Depending on how your business currently optimizes costs, you may find cloud financial management to be a valuable operating model for maximizing ROI in the cloud.
The cloud is full of buzzwords, and if your business practices business-focused, fully-automated cloud cost optimization, you could be forgiven for thinking cloud financial management is just a new phrase for optimizing cloud costs.
However, not every business optimizes cloud costs that diligently. Some conduct partial or occasional cost optimization exercises, while others who've already begun automating tasks have yet to align IT operations with business strategies. Consequently cloud financial management is an operating model for businesses to maximize ROI in the cloud. Or, to put it another way, optimize costs.
Evidence suggests most businesses are already practicing some elements of effective cloud financial management through existing cost optimization exercises, but not yet maximizing ROI in the cloud. Therefore, it’s just a question of identifying and filling the gaps in the business´s existing financial management in order to ensure the best use is being made of money spent on cloud services.
How a business goes about identifying and filling the gaps in its existing financial management will likely be influenced by its management hierarchy and the type of cloud environment it operates in (single public cloud, hybrid cloud, or multi-cloud). As with any project of this nature, it is important to have the right people, the right processes, and the right technology in place for the project to be successful.
The First Step to Effective Management is a Cloud Center of Excellence
Ideally, every business should have a cross-functional team of employees assigned to a Cloud Center of Excellence. A Cloud Center of Excellence with the skills and authorities required to manage finances in the cloud, rather than a siloed FinOps team, is more likely to make decisions that align IT operations with business strategies and make decisions that don't sacrifice one department´s needs for another.
A further benefit of a cross-functional team is that there is less likelihood of Line of Business “Shadow” IT environments developing. Shadow IT environments eliminate any prospect of maximizing ROI in the cloud because of duplications, incompatibilities and a lack of control. However, by involving employees from each Line of Business in the team, it is possible to develop an all-inclusive cloud strategy.
How to Identify Existing Gaps and Prevent Future Gaps
The best way to identify existing gaps in a business´s cloud financial management is to conduct an audit of what resources are being used in the cloud. In order to do this, IT professionals will require total visibility of the business´s cloud environment - something that is not always possible with cloud-native tools, and usually best obtained by a multi-cloud management solution such as CloudHealth.
Once every resource is identified, measures can be taken to fully optimize costs depending on the cloud platform(s) being used (see our best practices guides for AWS, Azure, and Google Cloud). Thereafter business-focused cloud governance policies should be developed to prevent future gaps appearing in the business´s cloud financial management (you can read more about cloud governance policies here).
Bringing the Cloud Financial Management Model Together with Technology
Whereas the Cloud Center of Excellence fulfills the criteria for having the right people, and cloud governance policies fulfil the criteria for having the right processes, the factor that brings the cloud financial management model together is technology - specifically technology that monitors cloud activity to ensure cloud governance policies are being adhered to.
Due to the dynamic nature of cloud computing, it is virtually impossible for an individual - or a team of individuals to monitor cloud activity. Cloud management platforms with policy-driven automation capabilities overcome this problem by notifying managers when cloud activity goes beyond the parameters of the business´s cloud governance policies or by taking manager-defined actions.
How Policy-Driven Automation Works in Greater Detail
To best explain how policy-driven automation can help enforce the cloud governance policies, let´s say each department within the business is set a monthly budget for cloud costs. Budget owners can create policies to be informed when month-to-date spend is projected to exceed their budgets. If they receive a notification, they can then investigate the reasons for overspending.
Similarly, financial management policies can be created to alert budget owners if costs increase by a user-defined percentage within a user-defined time period (i.e. by 10 percent within a week). These cost trend policies can be configured by department, product line, function, or even by individual applications in order to get ahead of issues at a granular level before the issues become expensive.
Business-Focused, Fully-Automated Cloud Cost Optimization
For businesses conducting partial or occasional cost optimization exercises, policy-driven automation provides a way to practice full, ongoing automation around the clock. Policies can be created to alert budget owners to unused resources suitable for termination, or to under-utilized resources that are candidates for rightsizing. The process also works in reverse by alerting budget owners to over-utilized resources that should be upgraded in order to improve performance.
Other cloud cost optimization best practices that can be automated include the management of committed use discounts (i.e. AWS´ Reserved Instances), the scheduling of start/stop times for non-production workloads, and the identification of infrequently-accessed object storage that can be moved to a less expensive storage tier - or the identification of data in a cold storage tier that is generating additional costs due to the frequency at which it is being accessed.