4 Cloud Financial Management Strategies to Deliver Maximum Returns

Understand cloud financial management tactics and know when and where to apply them.

Bring a group of technology leaders together and they will quickly call out the need to gain insights and manage cloud spend. Whether assessing migration paths for legacy systems, adopting product-based delivery, or accelerating cloud-native solution adoption, no one questions the value of cloud financial management—but the devil is in the details.

A recent webinar hosted by Apptio and Blazeclan, one of the world’s leading providers of public cloud services, showed that getting buy-in for cloud financial management (CFM) is only the start. The event was hosted by me and featured members from Blazeclan, Amazon Web Services (AWS), AXA Malaysia, MSD International, Traveloka Indonesia, Domino’s Malaysia, and Accountant-General’s Department Singapore. Event panelists affirmed that most organizations understand the tactics that make up CFM and the value delivered by key optimization activities; the challenge is knowing when and where to apply these tactics.

According to panelists, organizations should take four specific actions to maximize returns on cloud.

1. Build a holistic business case for CFM

A CFM business case must assess current capabilities and culture. There is an aspirational element to all business cases, but an organization must tie aspirations to change management skills. From cloud providers’ native tools to purpose-built solutions, there are many financial management tools to leverage. Lack of capabilities is generally not the issue; the more significant issue is determining which tools an organization is mature enough to get value from. For example, Apptio Cloudability enables technology, finance, and business teams to optimize cloud costs and maximize their public cloud value.

Blown budgets and excessive end-of-year true-ups may be enough to build a CFM business case. However, cloud spend challenges don’t have to tie back to a specific event. A FinOps team that cannot deliver financial governance knows the budgeting process is burdened with risk—and that alone is a valid enough driver of a business case.

A holistic business case takes on the reality of current issues and the potential of new ones relating to raising staff productivity, increasing operational efficiency, and meeting SLAs.

2. Establish a Cloud Center of Excellence

A Cloud Center of Excellence (CCoE) is not just a function; it’s a process to drive organizational change. Without a structured approach to adopting and optimizing cloud, organizations fail to deliver—and possibly exceed—business case requirements. Siloed procurement hides overlapping capabilities and poor optimization. A piecemeal approach to cloud doesn’t break these silos. However, a CCoE leads a systematic planning, execution, and operations process. Without it, organizational caprice undercuts digital transformation.

A CCoE navigates a path to systematic cloud adoption. A “lift-and-shift” approach replicating on-premises in the cloud is a happy path, but re-architected apps need more than just technical scoping. Do other cloud options supersede the functionality? Is the business process that needs that application still relevant? These questions supersede technical qualms and focus on how cloud supports the business. Build a CCoE to answer these questions.

FinOps teams scale their CCoE activities with a purpose-built CFM solution. Cloud bills may run to millions of rows of operational detail, and manual efforts to weed through that level of detail are unsustainable.  Each bill row is not only an item of cost and usage but potentially an item to optimize and improve. A CCoE falls short of excellence without an automated process to pull insights from cloud bills. A CCoE only gains insights and unlocks optimizations with sound processes and tooling. Apptio Cloudability ingests, normalizes, and structures cloud billing and usage data from across your public cloud ecosystem so that you can actively manage spend and consumption to continuously improve the unit economics of cloud services.

3. Institute financial accountability with equitable cost allocations

CFM isn’t a one-size-fits-all practice. Tactics and timelines that are right for born-in-the-cloud financial services will be different for brick-and-mortar retail. Technology and business leaders must select tactics that work for them—and then prioritize. Stack-ranking—and then executing—action is key to CFM.

The right tactic is needed at the right time. The FinOps journey consists of three iterative phases: Inform, Optimize, and Operate. Tagging—adding organization information to cost and usage data—is a key tactic for the Inform phase of FinOps. But even with tagging, there is a need to prioritize. If most of your cloud spend is AWS and you are only experimenting with Azure, a multi-cloud tagging strategy may be overkill. For the sake of completeness, you could roll out tagging for AWS and Azure, but the time and effort to support it may not provide a worthwhile ROI. Adopting Azure tagging once the percent of multi-cloud spend crosses a pre-agreed threshold may be better.

Create a cost allocation structure that matches the way you think about your business. If your company is structured around autonomous business units, your structure should reflect that. If it’s a DevOps organization, create a structure based on projects since each team manages its application end to end.

4. Optimize costs

The best cost optimization strategy looks at the areas of spend with stable cost resources and takes advantage of rightsizing recommendations from tooling and telemetry.

When starting with new cloud services, teams often don’t think about resource rightsizing. There are financial and operational consequences to getting the sizing wrong. An under-sized resource will perform poorly; oversized resources could exceed performance requirements but at a higher billing rate per second than required. A data platform to help your teams determine the efficiency percentage of utilization can help with rightsizing discussions.

Commitment Discounts applied centrally across business groups using cloud services can be a great tool in optimizing cloud costs. RI pricing is only advantageous when organizations are on top of underutilized and inefficiently deployed instances.

Aggregated RI usage and consumption data should inform purchase recommendations. Past consumption trends do not precisely foretell future demand, but when combined with business intelligence they can help maximize returns (e.g., minimize excessive RI purchases). Organizations can save 30% or more compared to running their cloud services on demand.

The tactics of CFM are not a mystery. Technology leaders use these tactics to ensure cloud spend delivers value at the lowest price point. The challenge is to apply the right tactic at the right time on the right workload. An organization spending millions on AWS compute and thousands on AWS storage should focus cost reduction initiatives on EC2 rightsizing rather than EFS or object storage. The same goes for financial accountability. Holding someone accountable for $1M in cloud spend is a bigger priority than holding someone accountable for $1,000 in cloud spend.

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Want to learn more about FinOps? Watch the latest episode of “FinOps Fridays” below to learn more about the concepts and application of FinOps, cloud financial management, and cost optimization.
FinOps Fridays - 4 Cloud Financial Management Strategies to Deliver Maximum Returns - Apptio

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