A fundamental part of FinOps is measurement. In this article, I’m going to focus on measuring reductions—that is, money you’ve actually saved. I’ll use reduced and saved interchangeably, although without a defined budget you can’t truly claim a saving. For that reason, I tend to favor the term reduction.
Consider a cloud platform with an annual cost of $1,000,000. If you manage to reduce spend by $100,000 but fail to measure and report it properly, all leadership will see is a continuously rising top-line cost. In blunt terms, it looks like you’ve achieved nothing. Diddly squat. Bupkiss.
In reality, without your work, total spend would have been $1,100,000.
One way to demonstrate impact is by tracking reductions against invoiced spend. The first metric to capture is month-over-month invoice variation. For example, if December’s spend was $100,000 and January’s was $80,000, that’s a $20,000 reduction. The next question is attribution: how much of that reduction came from your engineering efforts, and how much resulted from product teams decommissioning workloads?
Start simple. Build a spreadsheet and track every action taken to reduce spend each month. For example, if you delete a virtual machine that costs $100 per month because it’s no longer needed, record a $100/month reduction. This is also the point where you should engage your finance team, because reductions need to be recognized correctly.
Annualized reduction
If the VM had been running for a year, the annualized reduction is 12 × $100 = $1,200.
If it had been running for six months, the reduction is 6 × $100 = $600.
You can represent this in a spreadsheet by spreading the $100/month reduction across the remaining months of the financial year. This is typically what finance teams want to see. Any remaining balance can then be carried into the next financial year.
Over time, this approach results in a large spreadsheet: activities listed in rows, months across columns. This structure allows you to deduct the total monthly reductions directly from each invoice, making your impact visible and defensible.
This level of tracking becomes essential when dealing with savings plans and reservations. I’ll cover those in more detail another time, but if you purchase these discount mechanisms and fail to account for their monthly reductions, you’re doing yourself a disservice. Recognizing all reductions upfront will distort your reporting and create accounting issues.
Tracking cost avoidance
Cost avoidance matters too. It represents money you could have spent, but didn’t—and it clearly demonstrates value.
For example, a project team proposes building 12 virtual machines with 8 vCPUs each. You review the cost model and discover it would cost $10,000 per month, or $120,000 per year. After reviewing the design, you suggest using auto-scaling instead. The team reworks the solution and reduces the cost to $5,000 per month. You’ve avoided $60,000 per year in spend. Nice work.
Measure it. Report it. Make the impact visible.
Be seeing you!
Kyle