EVM CPI: The Ultimate Cloud Business Value Metric for FinOps Leaders

Leaders are busy people. CTO, CFO, Directors, etc. don’t have time to waste while they have a need for right data for informed decisions. What if they could have just one KPI to tell all the story about Cloud Business Value?

Let’s dive into why EVM CPI (Earned Value Management Cost Performance Index) is a crucial FinOps KPI for measuring cloud business value.

Why EVM CPI Matters

1. Understanding EVM CPI

As I mentioned on another article of mine, EVM CPI is a metric derived from Earned Value Management (EVM), a project management technique that integrates cost, schedule, and performance data. It provides insights into how efficiently a project or initiative is utilizing its budget. Specifically, EVM CPI compares the earned value (the value of work completed) to the actual cost incurred. The formula for EVM CPI is:

• If CPI > 1: The project is performing well within budget.
• If CPI = 1: The project is on budget.
• If CPI < 1: The project is over budget.

Translating the above to FinOps Business Value context:

• If CPI > 1: Business Value is higher, compared to budgeted Cloud cost.
• If CPI = 1: Business Value is expected compared to budgeted Cloud cost.
• If CPI < 1: Business Value is lower, compared to budgeted Cloud cost.

When executives finally grasp the concept of EVM CPI and truly understand its implications, they gain the power to instantly gauge the success or failure of a project or initiative in terms of delivering Business Value. The ability to swiftly evaluate current cloud spending is invaluable. The mere existence of this KPI, and its accurate calculation, signifies that the fundamental processes for managing cloud costs are, at the very least, in place to offer this concise measurement that empowers well-informed decisions.

2. Applying EVM CPI to Cloud FinOps

a. Cloud Cost Optimization

In the context of cloud computing, EVM CPI becomes a powerful tool for FinOps (Financial Operations) leaders. Here’s why:

• Cost Efficiency: EVM CPI helps organizations assess whether their cloud spending aligns with the value delivered. A high EVM CPI indicates efficient utilization of cloud resources, while a low EVM CPI signals potential waste or overspending.
• Resource Allocation: By tracking EVM CPI, leaders can allocate resources effectively. If a specific cloud service or workload consistently shows a low EVM CPI, it warrants investigation. Perhaps there’s an opportunity to optimize resource allocation or choose a more cost-effective solution.

b. Cloud Business Value Measurement

• Business Alignment: EVM CPI directly ties financial performance to business outcomes. Leaders can evaluate whether cloud investments are translating into tangible business value. For example, if a new feature deployment has a high EVM CPI, it suggests that the investment is paying off.
• Decision Making: EVM CPI informs strategic decisions. Leaders can prioritize projects based on their EVM CPI scores. Initiatives with a positive EVM CPI may receive additional funding, while those with a negative EVM CPI may require adjustments or reevaluation.

3. Challenges and Considerations

a. Data Accuracy

• Accurate data is essential for calculating EVM CPI. Leaders must ensure that cost and performance data are up-to-date and reliable. Here, the FinOps team has an important role to play, in order to ensure that the processes and practices are properly followed.

b. Contextual Interpretation

• EVM CPI should be interpreted in context. A low EVM CPI doesn’t automatically indicate failure; it might be acceptable if the project is in an early stage or if certain costs are front-loaded.

4. Conclusion

EVM CPI provides a holistic view of cloud cost performance. As a FinOps KPI, it empowers leaders to make informed decisions, optimize spending, and maximize business value. By focusing on EVM CPI, organizations can achieve better financial outcomes in their cloud initiatives.

If not done already, check my blog post where I explain how to calculate EVM.

Remember: EVM CPI is not just a number; it’s a strategic compass for cloud success! 🚀🌟