tooling includes a mixture of native cloud provider tools and other middleware. Surprisingly, after AWS Cost Explorer, the second most common tool is a homegrown tool. After that, Cloudablity, CloudHealth and Azure Cost Management rank as popular primary tools.

    Top Challenge: Collaboration

    The top barrier has to do with interdepartmental collaboration. Getting engineers to take action on cost optimization was the biggest challenge, cited by 30% of respondents. Other common challenges included accurately forecasting cloud spending (29%), convincing the organization to adopt FinOps (22%), enabling automation (20%) and reducing waste or unused resources (19%).

    Developers in the flow likely don’t want to be burdened by new cost optimization rules, so FinOps may encounter an uphill battle trying to affect low-level change. It will probably take a combination of shift-left IDE-based cost projection tooling and a decree from upper management to jumpstart this change.

    Besides getting everyone on board, FinOps is often tasked with chargeback models—48% of respondents report using chargeback to report cloud costs, the report found. Yet, correlating cloud costs to a single department or team is challenging with so much shared infrastructure. As such, shared costs remain a challenge; so much so that many practitioners don’t even split them up.

    There is also the need to resolve unexpected anomalies and increases in cloud costs, and it can be hard to distinguish between the two. As a result, 53% of respondents said it takes days for their FinOps teams to respond to unexpected cost increases. In the future, finding ways to shorten this timeframe will help save the company money.

    Next Goal: Getting Engineers to Take Action

    The vast majority (94%) of organizations are wasting money in the cloud, according to the 2022 HashiCorp State of Cloud Strategy Survey. Idle or overprovisioned resources can unnecessarily increase the cloud budget, making the need for FinOps evident. Investing in cloud optimization is also another tactic to meet sustainability pledges.

    FinOps is an emerging role that can help forecast spending and reduce waste. But the practice does require time and resources to reach an ROI. For example, a mature team only has a 5% deviation comparing forecasted spend and actual spend, whereas a less mature team can have as high as a 20% deviation. To improve, teams will require automation for evaluating and communicating cloud projections and more established anomaly management best practices.

    But above all, organizations must grapple with the number-one problem: Getting engineers to take action. Perhaps this is due to the fact that most respondents share cost data with technical teams monthly. Instead, more frequent cost transparency would match the pace of agile development and might empower more engineers.

    The State of FinOps 2022 surveyed 1,056 respondents on their FinOps roles. The yearly study is conducted by The FinOps Foundation, a Linux Foundation program. For more details, you can read the entire report here.

  • Coronavirus Economic Shutdown: Analysts Hit the Brakes on Global IT Spending Estimates

    Coronavirus Economic Shutdown: Analysts Hit the Brakes on Global IT Spending Estimates

    By most accounts, 2020 was set to be a pretty good year for U.S. gross domestic product and enterprise IT budgets. That was before the novel coronavirus, and the subsequent economic shutdown that is designed to blunt its spread and avoid overwhelming the nation’s health system. Analysts are now slashing their economic growth rates and enterprise technology spending estimates.

    Previously, research firm IDC estimated that real GDP in the U.S. would reach 2.4%, but downshifted that to a “pessimistic scenario” of 1.4%. While IT spending dropped from an expected 5.1% year over year growth to a pessimistic scenario of 1.3%. The base scenario for GDP growth is now 2.0% and for IT spending 4.3%.

    “The pessimistic scenario is not a worst-case scenario,” said Stephen Minton, vice president in IDC’s Customer Insights & Analysis group. “Things are moving so quickly that we need to constantly recalibrate our assumptions and expectations, but the pessimistic scenario reflects an IT market in which weaker economic growth translates into weaker business and consumer spending across all technologies over the next few quarters. Things could get worse, but hopefully not.”

    Earlier this month, Forrester analyst Andrew Bartels wrote in this post that the U.S. and global technology market spend will slow to 2% this year.

    “That assumes the U.S. and other major economies have declined in the first half of 2020 but manage to recover in the second half. There is also a 50% probability that U.S. and global tech markets will decline by 2% or more in 2020 if a full-fledged recession hits,” Bartels wrote.

    Not all areas in technology will be impacted equally. Forrester expects there will increased demand for cloud infrastructure services, specialized software, communications equipment and telecom services for remote work and education.

    However, Forrester expects computer and communications equipment to potentially decline 5% to 10%, while technology consulting and systems integration services spending could be flat to down 5%, should companies really belt-tighten.

    “Software spending growth will slow to the 2% to 4% range in the best case and will post no growth in the worst case of a recession. Tech outsourcing and telecom services will hold up better, though contract revisions could cause spending to go down, as well,” stated Bartels.

    S&P Global Ratings also predicts slowing IT spend. According to its update, Global IT Spending Set To Slide As Coronavirus Hits Hardware Sales, S&P Global economists cut their global GDP growth rate by more than half to 1% to 1.5% from 2.8%—in just two weeks.

    “We believe the spread of the coronavirus will hurt enterprise and consumer IT spending across the globe with particularly bleak ramifications for the hardware and semiconductor segments. However, we expect some of the deferred spending to return gradually in the latter half of this year through heavy government stimulus in the U.S., China, and elsewhere,” wrote S&P Global Rating Analyst Andrew Chang.

    S&P Global Ratings anticipates IT spending to decline 3% year over year, compared their prior estimate of 2% to 3% growth. S&P Global Ratings expects some of the biggest hits to hardware, with smartphone revenue falling to negative 9% from up to 2% growth, and PCs to negative 9% from a previous range of negative 3% to a positive 4% growth.

    While enterprise technology budgets are being slashed, the need for business-technology isn’t going away. In fact, it’s accelerating as more knowledge workers shift to working from home, more remote collaboration and keeping legacy systems running and moving forward with digital transformation efforts.

    — George V. Hulme

  • Transforming the Annual Budgeting Process For DevOps

    Transforming the Annual Budgeting Process For DevOps

    The annual budgeting and planning cycle is the one process that touches all of IT. It has impact on how decisions are made, teams are organized, work is delegated, projects are started (and/or ended) and responsibilities are allocated Yet, few people think about realigning and transforming the budgeting process for DevOps.

    The Problem with Current Budgeting Processes

    The annual budgeting process is inherently flawed. It requires executives to predict the future (sometimes 12 months in advance), allocate resources accordingly and lock in the funding. And if that is not bad enough, once budgets are set, they spend the rest of the time reconciling between today’s needs and yesterday’s predictions.

    Add in personal agendas and organizational politics, and you end up with a system that sucks time, energy and ambition. For an organization looking to be more nimble and responsive, our current budgeting process has the exact opposite effect.

    Budgeting Process for DevOps: 3 Options

    Some organizations are taking a much different approach to help cope with the dynamic demands.

    1. Shorter Cycles and Frequent Reviews

    Learning from our European friends, some organizations are moving to a shorter budgeting and review cycle. The traditional construct of annually funding projects remains, but plans and allocations are revisited quarterly or on a rolling basis. Both business and IT are continuously reprioritizing what features to fund and jointly collaborating on making go/no-go decisions.

    The benefit of such a system is that it allows teams to allocate funds dynamically within the project—it forces teams to think in terms of a minimum viable product, and mistakes in allocations can be quickly corrected. However, there are two major drawbacks. First, funds cannot be reallocated across projects, forcing executives to still wait for the annual cycle. And second, if the quarterly review process is not streamlined, it can create a climate of constant budgeting, where managers end up spending more time jockeying for funds instead of doing real work.

    2. Product-Based Funding

    Others have been experimenting with product-based funding. Here applications and the associated resources are grouped into product teams and are given a share of the total budget. This budget is primarily managed by the chief product owner (represented by either the business/IT), which then further distributes it to her product owners. Just like in the last model, the chief product owner collaborates with the business to decide on go/no-go activities. In addition, it also allows chief product owners to reallocate funds across both products and projects within their portfolio. And the product owners are responsible for executing on the minimum viable feature sets within their allocated funds.

    The benefit of this model is in its simplicity. Instead of making bets on projects, CFOs just have to decide on how the budgets are spread across various product groups. Chief product owners and product owners have freedom to allocate their share as they see fit. As a result, budget decisions are pushed as close to the front line as possible, allowing for greater flexibility and improved market response times.

    A prerequisite to this method requires IT to move from the functional organizational model to a product model—not an easy task. As for the drawback, product owners have a tendency to fund the new/sexy work while ignoring routine maintenance work. To get around this, some organizations force teams to reserve a piece of the budget for maintenance and paying down technical debt.

    3. Venture-Based Funding

    While not my favorite, venture-based funding is a model a small handful of companies are experimenting with. Just like Silicon Valley-style venture capitalists (VCs), an executive board funds ideas for minimal viable products. Based on the effectiveness of the product, additional funding is granted to the teams.

    The promise of this model is to seed lots of ideas and fund only the ones that work. The benefit is greater transparency and reduced financial risk. The drawback is that most companies are not wired like VC firms. A “sink or swim” culture gives rise to other problems. When viability is all that matters, why should employees follow any of the corporate rules, security policies, best practices or infrastructure requirements, to name a few? And if the idea is good, what prevents the developers to seek out actual seed funding and create a new competitor?

    Changing your budgeting process for DevOps is not an easy undertaking. There are significant risks and short-term disruptions to address as the new process takes hold. But one thing is sure, a DevOps transformation must eventually include a budget transformation as well.

    About The Author / Mustafa Kapadia

    Mustafa-KapadiaMustafa Kapadia is the Service Line Leader for IBM’s DevOps practice, a business advisory practice focused on helping large enterprises transform their software & application delivery. He has over 17+ years of experience in the tech. space, both as a service provider and a management consultant.

    Prior to joining IBM, Mustafa was a management consultant with Deloitte’s Strategy & Operations practice. He lives in San Francisco Bay Area, is an avid blogger (when time permitting), a speaker, and adviser to start ups.

    Connect with Mustafa on LinkedIn | Twitter