Cloud
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6 min read
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June 18, 2021

Why Cloud Financial Management is Core to Business Survival

by

Virtasant Research Team

Innovating in the cloud comes with a price, but cloud financial management allows businesses to get a handle on the unpredictable cloud costs that have skyrocketed over the last year.

Innovating in the cloud comes with a price, but cloud financial management allows businesses to get a handle on the unpredictable cloud costs that have skyrocketed over the last year. 

Optimizing cloud costs, however, may not be the first concern for businesses starting to migrate to the public cloud. Typically the focus is on things like flexibility, speed, and innovation. The general assumption is that the cloud will be less expensive by default. 

Most organizations quickly realize that the same things that make the public cloud compelling - unprecedented flexibility, an ever-expanding universe of capabilities, and push-button startup - also make it more expensive than their old hosting bills. Without changes to their cloud financial management practices, organizations quickly find that traditional methods of managing infrastructure spend in the physical world don't translate to the cloud. The result is an unexpected and increasingly heavy bill. 

With the mounting costs came a need for a new model of financial management that supports businesses in the public cloud era. Cloud financial management or FinOps is the process of managing, analyzing and optimizing cloud costs. Though still new, cloud financial management is already a top priority for businesses. The tremendous pace of public cloud adoption was made clear well before COVID-19 forced many industries to adopt off-premise solutions. Now, cloud financial management is a core element for business strategy as organizations look to engage customers, partners, and employees remotely.

Why You Need Cloud Financial Management

This year, the FinOps Foundation released a report, The State of FinOps, which included data from over 800 FinOps practitioners. The study found that the need for cloud financial management has become a necessity for businesses across all cloud usage. Factors that seemed to influence this need included the complexity of the company and cloud environments, workload, reporting conditions, the number of teams involved and annual spend exceeding $10 million. 

Public cloud spend is forecasted to surpass $360B, and it's clear that reliance on old processes from the days of physical infrastructure will not suffice. Leaving cloud spend in the hands of product and engineering teams without centralized visibility could topple business goals.

It's already clear that this is a problem. A recent report by IDG surveyed organizations that use the public cloud. The report found that the number one obstacle to realizing value in the public cloud was the inability to control cloud costs. The appeal of innovating in the limitless cloud is overshadowed by the clutch of rising cloud costs. 

It is absolutely true that organizations gain incredible strength from leveraging public cloud platforms while making their infrastructure usage more efficient, but that is not a built-in feature. The ease of spinning up new cloud infrastructure decentralized and on-demand is the very thing that makes it so hard to manage and control from a cloud financial management perspective. The good news is that there are ways to take control of your cloud spend.

Common Pain-Points of Cloud Financial Management 

As organizations adopt public cloud services, it can be incredibly difficult to keep costs under control without focused, clear processes, and widespread stakeholder support. While expanding their usage and working to get cloud spend under control businesses are faced with a host of challenges as they approach cloud financial management.

Budgeting and Forecasting

Most cloud usage is decentralized, with individual teams procuring their own cloud spend on-demand. Meanwhile, most technology infrastructure budgeting and forecasting processes were built for a time when you had to buy, install, and set up physical servers, with clear investments and long lead times.

Managing Shared Costs

Out of the box, cloud platforms don't give you the ability to manage shared costs and allocate spend to the appropriate groups. Shared resources can drive value, but make it difficult to allocate spend accurately.

Cost and Usage Monitoring

Cloud platform product catalogs are incredibly complex, and keeping track is a hefty task. There are hundreds of thousands of SKUs with variable pricing, complex discounting, and rapidly changing products which makes cloud financial management harder. Billing and usage data is just as complex, and when you have dozens (or thousands) of teams each directly provisioning new infrastructure, accountability can be lost.

Identifying Waste

Some waste is obvious, and there are more and more tools on the market to help with cloud financial management and to identify cost reduction opportunities. But not all waste is equal. For example, sometimes doubling cloud spend is good if you also triple your outcomes. On the other hand, a reduction of spending by 10% could be bad if your outcomes also decline by 40%. How do you know what is truly waste and what is essentially increased spend for increased value?

Taking Action

There is a clear path in the cloud financial management journey for most organizations, as they move from "crawl"to "walk" to "run". But, what proves to be the hardest challenge is getting engineering teams to take action on recommendations.

New cloud financial management practices help organizations clear many of these hurdles, but the process requires a deliberate focus on understanding and managing cloud spend.

Our Advice on Cloud Financial Management: Align and Automate

Whether your organization is just starting its cloud journey or already spending millions of dollars on cloud spend, there is no time like the present to gain control. Implementing a cloud financial management program guided by the tried and true principles of FinOps is the best first step. First, it is critical to get a few things right when building out your program:

Set Clear Goals

Each organization is different, and so are their priorities when it comes to what they want from the public cloud and their cloud financial management plan. If you are a cash-rich incumbent competing with fast-moving startups, a fast and efficient product launch is probably most important. Established companies in highly competitive, commoditized markets, likely want to drive cost reduction. Others may value scalability and reliability above all else. These priorities dictate how to model your cloud program, as well as the goals you should set for cloud financial management. If you get the alignment wrong, you will simply move with speed and confidence in the wrong direction.

Get Leadership Support

Once goals are defined, it's critical to have leadership support throughout the organization. Controlling cloud costs is not a finance department problem, or an engineering problem, or a business problem - it is everyone's problem. For successful cloud financial management you need clarity of purpose and executive support. In our experience, without this, teams will only have marginal success.

Automate

The sheer scale and complexity of the public cloud creates another mounting issue for the cloud financial management. It's impossible for organizations to understand and manage cloud spend with precision using the default tools provided. This loss of action means missed opportunities to continuously drive real value and accountability. Most organizations work with several different cloud platforms, which further compounds the difficulty of cloud financial management. Automating the full lifecycle, from goal setting and measurement to identification and resolution is actually critical.

Conclusion

The hallmark of every successful cloud financial management program is multidisciplinary teamwork. Every team has a part to play, and every team needs to be engaged to realize the full potential of the public cloud while always ensuring that spend is aligned with the right value proposition for your organization.

The public cloud is undoubtedly the future of technology infrastructure for organizations large and small. However, the benefit of the public cloud can quickly be defeated by the very same characteristics that make it so promising - speed, agility, and ease of setup.  

Implementing a multi-disciplinary cloud financial management program founded in the principles of FinOps, keeps runaway costs from eroding the value of the public cloud. Clear goals, leadership support, and utilizing automation will ensure that things run smoothly while controlling costs.