In today’s dynamic cloud landscape, effectively managing costs is essential for ensuring sustainable growth and long-term success. FinOps, where finance meets DevOps, is pivotal in advancing cost management and optimization in the cloud. For companies seeking to optimize cloud usage, tracking the success of FinOps initiatives is essential for ensuring the best return on investment and management and stakeholder buy-in. But how exactly can success be measured, and which metrics are most important in this process?

In this blogpost, we explore the methods used to measure the success of FinOps activities based on a client use case. We will dive into key metrics like total cloud consumption, actual savings achieved, and annualized savings potential, providing detailed explanations for each. By the end of this post, you’ll have a comprehensive understanding of how to track FinOps success. 

Our Client Use Case

Our client is a large automotive software firm that uses Azure as their main cloud. Together with the client, we introduced cost and usage optimization measures like Special SKUs, Reservations, and dedicated campaigns (which we will explain later) to reduce their costs and maximize their efficiency in the cloud. One main concern for the client was to measure the success of these initiatives and be able to report to management how many savings were achieved. Because of that, we had to think about an accurate calculation of FinOps success and an easy and understandable way to report those numbers. 

How Can We Measure FinOps Success?

To measure the success of our FinOps activities, we created a Savings Tracker overview (Figure 1) which is based on a calculation in Excel due to assimilation of multiple data sources to report key success metrics such as Total Cloud Consumption, Actual Savings Achieved, and Annualized Savings Potential monthly. This allows us to monitor the progress of our FinOps activities and clearly demonstrate how optimization strategies – like Special SKUs, Reservations, and FinOps Campaigns – result in significant cost savings.

These metrics not only prove the effectiveness of FinOps initiatives but also help management make informed decisions, allowing them to reinvest saved funds into future innovations. While there are many ways to communicate these figures, we tailor our reports to suit higher management, ensuring the data is both concise and insightful.

Each month, we present a simple visualization that highlights the key figures: Total Cloud Consumption, Actual Savings Achieved, Expected Annualized Savings, and Savings Potential Annualized. These figures are calculated based on FinOps optimization measures implemented during the month, providing an overview of current and future savings opportunities and tracking identified optimization potential in relation to the company’s actual cloud spend.

This reporting system reinforces the importance of FinOps activities. It is necessary to note that the figures reflect only the period since the FinOps team began their work.

In the following, we explain in detail how these key metrics are calculated, and which usage optimizations are included in them. 

Total Cloud Consumption

Total Cloud Consumption represents the cumulative total cloud costs incurred by the company since dedicated FinOps efforts began. This metric gives an overall picture of cloud expenses, serving as the baseline for calculating savings. The total cloud consumption can either be tracked by monitoring costs directly within the cloud (Azure Cost Management, AWS Cost Explorer), or through dedicated external monitoring tools such as Cloudability. 

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HINT: What is Cloudability?

IBM Cloudability is a cloud financial management platform designed to help organizations optimize their cloud spending across multiple cloud providers like AWS, Azure, and Google Cloud. It offers visibility into cloud costs, usage, and performance, helping teams manage and reduce costs by making informed decisions based on real-time data.

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Actual Savings Achieved

The Actual Savings Achieved metric aggregates the total savings realized through all FinOps activities up to the current date. These savings are accumulated monthly and are calculated as the sum of the savings generated by various measures like Special SKUs, Reservations, and FinOps Campaigns.

Savings Achieved through Special SKUs

A SKU (Stock Keeping Unit) refers to a part number of a resource at Azure or AWS (e.g., AAA-45011 for Virtual Machines Dv3/DSv3 Series Windows - D4 v3/D4s v3 - EU West in Azure). Special SKUs are the part numbers which were negotiated between the company and the cloud provider to have negotiated (discounted) prices. An additional discount is granted on top of the Enterprise Discount (which applies to all cloud resources). 

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HINT: What is Enterprise Discount?

An Enterprise Discount is a type of pricing discount that cloud providers offer to large organizations that commit to purchasing a substantial amount of services over a certain period, typically through an Enterprise Agreement (EA). It’s part of the negotiation process between the organization and the cloud provider, offering savings beyond standard pricing models in exchange for long-term commitments or high-volume purchases.

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When calculating savings achieved through Special SKUs, it is necessary to always consider the validity period for each SKU. Since they are negotiated at different times, you need to make sure to only calculate savings for the correct time period they are valid. 

The formula for calculating savings for a specific SKU is:

Actual Savings for Special SKU = (Regular Costs for SKU) - (Actual Costs for SKU)
, where  Regular Costs for SKU  = Actual Costs for SKU / (1- discount) (*Enterprise Discount already subtracted)

For example, if part number AAA-12345 receives a 10 % discount, and the actual cost for this SKU is 0.90 €, the regular cost would have been 1.00 €. Thus, the savings for this SKU would be 0.10 €. This method accounts for the fact that only actual costs are visible in the provider’s invoice, and we calculate the hypothetical regular costs to derive savings.

Savings Achieved through Reservations

Reservations help you save money by committing to one-year or three-year plans for multiple products. Committing allows you to get a discount on the resources you use. Reservations can significantly reduce your resource costs by up to 72 % from pay-as-you-go prices.

Savings from reservations are accumulated based on the savings achieved during the reservation period. Both active and expired reservations are considered, but only during the period when they were active.

For the calculation of actual savings achieved, we utilize a dashboard from Cloudability called “Commitment Portfolio”. The dashboard provides “[a] global view of your resource and spend-based commitments across vendor” (Apptio Help Center - Commitment Performance). It shows the quantity, utilization, net savings, and unrealized savings per reservation ID. Actual savings are thus the net savings, which are calculated as the difference between the cost of on-demand usage and the cost of committed usage.

Savings Achieved through FinOps Campaigns

FinOps Campaigns are targeting usage and thereby cost optimizations regarding specific services in the cloud. We choose them carefully based on where the highest consumption costs occur, analyze which teams or products in a company produce the highest costs and have highest savings potential, and create recommendations like rightsizing, deleting idle resources, or creating dedicated clusters to leverage common use cases. Once the engineering teams receive our recommendations, we catch up with them monthly and they provide us with feedback on which recommendations were performed. 

Savings achieved from FinOps Campaigns are calculated based on the recommendations that are successfully implemented by engineering teams. 

Here is one example: Suppose the engineering team of a certain product got the recommendation to delete disks X and Y and previous calculated savings potential for the campaign for this product is 2,000 €, where savings potential for deletion of disk X is 500 € and savings potential for deletion of disk Y is 1,500 €. Now, the engineering team responds that disk Y has been deleted. This results in savings of 1,500 €.

In order to outline savings potentials that later could translate into savings achieved, the FinOps team isolates consumption data for a specific cloud service and usage component of it for optimization. Furthermore, we isolate the actual usage of the specific cloud service and its determined usage component. We then create a usage scenario in where the current actual usage is applied to the optimized pricing model. The resulting scenario costs are then compared to the actual costs and the difference results in the outlined savings potential.

Example: Suppose the engineering team is currently using Premium Disk storage for 100 GB and 1 € per GB = 100 €. The FinOps team identified based on the cloud vendor’s documentation that Standard Disks are applicable for most technical use cases and therefore wants to recommend downgrading Premium Disk usage to Standard Disk usage. A standard disk costs 0.7 €/GB. Considering the current usage of 100 GB, the engineering team could have paid (100 GB x 0.7 €/GB) = 70 € for the same consumption if they would have considered using Standard Disk instead of Premium Disk. Compared to their current consumption of 100 € this results in 30 € savings potential that is communicated to the engineering team for examination and execution if applicable from a technical and business perspective.

Please note: Savings potentials are always calculated based on historical consumption and do not depict any change in future usage.

Expected Annualized Savings

Based on those actual savings achieved, future annualized savings can be calculated. More specifically, that means for each FinOps activity included in the actual savings achieved, we annualize the savings achieved in the month of the reporting. This only considers already implemented measures.

Let’s say that in the last month the savings achieved for Special SKUs were 300,000 €. Then, expected annualized savings based on Special SKUs would be 300,000 € * 12 = 3,600,000 €. 

That is, once an activity is implemented, we can assume that this will not only save money for the current month but will still be valid in future and therefore continue saving in the future. Even if for example Special SKUs run out at a certain point, we can assume that a re-negotiation will result in savings that are at least as high as before

Savings Potential Annualized

Annualized Savings Potential are different to expected annualized savings. Where expected annualized savings refer to the annualization of already achieved savings, annualized savings potential looks at the potential savings that could be made through new optimization implementations. That means, the FinOps team already detected new potential for optimization within the company, that however could not be implemented yet.

Savings potential generally includes the same dimensions as for actuals savings achieved, i.e., potential through new Special SKUs, new reservations, unrealized savings of existing campaigns, or the implementation of a whole new FinOps campaign. Additionally, we include savings potential for Waste Management and Efficient Utilization. 

Savings Potential through Waste Management and Efficient Utilization

Cloudability Rightsizing provides recommendations for terminating idle resources (waste management) and rightsizing and autoscaling resources (efficient utilization). At the end of every month, we look at the estimated idle savings for waste management and estimated rightsize savings for efficient utilization. These numbers represent the savings potential for the current month. The numbers are then being annualized. 

In Figure 3 that would mean an annualized savings potential for Waste Management of 13,931 € * 12 = 167,172 € and for Efficient Utilization 140,410 € * 12 = 1,684,920 € only for Azure Compute. We sum these numbers for all possible recommendation categories, i.e., Compute, Disk, and SQL in the case of Azure. 

Savings Potential through new Special SKUs

In a regular manner, and whenever negotiated Special SKUs run out, the FinOps team should analyze for which part numbers it would make sense to buy new Special SKUs. The savings potential identified there should be tracked until the new Special SKUs are actually negotiated and in place. 

Savings Potential through new Reservations

With Cloudability Optimize “Commitment Recommendations”, we get a list of possible reservations. The tool informs about the exact reservation ID (for Azure or AWS) and the expected savings this would bring the company. Since Cloudability recommends a purchase that will maxout the reservation options, we recommend outlining only 50 % of the detected savings potential for a more realistic savings potential. Summing up all outlined potentials and reducing them by 50 % results in the savings potential through new reservations.

Savings Potential through unrealized savings of existing FinOps Campaigns

The savings potential of existing FinOps campaigns per month can be calculated through the savings potential identified in the beginning of the campaign, reduced by already realized savings and neglected savings. Neglected savings are savings where the engineering teams reflect to us that the recommended action cannot be taken due to valid technical or operational reasons.

Savings potential through new FinOps Campaigns

Finally, another substantial portion of the savings potential stems from FinOps campaigns. As discussed, FinOps campaigns specifically target cost optimizations by analyzing cloud service usage and focusing on the areas with the highest potential for cost savings. Calculating the savings potential for new FinOps campaigns involves a distinct approach. 

Savings potential for new FinOps campaigns is calculated by analyzing historical usage data, consumption patterns, and current pricing models to pinpoint areas with the greatest potential for cost savings. Each new campaign identifies specific optimization opportunities, such as rightsizing resources, consolidating workloads, or transitioning to more cost-effective services. By creating a scenario that applies optimized pricing to actual usage data, we can calculate the estimated savings potential. This approach ensures that new campaigns are based on concrete data, maximizing financial impact while maintaining cloud performance and efficiency.

Conclusion

To optimize cloud costs and measure the success of FinOps activities, we developed a Savings Tracker, a key tool designed to capture and report on essential metrics. The Savings Tracker focuses on Total Cloud Consumption, Actual Savings Achieved, Expected Annualized Savings, and Annualized Savings Potential. This tool provides clarity and transparency, helping organizations understand both immediate and future cost reduction opportunities.

By utilizing the Savings Tracker, organizations can track Actual Savings Achieved through measures such as Special SKUs, Reservations, and dedicated FinOps Campaigns. Special SKUs provide negotiated discounts on cloud resources, while Reservations yield cost savings by committing to longer-term usage at discounted rates. Meanwhile, FinOps Campaigns focus on optimizing cloud costs by targeting high-consumption services, analyzing top cost-driving teams or products, and providing tailored recommendations, which are tracked through monthly feedback loops with engineering teams. 

The Savings Tracker also considers Savings Potential, identifying opportunities for cost efficiency in areas like Waste Management and Efficient Utilization in addition to new Special SKUs, Reservations, or FinOps Campaigns. Waste Management thereby targets the termination of idle resources, while Efficient Utilization focuses on rightsizing and optimizing resource usage.

With these metrics, the Savings Tracker offers a comprehensive overview of cloud spend, empowering stakeholders to make data-driven decisions, reinvest saved resources into strategic initiatives, and scale cloud operations sustainably. By incorporating this tool into FinOps strategy, cloud cost management evolves into a proactive, strategic process that enhances financial and operational outcomes.

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