Measuring Cloud Cost Efficiency with the New Cost Efficiency Metric by AWS

As organizations escalate their cloud infrastructure, they encounter an intricate puzzle: managing and optimizing cloud costs effectively. The cloud’s elasticity offers unique flexibility, yet it also demands sophisticated optimization techniques to fully leverage its benefits. Many organizations often find themselves in a quandary, questioning the efficiency of their cloud spending and seeking ways to satisfy leadership demands for transparency in optimization efforts. Today, AWS unveils a groundbreaking solution—Cost Efficiency in Cost Optimization Hub. This innovative tool offers a comprehensive, automatic measure of cloud spending efficiency, paving the way for organizations to track optimization progress and achieve substantial cost savings.

The Persistent Challenges of Cloud Cost Efficiency

Despite the pivotal role cloud cost optimization plays in today’s tech landscape, many companies face three core challenges:

• Reaching Consensus on Metrics: Securing stakeholder agreement on the right metrics to track cloud cost efficiency can take months or even years. The engineering team might focus on hardware utilization rates, whereas finance teams look for ROI, and product teams are interested in unit economics. Executives often want streamlined business metrics. This lack of a unified approach means FinOps teams expend more energy on consensus-building than on actual optimization. As one company relayed, it took over a year to achieve organizational buy-in for an internal efficiency metric.

• Aligning Teams Around Common Goals: Even after establishing measurement methods, rallying different teams around shared goals is challenging. Disparate metrics (e.g., one team using CPU utilization, another focusing on Reserved Instance coverage) complicate fair comparisons. Without standardized metrics, distinguishing effective actions becomes murky, hampering organizational change.

• Complexity of Unified Metrics: Developing a single metric encapsulating rightsizing, idle cleanup, and commitment savings involves mathematical intricacy. Isolated metrics, like commitment coverage or idle resource percentage, exist, but combining them poses challenges. Focusing on one aspect, like commitment coverage, can inadvertently de-emphasize other areas, such as idle resource cleanup, leading to debates and potentially reduced optimization effectiveness.

The Importance of a Unified Cost Efficiency Metric

These challenges—securing buy-in, achieving organizational alignment, and a singular focus—often compound, resulting in more time spent on debate than on cost cuts. FinOps teams may find themselves endlessly collecting, reconciling, and explaining data rather than driving meaningful savings. Here, a unified cost efficiency metric offers a solution, delivering:

• Integrated Resource and Commitment Optimization: Removing the dichotomy of tracking competing metrics
• A Common Language: Facilitating uniform comparisons and alignment across business units
• Automatic Calculation: Reducing manual data aggregation and maintenance burdens
• Simplicity and Comprehensiveness: Providing an easily communicated yet comprehensive metric
• Actionable Insights: Establishing a direct relationship between the score and the cost-effectiveness of cloud resources

Cost Efficiency from AWS sets a new standard—tackling hurdles of buy-in, alignment, and complexity with a standardized, AWS-backed measure.

Understanding Cost Efficiency

Utilizing Cost Efficiency involves opting into several AWS services like AWS Compute Optimizer and Cost Optimization Hub. Once opted-in, the Cost Efficiency metric appears on your Cost Optimization Hub dashboard within 36 hours.

Metric Formula:

Cost efficiency = [1 - (Potential Savings / Total Optimizable Spend)] × 100%

Components:

• Potential Savings: Identified optimization opportunities, including rightsizing, idle resource cleanup, commitment-based savings, and more.
• Total Optimizable Spend: Your AWS spending where Cost Optimization Hub provides recommendations, calculated using net amortized costs after credits and refunds.

This formula provides a balance between simplicity and accuracy, making it straightforward for executives to comprehend while maintaining metric stability.

Tracking and Improving Cloud Cost Efficiency

Benchmarking for Improvement

Cost Efficiency allows organizations to set benchmarks and compare internally and with industry standards. Visualizing this comparative data can identify best practices, focus resources, and foster healthy competition across teams.

Trend Analysis for Long-Term Insight

Tracking efficiency over time, via daily or monthly views, uncovers immediate results and long-term trends. Regular metric updates (every 24 hours) offer responsive feedback, keeping the momentum on optimization efforts alive.

Demonstrating ROI to Leadership

Cost Efficiency simplifies showing the business value of optimization, linking percentage increases in efficiency directly to tangible dollar savings. This data becomes invaluable in articulating value to leadership, showcasing a proactive stance against infrastructure growth challenges.

Integration with FinOps Practices

Cost Efficiency complements existing metrics, integrating with dashboards via the ListEfficiencyMetrics API. This seamless integration with tools like Tableau or PowerBI enables a unified view of traditional cost and new efficiency benchmarks in one place, keeping leadership informed with comprehensive insights.

Conclusion

Cost Efficiency in Cost Optimization Hub revolutionizes cloud cost management by providing a comprehensive, automatically calculated metric that aligns teams and enhances decision-making. It offers an actionable, historical, and comparable efficiency score—driving organizational behavioral change toward continual improvement. In doing so, AWS not only supports existing optimization efforts but also sets the stage for the future of cloud financial management.