Insight by Apptio

FinOps, TBM can give agencies total cloud cost awareness

Agencies have been on a journey to put more applications and workloads in the cloud for more than a decade. It started off with Cloud First, and then evolved to Cloud Smart.

The next phase of this journey is understanding the true cost of those cloud services. Agencies must decide based on data and metrics which applications make the most sense to be moved to a cloud provider as well as whether to modernize it...

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Segment 1

"By having a good FinOps practice in place; being able to monitor on an hourly basis and alerts setup for unknown spikes or anomalies in the cloud, helps agencies to not struggle with paying for cloud or do unnecessary tradeoffs which can lead to mistrust with business units."

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"One of the key [concepts] is shifting those existing processes to help support the DevSecOps teams and the application owners that are managing these workloads today. You want to help provide that transparent picture back to the executive leaders on a month-end financial process so that folks really understand where costs are being incurred, or if there's any course correction that needs to be taken to support the footprint that you have today."

Agencies have been on a journey to put more applications and workloads in the cloud for more than a decade. It started off with Cloud First, and then evolved to Cloud Smart.

The next phase of this journey is understanding the true cost of those cloud services. Agencies must decide based on data and metrics which applications make the most sense to be moved to a cloud provider as well as whether to modernize it or just start over.

FEMA, as one example, is using a cloud-broker approach for many of its enterprise services. The agency believes it could save 30 to 40% of what it’s spending now on similar services by moving the applications to the cloud.

Other agencies recognize the benefits of cloud services around scale, flexibility and, of course, security.

There are a lot of factors to consider as agencies move further down the journey to the cloud.

Nick Roughan, the cloud director for public sector at Apptio, said that journey must include more than just agency chief information officers, but a broad swath of agency mission and business owners.

“If you think about the typical fiscal activities, it’s a monthly exercise to tie out. It’s a quarterly exercise to do any sort of true-ups, and it’s a yearly budgeting cycle that you can start planning three to five years out in the federal government. But cloud costs are incurred hourly, daily, weekly,” Roughan said during the discussion Managing cloud services, measuring their value. “One of the key [concepts] is shifting those existing processes to help support  the DevSecOps teams and the application owners that are managing these workloads today. You want to help provide that transparent picture back to the executive leaders on a month-end financial process so that folks really understand where costs are being incurred, or if there’s any course correction that needs to be taken to support the footprint that you have today.”

Understanding the pay-by-the-drink model

That shift in transparency is needed because cloud services are based on financial management processes that are similar to the utility or “pay-by-the-drink” models.

Megan Sikora, a customer success advisor at Apptio, said getting to that point of using the utility model can be difficult for agencies because of the way [federal] budgeting works. Agencies have different “colors” of money: some that expires after one year, other that never expires, and then there is everything in between.

Sikora said this is why several agencies are using or considering using working-capital funds to pay for cloud services.

“[Using a WCF] really helps [agencies] through the use of sharing  reserve instances to achieve economies of scale, for instance, or savings plans. They’re able to do a showback/chargeback [model],” she said. “However, if you have different appropriations that you’re using for something very specific, CIOs really tend to worry about Anti-Deficiency Act violations. We also see challenges in managing the workflow when it comes to federal procurement. Cloud technology and terminology doesn’t tie cleanly back to legacy procurement processes. So it’s really been a paradigm shift for the CIO shop working with the procurement shop. The whole idea of this pay-as-you-go model is really different for a contracting officer.”

Essential building blocks

Sikora said agency CIOs are doing a lot of education around procurement and buying approaches for both contracting officers and mission owners.

That education includes healthy doses of FinOps, which is an approach that allows agencies to manage and monitor cloud spending, along with implementing a Technology Business Management (TBM) discipline.

Sikora said both of these practices are essential building blocks of understanding cloud costs and spending.

“Automating the process and utilizing a tool such as Apptio really helps with these challenges,” she said. “When I worked in the federal government, the biggest view that a CIO had was, once their money was obligated, it’s gone, and they don’t want to go over it. But that creates a disconnect between the expenditures because if we start ignoring what our cloud costs are, they could change hourly. We could see spikes happen without knowing they’re occurring until the following month, and by then, it’s too late; we’re already over budget and now we have to recoup those costs.”

Sikora said by having a good FinOps practice in place, being able to monitor on an hourly basis and having alerts setup for unknown spikes or anomalies in the cloud, helps agencies to not struggle with paying for cloud or do unnecessary tradeoffs, which can lead to mistrust with business units.

Once that trust between the CIO’s shop and the mission owners is broken because of cost overruns or unexpected bills, it’s difficult to get back.

Roughan said this is why the working capital fund coupled with a chargeback or a shared services model makes the most sense for agencies.

“If you look at an application portfolio, they have a budget that they’re managing to, there’s a baseline [that is] more linear,” he said. “Now, the place where the challenge resides is if you’re working with any of the Application Portfolio owners, there are other costs that come in supporting the application, [such as] vendors supporting that system. There’s a separation that occurs there that allows the variable cost to sit more on the business side which is why working capital funds can be leveraged.”

Total cost of ownership

By utilizing FinOps and TBM standards, Sikora said agencies can better understand that total cost of ownership for cloud services, which includes both the monthly bill as well as the costs to support innovation and services.

“[It is instrumental for an agency to have] a defined chargeback or showback process to be able to recoup the cloud costs without under [or over] charging folks. What we see is [that automating this process is] essential for cloud financial management, it also leads to better data, a better defined governance structure,” she said. “We know that a lot of agencies get a little hesitant around this and say, ‘I don’t want to automate just yet; my data is not perfect. I’m still working on my cloud tagging governance.’ But the thing is, automation of your tool can honestly help with [tagging]. If you’re constantly overspending, you’re never going to get there, because you’re never going to have the funds to automate the process. We find that agencies who deploy a tool to automate this process  move along a lot faster, even in their cloud-tagging process.”

Sikora added that the General Services Administration and other organizations have some key best practices agencies could borrow from, to get them started on this automation path.

She said in the end, FinOps and TBM have shown that organizations can save money, find anomalies and focus on the key performance metrics to drive mission success.

“It also helps the end business unit understand what they’re doing in the cloud. Understanding that total cost of ownership will help them realize not only what they can do on that variability of cloud costs, but what else goes into it,” Sikora said. “I always find that whenever I did the budget process in the federal government, people always skipped over something [such as] security because it was seen as an oversight, and nobody knew what to do with it. But it’s good to know how much of that money goes toward your specific application. It might be more, it might be less, but understanding what your direct and indirect costs are, getting a monthly bill, understanding when a spike happens and when it happens (as opposed to knowing about it at the end of the month) [are] essential for a good cloud program.”

About Apptio: Apptio gives you the power of trusted, actionable insights to connect your technology investment decisions to drive better outcomes. Many of the world’s largest agencies and companies trust Apptio to manage spend across the entire IT portfolio and beyond, so they can focus on delivering innovation. Apptio’s Cloudability is the leading FinOps (another name for Cloud Financial Management) solution in the marketCloudability brings financial accountability to the variable, consumption-based spend model of public cloud via single-pane-of-glass visibility across the major cloud providers.

FinOps Playbook Link: https://www.finops.org/projects/us-gov-playbook/

  • Nick Roughan

    Cloud Director, Public Sector, Apptio

  • Megan Sikora

    Customer Service Advisor, Apptio

  • Jason Miller

    Executive Editor, Federal News Network