How to budget your Azure cloud spend with Microsoft Cost Management

June 11

[HEADING=1]Introduction[/HEADING]

If you are using Azure for your cloud applications, you might be wondering how to manage your costs effectively. You might have heard of Microsoft Cost Management, a service that helps you monitor, analyze, and optimize your cloud spending[1]. But did you know that Microsoft Cost Management also offers a powerful feature called Budgets?

Budgets are a way to set spending limits and track your costs against them. They help you avoid surprises in your bill, align your spending with your business goals, and empower your teams to make informed decisions[2]. In this article, you will learn the benefits of having a budget in Microsoft Cost Management, and how to set up and manage your budgets effectively.

We will also show you the three simple steps for budgeting in Azure, and who is responsible for what. These steps are based on the FinOps framework, a set of best practices for managing cloud costs. The FinOps framework consists of three phases: inform, optimize, and operate[3]. We will show you how budgets can help you in each of these phases, and how to connect them with other Microsoft Cost Management features and tools.

Figure 1 Navigating the FinOps Journey: Inform, Optimize, Operate. Retrieved from

finops.org

By the end of this article, you will have a clear understanding of why you need a budget in Microsoft Cost Management, and how to use it to get the most out of your cloud investment.

[HEADING=1]What is a Budget in Microsoft Cost Management?[/HEADING]

A budget is a way to set a spending limit for a specific scope and time period in Azure. You can create a budget for your entire billing account, or for a subset of your resources, such as a subscription, a resource group, or a tag. You can also create multiple budgets for different scopes and time periods, depending on your needs.

A budget allows you to track your actual and forecasted costs against your spending limit and get alerts when you reach certain thresholds. You can also configure action groups to trigger automated actions, such as sending emails, calling webhooks, or executing Azure functions, when your budget thresholds are met.

A budget is not a hard limit that prevents you from spending more than the amount that you set. It is a mechanism to provide you with visibility and insights into your spending patterns, and to help you proactively take action before it is too late.

Here are some key features of budgets in Microsoft Cost Management:

You can create budgets for any scope and time period, such as billing account, subscription, resource group, or tag.
You can create multiple budgets for different scopes and time periods, and track them separately or together.
You can use the suggested amount feature to get a recommended budget based on your usage patterns and historical data.
You can set up alerts for actual costs, forecasted costs, percentage of budget, or amount.
You can configure action groups to trigger automated actions, such as sending emails, calling webhooks, or executing Azure functions, when your budget thresholds are met.
You can monitor and analyze your budget usage and performance using Microsoft Cost Management and Cost Analysis.
You can update or delete your budget at any time, depending on your changing needs and circumstances (as long as you have the correct rights/permissions to do so).

[HEADING=1]Why do you need a budget in Microsoft Cost Management?[/HEADING]

Having a budget in Microsoft Cost Management can help you in many ways, such as:

Aligning your spending with your business goals and objectives. You can use a budget to set a realistic and achievable target for your cloud spending, and to measure your progress and performance against it. You can also use a budget to communicate your expectations and constraints to your stakeholders, such as your product owners, engineering teams, finance teams, and leadership teams.
Gaining insights and visibility into your cloud costs. You can use a budget to monitor your actual and forecasted costs, and to compare them with your spending limit. You can also use a budget to drill down into your costs by different dimensions, such as service, resource, location, or tag. If your budget alert is triggered, you can investigate further to see if it was due to a usage or cost spike, anomaly or trend, and identify the root cause and potential solutions. Budget thresholds can give you an indication of your spend rate, that is how much time it takes for your resources to reach 50% (or more) of your predicted budget.
Optimizing your cloud costs and maximizing your return on investment. You can use a budget to identify areas for cost savings or efficiency improvements, such as right-sizing your resources, purchasing reservations or savings plans, or redesigning your application architecture. You can also use a budget to evaluate the impact of your optimization actions, and to validate your assumptions and hypotheses.
Operating efficiently and proactively in the cloud. You can use a budget to set up alerts and notifications when you reach certain thresholds of your spending limit, and to trigger automated actions, such as sending emails, calling webhooks, or executing Azure functions. The extensibility of these notifications can help you bring visibility of your cloud spend into other systems that your organization may use, including Microsoft Teams, email, or helpdesk ticketing systems (ITSM). You can also use a budget to define internal processes and workflows for handling budget overages, such as requesting additional funding, escalating issues, or taking corrective actions like shutting down test or development virtual machines.

Here are some benefits of budgets in Microsoft Cost Management:

Avoid surprises in your bill and stay within your budget.
Align your spending with your business goals and objectives.
Gain insights and visibility into your cloud costs.
Optimize your cloud costs and maximize your return on investment.
Operate efficiently and proactively in the cloud.

[HEADING=1]How to set up and manage your budgets in Microsoft Cost Management?[/HEADING]

Setting up and managing your budgets in Microsoft Cost Management involves several steps, such as:

Defining the initial budget estimate
Creating the budget
Configuring the budget alerts and action groups
Monitoring and managing the budget usage and performance
Fine-tuning and adjusting the budget as needed

We will explain each of these steps in detail, and show you how to use the three simple steps for budgeting in Azure, and who is responsible for what.

[HEADING=1]Defining the initial budget estimate[/HEADING]

Embarking on the journey of defining the initial budget estimate requires a clear delineation of roles and responsibilities. To facilitate this, we introduce the RACI model—a cornerstone of project management that delineates the involvement of project participants. RACI, an acronym for Responsible, Accountable, Consulted, and Informed, serves as a guide to define the involvement and communication flow within project tasks.

Responsible individuals are those who do the work to achieve the task. They have a hands-on role in getting the job done.

Accountable is the person or stakeholder who is the 'owner' of the work. They must sign off or approve when the task, deliverable, or milestone is complete.

Consulted are those whose opinions are sought; they are typically subject matter experts, with their input having a significant influence over the outcome.

Informed are those who are kept up-to-date on progress, often only on completion of the task or deliverable; they need to be aware of outcomes but are not directly involved in the work.

Integrating the RACI model is pivotal for its ability to bring clarity and structure to project management. It ensures that each participant is aware of their specific roles and responsibilities, thereby preventing any confusion or overlap in duties. By applying the RACI model to our budgeting process, we aim to foster a well-organized and transparent approach, setting a solid foundation for the project's success.

Defining the initial budget estimate involves understanding the scope of your product, estimating the resources needed, and translating them into financial terms. You can use Azure pricing calculator, Azure TCO calculator, or Azure Advisor to help you with this step.

Here are some tips for defining the initial budget estimate:

Understand your product requirements and operational needs, such as performance, availability, scalability, security, and compliance.
Estimate the resources needed to support your product, such as compute, storage, network, database, and other services.
Translate the resources into financial terms, such as cost per hour, cost per month, or cost per year.
Consider the factors that may affect your costs, such as usage patterns, demand fluctuations, region differences, or currency changes.
Add a buffer or contingency to account for unexpected costs or changes.

Responsible: The Product Owner is responsible for defining the initial budget estimate based on the product requirements and operational needs. This involves understanding the scope of the product, estimating the resources needed, and translating these into financial terms.

Accountable: Finance is accountable for providing guidance during the budget setup process. They ensure that the budget aligns with the organization’s financial goals and complies with any financial regulations or constraints.

Consulted: The Engineering and Procurement teams are consulted during the budget setup process. They provide input on the operational needs and goals, helping to ensure that the budget is realistic and achievable.

Informed: All members of the organization, including Leadership and Finance, are informed about the budget. This promotes a culture of financial accountability and ensures everyone understands the financial constraints and goals.

Please note that the responsibilities and roles outlined in this document according to the RACI matrix are general recommendations and may vary within your organization. The suggested approach to managing responsibilities is one of many possible options and should be adapted to fit your company's unique organizational structure and needs. It is essential to determine the most effective method for assigning and managing roles and responsibilities that align with your internal processes and culture.

In addition, if you are setting a budget on existing resources in Microsoft Azure, the budget creation process will suggest a budget amount based on historical cost.

[HEADING=1]Creating the budget[/HEADING]

This step involves creating the budget in Microsoft Cost Management for the desired scope and time period. You can use the Azure portal, Azure CLI, Azure PowerShell, or Azure REST API to create a budget. You can also use the suggested amount feature, which provides you with a recommended budget based on your usage patterns and historical data.

Here are some steps for creating the budget:

Choose the scope and time period for your budget, such as billing account, subscription, resource group, tag, month, quarter, or year.
Specify the budget amount and currency, and optionally use the suggested amount feature to get a recommended budget.
Name your budget and provide a description, and optionally add tags to categorize and group your budget.
Save your budget and review the details.

Figure 2 Effortless Budgeting: Harness the Power of Suggested Amounts

Responsible: The Product Owner and Engineering team are responsible for creating the budget in Microsoft Cost Management for the desired scope and time period. They choose the scope and time period, specify the budget amount and currency, name and describe the budget, and save and review the budget.

Accountable: Finance and Budget Owner are accountable for reviewing and approving the budget. They ensure that the budget is consistent with the initial budget estimate, and that it meets the organization’s financial goals and standards.

Consulted: The FinOps Practitioner is consulted for help on using the suggested amount feature, which provides a recommended budget based on usage patterns and historical data. They provide financial expertise and advice on setting the budget amount and currency.

Informed: All members of the organization, including Leadership and Finance, are informed about the budget. This promotes a culture of financial accountability and transparency.

[HEADING=1]Configuring the budget alerts and action groups[/HEADING]

This step involves setting up alerts and action groups for the desired thresholds and conditions. You can set up alerts for actual costs, forecasted costs, percentage of budget, or amount[4]. You can also set up action groups to trigger automated actions, such as sending emails, calling webhooks, or executing Azure functions, when your budget thresholds are met.

Here are some steps for configuring the budget alerts and action groups:

Choose the alert type and condition, such as actual costs, forecasted costs, percentage of budget, or amount.
Specify the alert threshold and frequency, and optionally add a custom message.
Select or create an action group to trigger automated actions, such as sending emails, calling webhooks, or executing Azure functions, when your alert condition is met.
Save your alert and action group and review the details.

Responsible: The Product Owner and Engineering team are responsible for configuring the budget alerts and action groups for the desired thresholds and conditions. They choose the alert type and condition, specify the alert threshold and frequency, select or create an action group, and save and review the alert and action group.

Accountable: The Product Owner and Engineering team are accountable for reviewing and approving the budget alerts and action groups. They ensure that the alerts and action groups are consistent with the budget goals and expectations, and that they comply with the organization’s policies and standards.

Consulted: The FinOps Practitioner is consulted for help on choosing the alert type and condition, and specifying the alert threshold and frequency. They provide financial expertise and advice on setting the budget alerts and action groups.

Informed: All members of the organization, including Leadership and Finance, are informed about the budget alerts and action groups. This promotes a culture of financial accountability and transparency.

[HEADING=1]Monitoring and managing the budget usage and performance[/HEADING]

This step involves tracking your actual and forecasted costs against your budget, and drilling down into your costs by different dimensions. You can use Microsoft Cost Management and Cost Analysis to monitor and analyze your budget usage and performance[5]. You can also use Azure shared dashboards or share customized cost views to share your budget information with your stakeholders[6]. You can also use Azure Advisor Cost Optimization workbook to get recommendations and best practices for optimizing your costs[7].

Here are some tips for monitoring and managing the budget usage and performance:

Use Cost Analysis to view your budget usage and performance, and compare your actual and forecasted costs with your spending limit.
Use Cost Analysis to drill down into your costs by different dimensions, such as service, resource, location, or tag, and identify the cost drivers and contributors.
Use shared dashboards and customized cost views to create and share custom views of your budget information with your stakeholders, such as product owners, engineering teams, finance teams, or leadership teams.
Use Azure Advisor Cost Optimization workbook to get recommendations and best practices for optimizing your costs, such as right-sizing your resources, purchasing reservations or savings plans, or redesigning your application architecture.

Responsible: The Product Owner and Engineering team are responsible for monitoring and managing the budget usage and performance. They use Microsoft Cost Management and Cost Analysis to view and analyze their budget usage and performance, and to drill down into their costs by different dimensions. They also use shared dashboards and customized cost views to share their budget information with their stakeholders, and Azure Advisor Cost Optimization workbook to get recommendations and best practices for optimizing their costs.

Accountable: The Budget Owner is accountable for tracking and managing budgets. They establish acceptable variance thresholds (e.g., 20% overage), and identify exception handling for scenarios when altering budgets out of cycle is needed. This involves regular monitoring and reporting, as well as taking corrective action if the budget is not being adhered to.

Consulted: The Engineering team and FinOps Practitioner are consulted for help on drilling down with tools. They provide technical expertise and can help identify areas for cost savings or efficiency improvements.

Informed: All members of the organization, including Leadership, are kept informed about any changes to the budget. This helps maintain transparency and promotes a culture of financial accountability.

[HEADING=1]Fine-tuning and adjusting the budget as needed[/HEADING]

This step involves updating or deleting your budget at any time, depending on your changing needs and circumstances. You can also use Microsoft Cost Management to analyze the variance between your budget and your actual or forecasted costs, and to identify the reasons and solutions for any discrepancies or overages.

Here are some tips for fine-tuning and adjusting the budget as needed:

Update your budget amount, scope, time period, alerts, or action groups as needed, depending on your changing needs and circumstances.
Delete your budget if it is no longer relevant or needed, such as when your product is decommissioned or migrated.
Analyze the variance between your budget and your actual or forecasted costs, and identify the reasons and solutions for any discrepancies or overages.
Take corrective actions to resolve any issues or challenges, such as requesting additional funding, adjusting resource usage, or modifying product scope.

Responsible: The Product Owner and Engineering team are responsible for fine-tuning and adjusting the budget as needed. They update or delete their budget at any time, depending on their changing needs and circumstances. They also analyze the variance between their budget and their actual or forecasted costs, and take corrective actions to resolve any issues or challenges.

Accountable: The Budget Owner is accountable for the budget performance. If the budget overage is above the defined tolerance (e.g., 20%), they take corrective actions if possible. This could involve identifying areas for cost savings, adjusting resource usage, or modifying the product scope. If the overage cannot be corrected and additional funding is needed, they request additional funding from the holdback.

Consulted: If additional funding from the holdback is not available or not sufficient, the Higher-Level Budget Owner or Finance directly review the request for additional funding. They provide financial expertise and make decisions about whether to approve the additional funding.

Informed: All members of the organization, including Leadership, are kept informed about any changes to the budget. If the budget adjustment is significant and impacts the organizational performance expectations, Leadership makes adjustments to the budgeted spending levels and records/adjusts impacts to organizational performance expectations.

[HEADING=1]Best practices for budgets in Microsoft Cost Management[/HEADING]

To get the most out of your budgets in Microsoft Cost Management, here are some best practices to follow:

Align your budgets with SMART business goals and objectives. Ensure your budgets are Specific, Measurable, Achievable, Relevant, and Time-bound, reflecting your financial aspirations and limitations[8]. They should be realistic and attainable, fostering a sense of accountability and progress tracking. Communicate your budgets clearly to stakeholders, ensuring they comprehend the expectations and implications, and are aligned with the SMART framework for optimal clarity and effectiveness.
Use multiple budgets for different scopes and time periods. You should have an overall budget for your entire billing account, as well as individual budgets for different units, such as subscriptions, resource groups, tags, or applications. You should also have budgets for different time periods, such as monthly, quarterly, or yearly. This way, you can easily track and compare your costs across different dimensions and granularities.
Use tags to categorize and group your resources and budgets. Tags are key-value pairs that you can assign to your resources to identify and organize them[9]. You can use tags to create budgets for specific categories, such as cost center, product owner, app name, environment, or project. You can also use tags to filter and analyze your costs by different dimensions. You can also use the tag inheritance feature to inherit tags from your subscription to your individual resources.
Use actual and forecasted cost alerts for your budgets. You should set up both actual and forecasted alerts for your budgets, as they serve different purposes[10]. Actual alerts trigger on actual costs when thresholds are met, and can be considered as a reactive approach. Forecasted alerts trigger on estimates and can be considered as an active approach, as you can act before it is too late.
Use action groups to trigger automated actions for your budgets. You should set up action groups to trigger automated actions, such as sending emails, calling webhooks, or executing Azure functions, when your budget thresholds are met[11]. This way, you can notify your stakeholders, escalate issues, or take corrective actions in a timely manner.
Define internal processes and workflows for handling budget overages. You should establish acceptable variance thresholds and exception handling for scenarios when altering budgets out of cycle is needed. You should also define who is responsible, accountable, consulted, and informed for setting up and managing your budgets, and what are the roles and responsibilities of each stakeholder. You should also define what happens if your budget is exceeded, such as requesting additional funding, adjusting resource usage, or modifying product scope. You can use your preferred modeling language to describe these processes and workflows, and to align them with your organizational culture and values.

[HEADING=1]Summary[/HEADING]

In this article, you have learnt the benefits of having a budget in Microsoft Cost Management, and how to set up and manage your budgets effectively. We have also shared some best practices for using budgets to gain insights, optimize costs, and operate efficiently in Azure.

Here are some key takeaways to remember:

Budgets are a way to set spending limits and track your costs against them in Microsoft Cost Management.
Budgets help you align your spending with your business goals, gain insights and visibility into your costs, optimize your costs and maximize your ROI, and operate efficiently and proactively in the cloud.
To set up and manage your budgets, you need to define the initial budget estimate, create the budget, configure the alerts and action groups, monitor and manage the budget usage and performance, and fine-tune and adjust the budget as needed.
To get the most out of your budgets, you should align them with your business goals, use multiple budgets for different scopes and time periods, use tags to categorize and group your resources, use actual and forecasted alerts, use action groups to automate actions, and define internal processes and workflows for handling budget overages.

We hope you have found this article useful and informative. If you have any questions or feedback, please let us know in the comments section below. Thank you for reading!

[HEADING=1]References[/HEADING]

[1] Overview of Cost Management - Microsoft Cost Management | Microsoft Learn

[2] Tutorial - Create and manage budgets - Microsoft Cost Management | Microsoft Learn

[3] FinOps Phases

[4] Monitor usage and spending with cost alerts in Cost Management - Microsoft Cost Management | Microsoft Learn

[5] Quickstart - Start using Cost analysis - Microsoft Cost Management | Microsoft Learn

[6] Create a dashboard in the Azure portal - Azure portal | Microsoft Learn

[7] Use and customize the Cost optimization workbook - Cloud Computing | Microsoft Learn

[8] SMART criteria - Wikipedia

[9] Tag resources, resource groups, and subscriptions for logical organization - Azure Resource Manager | Microsoft Learn

[10] Monitor usage and spending with cost alerts in Cost Management - Microsoft Cost Management | Microsoft Learn

[11] Azure Monitor action groups - Azure Monitor | Microsoft Learn