Decoding Commitment And Negotiated Discounts In FinOps FOCUS Spec Understanding Spot Prices

Hey FinOps enthusiasts! Let's talk about a crucial topic in the FinOps world: commitment discounts, negotiated discounts, and how they play with spot prices within the FOCUS specification. This article dives deep into the current ambiguities in the FOCUS spec, particularly concerning spot prices, and proposes solutions to bring more clarity to the world of cloud cost management. We'll break down the problem, explore the use cases, and discuss the desired outcomes for FinOps practitioners. So, buckle up and let's get started!

Understanding the Discount Dilemma in FOCUS

The FinOps Open Cost and Usage Specification (FOCUS) is a fantastic framework for standardizing cost and usage data across different cloud providers. However, like any evolving standard, there are areas that need refinement. One such area is the definition and handling of discounts, specifically how spot prices fit into the picture. The FOCUS spec currently outlines two primary types of discounts:

1. Negotiated Discounts: These are discounts customers secure by committing to specific spending or usage targets over a defined period. Think of them as bulk-buy deals – the more you commit, the more you save.
2. Commitment Discounts: This category involves reduced rates on pre-selected SKUs (Stock Keeping Units) in exchange for a commitment to use or spend a certain amount over a set timeframe. It's like saying, "I'll use this much of this specific service, so give me a better rate."

The million-dollar question is: Do spot instance prices fall under either of these discount categories? This is where the ambiguity creeps in. The current FOCUS spec doesn't explicitly state whether spot prices should be considered a discount, and this lack of clarity has significant implications for how we define and calculate List Cost and List Unit Price. These metrics are meant to represent prices before any discounts are applied, but if we're unsure whether spot prices are discounts, we're left in a bit of a quandary.

The Ripple Effect of Ambiguity: List Cost and Beyond

Why does this matter, you ask? Well, the definition of List Cost and List Unit Price in the FOCUS spec explicitly states that these prices should be "exclusive of any discounts." This makes perfect sense – we want to know the base cost before any negotiated savings kick in. However, if we're unclear on whether spot prices are considered discounts, we don't know if they should be included or excluded from these calculations. This uncertainty can lead to inconsistencies in cost reporting and analysis, making it harder to accurately track spending and identify optimization opportunities. Guys, we need to solve this puzzle!

Why This Matters to FinOps Practitioners

For those of us on the front lines of FinOps, this ambiguity creates real-world headaches. As FinOps practitioners, we need a clear and consistent understanding of how costs are calculated to effectively manage cloud spending. Imagine trying to compare costs across different environments or projects when the baseline prices are calculated differently depending on whether or not spot prices are considered discounts. It's like comparing apples and oranges – or maybe apples and slightly discounted apples! A clear definition ensures everyone is on the same page, enabling more accurate cost analysis, forecasting, and optimization.

To put it simply, a clear understanding of what constitutes a discount, including how spot prices are treated, is essential for accurate cost management and reporting. This clarity empowers FinOps practitioners to make informed decisions, optimize cloud spending, and drive greater efficiency.

A FinOps Practitioner's Perspective: The Use Case

Let's put ourselves in the shoes of a FinOps practitioner. Imagine you're tasked with analyzing the cost efficiency of your organization's cloud usage. You need to understand the true cost of resources, taking into account all available discounts and pricing models. This is where the ambiguity surrounding spot prices becomes a real challenge.

The Scenario: You're analyzing the cost of your compute infrastructure. A significant portion of your workloads are running on spot instances, which offer substantial cost savings compared to on-demand instances. However, you're unsure whether to treat the spot price as a discount when calculating the List Cost and List Unit Price. If you include the spot price in the List Cost, it will appear lower than the actual on-demand price, potentially skewing your cost analysis.

The Problem: Without a clear definition of how spot prices should be handled, you're left to make your own assumptions. This can lead to inconsistencies in reporting and make it difficult to compare costs across different projects or time periods. For example, if one team treats spot prices as discounts while another doesn't, their cost metrics will be vastly different, even if they're using the same resources.

The Impact: This lack of clarity can hinder your ability to accurately assess the cost-effectiveness of your spot instance usage. You might underestimate the savings achieved by using spot instances or, conversely, overestimate the cost of on-demand instances. This can lead to suboptimal resource allocation decisions and missed opportunities for cost optimization.

The Solution: As a FinOps practitioner, what you really need is a definitive answer: Are spot prices discounts, or are they a distinct pricing model? The FOCUS spec needs to provide clear guidance on this issue so that you can confidently calculate and report costs, ensuring accurate analysis and effective decision-making. This is not just about semantics; it's about having a solid foundation for managing cloud costs effectively.

Desired Outcome: Normative Text for Clarity

So, what's the desired outcome here? We need to add some normative text to the FOCUS specification that explicitly defines how discounts are handled, including the treatment of spot prices. This text should clearly state whether spot prices are considered a type of discount or a separate pricing model altogether. This will provide a consistent framework for FinOps practitioners to follow, ensuring accurate cost reporting and analysis.

Why Normative Text Matters

Normative text is the backbone of any specification. It sets the rules of the game, providing clear and unambiguous guidance on how things should be done. In the context of the FOCUS spec, normative text defines the standards for cost and usage data, ensuring that everyone is speaking the same language. By adding normative text to clarify the definition of discounts, we can eliminate the current ambiguity surrounding spot prices and create a more consistent and reliable framework for FinOps practitioners.

What Should the Normative Text Say?

The specific wording of the normative text is crucial. It needs to be precise and unambiguous, leaving no room for interpretation. Here's a potential approach to the language:

1. **Define