Simple and Effective – Achieving Success with the Cloud Using Just 3 KPIs
What if every resource in your cloud was clearly allocated and accounted for? What if you knew precisely what triggered each resource to scale and how that scaling mechanism worked? What if all provisioned services were optimally utilized and seamlessly adapted to varying loads?
This scenario might sound idealized, especially when considering the daily challenges of managing the Cloud. There are services that, despite their utilization within an ecosystem, exist without clear responsibilities. These "orphaned" resources can quickly lead to unnecessary costs and security risks.
But this ideal is by no means out of reach. With targeted monitoring and the three core indicators: Efficiency, Forecast Accuracy, and Resource Allocation, we can continuously approach this ideal. By focusing on these KPIs, companies can not only meet everyday challenges but also build a resilient and adaptable Cloud infrastructure. It's important to note that there are different management approaches and perspectives, which can vary depending on the situation and objectives. Use this guide to understand how the right application of KPIs puts you in the pole position, promotes continuous innovation, and paves the way for your future market success.
The Triad of Strategy, Coordination, and Execution
Strategy (C-Level Management) At this highest flight level, the focus is on the company's long-term orientation. The executive level requires clear data on efficiency, forecast accuracy, and resource allocation. Only then can they steer the cloud infrastructure with a future-oriented approach and make investment decisions.
Coordination (Middle Management) A step closer to operational business, this level focuses on the effective coordination of teams, resources, and projects. It's about streamlining workflows, ensuring the right allocation of resources, and monitoring performance indicators.
Operational Business (Team and Project Level) The focus at this level is on direct implementation. Teams need real-time data to ensure smooth operation of cloud services, optimize application performance, and consistently adhere to security policies. Simultaneously, this data allows teams to make informed decisions about technology changes and identify and exploit innovation potentials.
KPI #1 Allocation: Clear Responsibility for Resources
Especially in the digital age, where the majority of activities occur virtually and often without personal interaction, trust is built on transparency and tangible traceability. The precise assignment of cloud resources and responsibilities, i.e., allocation, is a central foundation in this context.
Avoidance of Orphaned Resources: In the constantly evolving world of cloud technology, resources are valuable tools for our advancement. By proactively addressing unassigned resources, we not only create a more efficient and secure environment, but also cultivate a corporate culture where care and responsibility are valued. An inspiring message of commitment and excellence is sent.
Transparency Promotes Accountability: Clarity and transparency are not only a guarantee for efficiency but also the key to empowering our teams. In the digital world, this self-responsibility strengthens trust and fosters a culture of pride and initiative.
Adapting to Technological Developments: Amidst the digital age, technology allows us to break boundaries and discover new frontiers. With flexibility and adaptability, we actively shape the digital landscape and cultivate a culture of continuous learning and innovation.
Securing Resource Efficiency: Through optimal resource management, we not only create efficient operations but also send a clear message: We strive to achieve excellence in everything we do. This is our opportunity to set standards and shape a culture that prioritizes quality and innovation.
Instead of getting lost in a flood of KPIs for every conceivable situation, we deliberately focus on taking responsibility. This approach not only allows for an examination of efficiency but also lays the stable foundation for deep trust. Because real trust is nurtured when decisions and processes are presented in a transparent and understandable manner.
Cost Allocation as a Game-Changer
The cloud offers companies unparalleled flexibility and scalability, but often comes with continuously rising costs. C-level management regularly tracks this cost dynamic from an aggregated perspective. However, merely recognizing changing costs is not enough. It's crucial to understand how these costs are allocated to various business areas. Let's look at two scenarios:
95% of cloud costs can be attributed to specific teams: In this scenario, there's clear transparency about where production costs are incurred. This clarity builds trust because it allows for assessing whether investments are flowing into the right areas and if the company's cost structure is efficient.
35% of cloud costs are attributed to certain teams: Here, the situation becomes more challenging. Where exactly do the remaining 65% of costs arise? Without a clear cost allocation, inefficient processes or other problem areas might remain obscured. This leads to uncertainty and undermines trust, as it's not possible to simply relate costs.
A deep understanding of cost allocation allows for confidence in the financial health and efficiency of the company. It's not just about how high the absolute costs are, but primarily about understanding their origin and dynamics.
Example of Allocation Calculation
Let's assume the total cloud costs amount to €100,000. The breakdown by departments yields a 60/40 split between allocated and unallocated costs:
Department A = (€25,000 / €100,000) x 100 = 25%
Department B = (€35,000 / €100,000) x 100 = 35%
Unallocated = 100% - (25% + 35%) = 40%
In this example, the allocation KPI is 60%, as €60,000 of the €100,000 total costs can be attributed to specific departments.
But the process doesn't stop here. In a later phase, it's advisable to also capture this KPI within each department. This allows each team within a department to precisely understand its contribution to the overall cost structure. The result? Even greater transparency and accountability at the team level, leading ultimately to more efficient resource utilization.
To analyse AWS Environments this OpenSource Script may be handy:
KPI #2 Forecast Accuracy: Trust Enables Sound Decisions
Cloud technology is unique not only for its flexibility and scalability but also because of the continuous changes and adaptations it undergoes. Forecasting plays a pivotal role in this dynamic environment.
Dynamics of Costs: Costs in the cloud are not static. They fluctuate not just because of usage but also due to the ongoing switch and optimization of utilized services. A targeted forecast aids in understanding these movements, predicting them, and steering them accordingly.
Learning and Adapting: The continuous integration of new insights and the experimentation with new services result in constant changes in the cloud ecosystem. A solid forecast allows for the deliberate planning of resources and budgets based on these learnings.
Proactive vs. Reactive Budgeting: In an ever-changing environment, it's essential to be proactive rather than just reactive. Accurate forecasting provides the insights needed to adjust budgets in advance and minimize surprises.
For C-level executives, this dynamic forecasting is more than just a planning tool. It offers the opportunity to actively shape the ongoing changes and possibilities in the cloud, always staying a step ahead. It's not just about understanding the current status quo but also tapping into future developments and fully realizing their potential.
Forecast Accuracy Example
The development department kicks off a new project that requires increased cloud resources. The department head estimates the additional cloud costs for the upcoming month to be €8,000.
However, at the end of the month, the actual costs amount to only €7,500.
To calculate forecast accuracy, we subtract the actual costs from the forecasted costs. The result is the absolute error, in this case, €500.
Forecast accuracy is determined by dividing the absolute error (as a positive value) by the forecasted costs and then subtracting this result from 1. We then multiply the outcome by 100 to get a percentage.
Absolute Error = |Actual Costs - Forecasted Costs| = |€7,500 - €8,000| = €500 Forecast Accuracy = (1 - (Absolute Error / Forecasted Costs)) x 100 = (1 - (€500 / €8,000)) x 100 = 93.75%
In this example, the development department achieved a forecast accuracy of 93.75%. Even though the actual costs were lower than anticipated, the forecast was still relatively accurate. This indicates that the department has a good handle on its resource usage and costs. A high forecast value, regardless of whether costs are over or under, fosters trust and aids the company in budget planning.
In the initial stages, forecasts often rely on historical data and implicit estimates. As time progresses and with experience, this approach should be refined using specific data from operations and current projects, aiming to continuously improve prediction accuracy.
KPI #3 Efficiency: Sustainability through Resource Optimization
One of the standout features of the cloud is its dynamic scalability. This means that businesses only need to maintain minimal excess capacity. With a surge in demand, more resources are automatically provisioned and utilized. And when properly configured, these newly allocated resources are also efficiently used.
The efficiency KPI in the cloud context enables the C-Level to precisely assess the company's dynamic scalability. Two primary aspects are central:
Optimal Utilization: This focuses on achieving the best possible use of resources at every level of scaling. Overutilization may signify insufficient resources, while underutilization can indicate capital unnecessarily tied up in unused capacities.
Overcapacity Management: Striking a balance between required and actual capacity is crucial. Effective management not only minimizes costs but also ensures that ample capacity is always available for sudden demand spikes.
With a solid grasp of this KPI, the C-Level can ensure that cloud resources perfectly align with business requirements and goals.
To simplify the initiation into efficiency evaluation and not get overwhelmed by complexity right from the start, we adopt a pragmatic approach. Instead of laboriously measuring the precise utilization of every single resource, we start with a simplified model: We initially assume Cloud Managed Services operate at 100% efficiency, while we rate Compute Resources at 50% efficiency. This approach allows us to compare the costs of the two groups in an understandable ratio, providing a solid starting point for further optimizations. Of course, this is just an initial assumption, which can be refined over time with more available data. The goal is to provide a clear and simple starting point from which to expand.
Example: Efficiency KPI
Suppose a company has monthly cloud costs totaling €100,000. The costs are distributed as follows:
Managed Services: €30,000 (assumed efficiency: 100%) Compute Resources: €70,000
Now, to utilize efficiency as a KPI, the company needs a baseline. The company starts with the assumption that the Compute Resources are used 50% efficiently.
Managed Services: €30,000 Compute Resources (50% of €70,000): €35,000 Total Efficient Costs = €30,000 + €35,000 = €65,000
The Efficiency KPI is then calculated as:
Efficiency KPI = (Total Efficient Costs / Total Costs) x 100 = (€65,000 / €100,000) x 100 = 65%
In this case, the initial Efficiency KPI is at 65%. Over time, this figure will be refined through more detailed analyses and a better understanding of resource utilization.
Naturally, operations might challenge the assumption that Managed Services are 100% efficient and Compute Resources are only 50% so. Indeed, both default values are likely not accurate and are mainly there to challenge the status quo. These assumptions should be seen as an invitation: It's a call to departments to provide more precise efficiency figures, thus refining and sharpening the KPI definition.
Action Plan for Implementing the 3 KPIs
Allocation at Departmental Level:
- Objective: Clear distribution of cloud costs across individual departments.
- Capture all cloud costs.
- Define responsibilities for AWS Accounts, Azure Subscriptions, and GCP Projects per department.
- Quantify assigned cloud costs for each department.
- Recommendation: Regularly review allocations to make adjustments and optimizations.
- Objective: Ensure accuracy and consistency in cost forecasting.
- Department heads provide weekly cost forecasts via Excel.
- Weekly forecasting and explanation of variances.
- Recommendation: Implement automation tools to enhance the accuracy of forecasts.
Efficiency Measurement – Simplified:
- Objective: Establish a foundational understanding of resource efficiency, leading to ongoing optimization.
- Divide costs: Managed Services vs. Compute Resources.
- Set initial efficiency assumptions: Managed Services = 100% efficiency; other resources = baseline (e.g., 50%).
- Recommendation: Later integrate monitoring tools for more detailed analysis and ongoing enhancement of efficiency determination.
Note: With a structured approach, this action plan can be implemented and transitioned to a "good enough" state within just six weeks. It's advisable to then carry out continuous reviews and optimizations to sustainably secure the desired outcomes.
Why These Core Metrics Are Central
In today's intricate cloud environment, there are countless nuances that can influence costs and performance: from Reserved Instances and Spot Instances to selecting the right service for the right use case. Choosing between Fargate Spot and a Kubernetes cluster involves many variables, and what's optimal for one company might not be for another.
However, getting lost in these specifics can risk losing sight of the bigger picture. The core metrics - Allocation, Efficiency, and Predictability - are chosen to provide maximum insights with minimal complexity. They offer decision-makers at all levels a clear and comprehensible foundation upon which they can operate. These are the metrics that have the most significant impact on an enterprise's overall cloud strategy and performance.
This doesn't mean that specifics like Spot Instance usage or operating a Kubernetes cluster are insignificant. On the contrary, at the operational level, such decisions are pivotal. But at the C-level and even departmental level, such minutiae shouldn't dominate discussions. The focus should be: Is responsibility clear? Are resources being utilized optimally? Is scaling predictable?
By zeroing in on these core metrics, we allow teams to remain agile and discover innovative solutions without feeling constrained by micromanagement. The overarching goal should always be to cultivate an environment where accountability, efficiency, and predictability are paramount. This is the only way enterprises can truly reap the agility and benefits the cloud offers.
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