Learn more about cloud financial management
by Poonam Bhargava
Spend optimization doesn’t always imply cutting costs. Instead, optimization means applying cloud spend in the most optimal way to drive the best business outcomes. And that might require spending more! Cutting costs might not be optimal if that negatively impacts business outcomes, such as cost cuts that result in poor website performance that drives customers away.
As cloud adoption increases rapidly across all industries, organizations face unexpected cloud bills due to overprovisioned resources and a lack of governance required for cloud financial management. Many businesses hire consultants or create a tiger team to look for ways to cut cloud costs as single point-in-time exercises. They celebrate finding low-hanging fruits of savings, but then bills are high again the next quarter. What happens there? Why are organizations unable to self-sustain?
Organizations get the latest and greatest tools and technology for visibility into their cloud spend. They create budget alerts–but who receives these alerts? What do they do on receipt of these alerts? Do they care about these alerts or ignore them? Technology is an important enabler but is not a silver bullet. To optimize effectively and sustainably, we must acknowledge the people behind the keyboards and the humanity of the cloud. Organizations need to promote new behaviors to ensure spend is optimally used.
The traditional technology consumption model was centralized. Technology and operation teams predicted demand and submitted their requests for funding for hardware and infrastructure for longer-term periods, like three to five years at a time. Finance and procurement leaders approved these business cases for technology spend. Predictable capital expenditure (CapEx) dollars were then incurred to refresh or enhance data centers.
In contrast, the modern cloud consumption model has dramatically pushed the control of technology spend into the hands of front-line teams who can make changes to cloud environments anytime, committing organizations to unpredictable operating expenditure (OpEx). Finance and procurement teams might try to create a budgetary forecast, asking for estimates from application teams and periodically tracking variances–but forcing this old process and mindset to the new world of the cloud creates challenges.
1. Growth mindset to learn new ways of working and best practices: With any disruptive changes like moving to cloud, it is imperative for people to be able to take on new challenges and be willing to attain new skills.
2. Accountability for cloud usage across all organizational levels: Given the decentralized nature of cloud spending, the accountability of cloud usage, spend forecasting, tracking, and optimization also demands decentralization. The new cloud paradigm challenges traditional business operating models, hierarchical mindsets, and siloed responsibilities.
3. 360-degree collaboration; willingness to break horizontal and vertical silos: Collaboration, both across functions and across organizational levels, becomes crucial. It is imperative for technologists to understand how their technology decisions impact business outcomes and cloud spend and for cross-functional business leaders to understand how their business decisions impact cloud spend.
4. Data-driven, real-time decision-making: Transparency, easy and timely access to cloud spend data, comprehensive chargeback or showback to individual business units, cadences for teams to analyze variances, and mitigating actions are paramount to make cloud spend predictable and optimized.
5. Innovation to drive standardization: Innovating cost-effective patterns and frameworks and creating enterprise standards makes it easy to scale and sustain cloud spend optimization.
1. Empower with training and development: People need to be empowered by knowledge. This includes technology teams and business leaders. Role-based training journeys that include cloud spend optimization and financial operations (FinOps) guide teams to derive the true value of the cloud and establish a common vocabulary to collaborate.
2. Share power through transparency and inclusion: Traditionally, financial management has been a responsibility of a privileged few with specialized skills and titles. However, financial success in the cloud requires sharing this power by making the relevant financial data and processes transparent and including broader teams to participate.
3. Create procedures to enable success: Simply lifting and shifting legacy procedures into the cloud is not an efficient, effective approach to realize the value of the cloud. Alternatively, allow teams to take ownership of their cloud usage by creating new procedural abilities and ritualistic spaces that promote 360-degree collaboration, transparency, and timely decision-making. This includes procedures for regular spend forecasting, cost variance analysis, tracking cloud provider optimization recommendations, spend estimation, and approval of new cloud initiatives. Additionally, standing governance meetings should be scheduled for all management levels to review cloud spend related topics and make timely data-driven spend-optimizing decisions.
4. Use metrics and key performance indicators (KPIs) to drive accountability: Managing to wrong metrics can take a business down a path of failure. For example, if the teams are solely measured against their cloud spend, teams will come up with a way to drive down spend, which could hurt performance and business value. Instead, measure material and actionable metrics that meaningfully drive optimized business outcomes.
5. Create psychological safety: To promote innovation, technologists should be able to challenge the business leaders and budgetary confinements to deliver what is necessary. Teams need to feel safe experimenting, making mistakes, and sharing lessons learned with broader teams to drive best practices and standards.
6. Reward desired behaviors: Humans are motivated to repeat positively recognized behaviors. A recognition program that rewards and showcases desired behavior will reinforce desired behavior and retain talent.
Sustained financial success in the cloud requires technology modernization as well as shifts in mindset, culture, and processes to interweave financial accountability into the fabric of the organization.
Ready to optimize your cloud spend to thrive in today’s turbulence? Fill out this form and we will be in touch!