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AWS Cloud Financial Management 101: The Definitive Guide

This guide covers AWS Cloud Financial Management (CFM) in full detail from the basics of CFM to best practices you can employ for cloud financial success.

Is your current cloud cost tool giving you the cost intelligence you need?  Most tools are manual, clunky, and inexact. Discover how CloudZero takes a new  approach to organizing your cloud spend.Click here to learn more.

As companies migrate to the cloud, many often overlook costs and instead focus on innovation, speed, and flexibility. The assumption is that the cloud is inherently more cost-effective than on-premises infrastructure.

As organizations expand their cloud operations, they quickly realize that the same factors that make the cloud so enticing and flexible are also what can push usage bills way beyond budget. Many struggle to strike a balance between cloud innovation and costs.

Strategic organizations on AWS saw the need for Cloud Financial Management as a result of these challenges. While the concept is still new, its results have been positive not only for large enterprises but also for small and medium-sized businesses.

This guide covers AWS Cloud Financial Management (CFM) — from the basics to how you can use it to increase cloud cost savings, revenue, profitability, productivity, and operational resilience.

What Is Cloud Financial Management?

Cloud Financial Management is the process of identifying, measuring, monitoring, and optimizing cloud costs. It consists of procedures and tools that enable organizations to manage their cloud spend — in a way that maximizes their investment in the cloud.

Why is this important?

Unexpected cloud spending remains one of the top barriers to realizing business value. In a research survey by IDG, cloud users admitted their rising service bills consistently disrupted their cloud operations.

According to 40% of the enterprises surveyed, a lack of adequate cost control was the leading obstacle to gaining value from the public cloud.

This comes as more than two-thirds of organizations across all industries have already adopted cloud computing. Many of them focused so much on cloud innovation that they neglected to consider the real cost implications of scaling cloud resources from the start.

That’s precisely what Cloud Financial Management tries to remedy.

The goal of this strategy is to maintain a favorable balance between improving customer experiences and managing cloud resource usage costs. Cloud Financial Management aims to optimize not only cloud costs, but also usage and resource scaling.

Cloud Financial Management is not solely about cutting cloud costs. Reducing cloud costs is only one objective. It can also improve business agility, operational resilience, and staff productivity.

In 2020, 451 Research surveyed 500 enterprise decision-makers. The firm found that organizations that proactively implemented CFM increased revenue (67%), profitability (64%), staff productivity, and operational resilience.

The study was done in collaboration with Amazon Web Services (AWS), the world's largest public cloud provider. Among the findings were:

  • When companies practiced CFM on AWS for 2-3 years, they saw a 51% reduction in costs
  • Cloud billing reduced by 60% for those with over 5 years of AWS cloud financial management

AWS' involvement is interesting. Let's talk more about it.

What Is AWS Cloud Financial Management?

This approach tailors CFM specifically for organizations with applications, data, and other workloads in the Amazon Web Services (AWS) public cloud. The aim is to help these organizations plan, manage, and optimize their cloud costs in the AWS public cloud infrastructure.

AWS Cloud Financial Management is also ideal for companies that are building native cloud applications, migrating some of their workloads to the cloud, or expanding their use of public cloud services.

The AWS platform provides a variety of features, cost tools, and best practices that can help with that. For example, using AWS rightsizing capabilities, teams can allocate just the right amount of resources to specific infrastructure components or applications to increase business value indicators, such as productivity and better customer experiences, while reducing AWS cloud costs.

Cloud Financial Management in AWS is a continuous process. AWS billing is also based on usage. Consequently, the more efficient your cloud workload, the fewer resources you need to run it — and hence, the lower the cost of operating it.

What are the four key areas of AWS Cloud Financial Management?

AWS enables companies to SEE where costs are coming, RUN operations with minimal cost surprises, PLAN for dynamic cloud usage, and drive COST SAVINGS while maximizing business value.

In AWS, Cloud Financial Management covers three aspects: use case, capability, and ideal tool/ resource. By using them, you can:

  • Manage cloud financial planning
  • Forecast and budget costs
  • Use consolidated billing for cost control
  • Reduce your AWS bill using AWS pricing optimizations

In other words, AWS Cloud Financial Management also involves forecasting, budgeting, monitoring, and controlling cloud spend.

But as many organizations have figured, not everyone has been happy about their surprise AWS bill.

What are some AWS Cloud Financial Management challenges?

In addition to poor cloud cost visibility, understanding AWS billing and overcoming endless tagging are some of the challenges of practicing Cloud Financial Management in AWS.

Many companies do not understand how AWS comes up with its monthly AWS bill, for example.

Now, picture this:

Excel Spreadsheet

Rather than provide actionable insights to help businesses understand what, where, who, and why their cloud spend is as much as it is, this AWS billing invoice reads like a computer programming script.

In contrast, using a platform like CloudZero, you can break costs down into meaningful metrics like cost per customer, per product, per feature, and more.

Understand Your Cloud Costs

With this detailed, yet easily digestible cost insight, you'll be able to figure out which features are most expensive to run and maintain, so you can either consider including them in your premium pricing tiers or decommissioning them.

CloudZero's cost per customer analysis can also help you determine how much it costs to support a particular customer, as shown below:

CloudZero aligns cloud costs to key business metrics, such as cost per  customer or product feature. Our Cost Per Customer report allows teams to see  how individual customers drive their cloud spend and how much specific  customers cost their business. With cloud cost intelligence, companies can make  informed engineering, business, and pricing that ensure profitability.Click  here to learn more.

When you have this level of cost intelligence, you can identify which customers you'd like to talk to at renewal because they're consuming more resources than you expected when you onboarded them or first discussed pricing with them.

But if just want to see the basics, for now, you can get a quick sense of cost and usage with tools like AWS Cost and Usage Report and AWS Cost Explorer, like this:

AWS Cost Usage

Credit: AWS

However, to get this view in AWS, DevOps and finance teams need to develop and implement a near-perfect AWS tagging strategy. If you've tried creating a unified and comprehensive tagging plan, you know it can be one of the most challenging parts of AWS cost management. Read more about how to create an AWS tagging strategy step-by-step here.

Cloud Financial Management Vs. FinOps: What’s The Relationship?

As you might have noticed from reading our FinOps guide, Cloud Financial Management and FinOps share many characteristics.

How do the two differ then? Do they have a connection or do they run on their own?

FinOps, short for Financial Operations, is a combination of procedures and tools that continuously seek to balance performance, innovation, software quality, and cost savings in the variable cloud spending model.

Yet, monitoring cloud costs doesn’t necessarily have to be your principal focus. Instead, you could structure your FinOps to prioritize business productivity parameters, like delivery speed, with cloud costs as a secondary consideration.

Regardless of which priority sequence you follow, FinOps' fundamental objective is to provide business stakeholders with comprehensive cost insight and visibility into cloud operations.

Using that insight, you can then make strategic decisions on what to optimize to increase your profit margin.

The FinOps Foundation summarizes all of this as a cycle of three fundamental phases:

As the FinOps Foundation itself explicitly indicates, FinOps is a short-form for "Cloud Financial Operations", "Cloud Financial Management", or "Cloud Cost Management".

Cloud Financial Management Benefits: How Can CFM Help Organizations?

Implementing cloud financial management properly offers the following benefits:

1. Keep track of your cloud spend

With Cloud Financial Management, you can monitor not only your service usage bills, but also the operations, tasks, and resources that underlie them.

This should enable you to monitor a broad range of cost factors related to your cloud environment. You can use this insight to identify the specific applications, projects, teams, and departments that are driving your cloud costs.

Budgeting is another area where you could use this insight. You can take past usage patterns and cost information and review it to help you predict future usage patterns.

CloudZero allows engineering teams to drill down and inspect the specific  costs and services driving their product, features, and more. Group costs by  feature, product, service, or account to uncover unique insights about your  cloud costs that will help you answer what’s changing, why, and what you can do  about it.Click here to learn more.

2. Cloud cost optimization

Once you've identified key metrics from your usage bills and cloud operations, CFM can help you control, optimize, or reduce cloud-related costs.

Optimizing costs involves identifying and removing unutilized resources, redundant integrations, and wasteful processes. Yet if you don't have enough visibility into your cloud resources, you won't be able to know where you can pull strings to cut costs without sacrificing system performance. But full visibility can help you identify multiple options for cost minimization.

Get Relevant Cost Visibility

With this granular cost insight, you can easily group and consolidate different resources, downscale packages, share resources across different departments, or even build a cost-efficient hybrid system.

3. Create and stick to a cloud budget

You can define an accurate cloud budget based on your past usage patterns and business growth plans. Once you set a budget, automated tools check your spending against your predefined limit to ensure you don't exceed your budget.

But in case costs increase, some CFM platforms, like AWS, provide cost anomaly detection. This is an alerting feature that detects trending cost metrics in your infrastructure, flags them, and sends an email alert to the designated individual or team.

Other advanced platforms like CloudZero, let engineers, finance, or DevOps teams receive timely cost alerts on Slack, email, or via text messages.

Unexpected cost fluctuations can cost your company thousands of dollars if  left unchecked or unspotted. To prevent expensive cost overruns, CloudZero uses  machine learning to identify cost anomalies when they happen and immediately  alert the teams who need to know via Slack.Click here to learn more.

What Cost Factors Should Teams Monitor?

FinOps teams should prioritize the following during Cloud Financial Management processes:

The business value of the cloud

The primary objective of CFM is to help organizations realize the business value of the cloud. So your system needs to be designed to achieve a balance between quality, cost, and performance.

For example, rather than reducing costs by randomly downscaling resources, you’ll want to target specific areas that, when cut, will still ensure optimal performance, operational resilience, and business agility.

Avoid overspending

You need a budget to guide your cloud services usage. Cloud budgets can be tricky to create because there are many unknowns. For example, the cloud is highly dynamic, with parameters and resource needs that are constantly changing.

However, you can use a cost tool to collect cost and usage metrics in your cloud environment. By analyzing that historical data, you can better allocate resources at the start of the next AWS billing cycle to avoid guessing how the following cloud bill will turn out.

To further prevent overspending, you can set up an automated alert system that’ll inform you of changing cost indicators in real-time before you exceed your budget.

About shared costs

Cloud Financial Management isn’t just about optimizing costs for dedicated resources and assets. It should also encompass shared resources. Yet cloud platforms typically don't provide functionality for viewing and managing shared costs.

AWS Cloud Financial Management offers some tools for tracking shared costs. However, FinOps teams can use advanced solutions like CloudZero to track separate user groups, review each group's usage costs, and allocate resources accordingly.

Cloud waste

The more you track resource use and corresponding bills, the more you'll be able to spot cloud waste. Cloud waste refers to underutilized, overutilized, or unused cloud resources that are progressively adding to your bills.

While some cloud waste instances are obvious, others are not. You might see a resource allocation as underutilized, only to see it have a negative impact on your overall performance after terminating it.

Be careful not to jump to conclusions. Instead, you’ll want to rely on solid CFM data to inform your decisions.

Cloud Financial Management Best Practices

Organizations never follow the same CFM procedures. They differ quite considerably in terms of structure, architecture, scope, tools, and goals among different cloud users. Still, there are some standard best practices that any organization in any industry can use to improve their Cloud Financial Management efforts.

Here are some of the best practices that can make all the difference and help you succeed in Cloud Financial Management in AWS or another platform:

1. Establish clear goals

Each organization has different goals and priorities. So, the first step is to establish a clear set of goals based on your business’s unique needs, such as operational scale, technical expertise, and budget.

As a startup, you might need a CFM plan that focuses on how to launch products cost-effectively to drive market penetration.

A fast-growing company on AWS may want to create a CFM strategy that prioritizes scalability with cost controls to protect margins.

More established enterprises in highly competitive industries might prioritize cost savings and feature release optimization.

There are countless possibilities here. So, don’t settle for a generic plan when you can create a plan that caters to your specific growth and profitability needs.

2. Always collaborate

It takes more than one person to implement a solid CFM strategy. It isn't an operation for a single team or department, either. It is an entire organization’s effort.

As an example, the cloud strategy team determines what business results will come from adopting the cloud.

The cloud governance manager mitigates cloud risks by developing and managing cloud usage policies. Engineers innovate new features to attract and keep customers. Finance teams are responsible for ensuring cloud investments return a healthy ROI. Yet these interests tend to conflict, especially between.

One way to solve that is to ensure different stakeholders in the organizations are in alignment. Read how to effectively align engineering and finance teams here.

3. Automate your way to increased productivity, fewer errors, and quicker cost savings

As public clouds grow, they become more complex and dynamic. For example, AWS offers On-Demand Instances, Spot Instances, and Reserved Instances, which are all different pricing models for AWS compute services.

While users appreciate these choices and the resulting flexibility, taking advantage of the right plans for their specific needs in real-time can be challenging. Automated software tools can help here.

A good cost tool can help you automate cloud cost monitoring, reporting, and cost anomaly alerting. That’s not all.

You can also automate the entire lifecycle — from goal setting and resource tracking to cost optimization and incident resolution — when you combine a cloud provider’s native tools with advanced third-party tools.

4. Trade traditional cost management for cloud cost intelligence

The majority of cloud cost management tools get a bad rap for over-relying on clunky traditional approaches that do not make CFM easier, faster, or more actionable.

In contrast, cloud cost intelligence is a modern approach to Cloud Financial Management that enables cost-conscious teams to detect, monitor, and control cloud costs with precision.

Instead of simply viewing their total cloud costs, teams can use this method to view how much each individual customer, development team, engineering project, or product feature cost them in a given month.

AWS does offer several native tools that can be helpful for CFM. Notable examples include AWS Cost and Usage Report (CUR), AWS Budgets, and AWS Cost Explorer. These are also free if you operate in the AWS cloud.

The problem with them is they do not provide granular costs that can help:

  • Engineers to identify which engineering projects, teams, or product features are driving cloud cost changes.
  • Finance professionals to tell how to set the right pricing to cover their cost of goods sold (COGS) and improve profitability.
  • CTOs and CFOs to identify who, what, where, and how their cloud budget is spent.
  • Executives to compare their cloud costs with other similar companies so that they can improve their gross margins to attract investors.

AWS billing and usage reports are also quite complex, particularly when tracking shared resources and tenants. AWS cost management tools also struggle to analyze cost metrics coming from untagged and untaggable resources, and multi-tenant environments.

But, there is a better way.

Leverage Cloud Cost Intelligence To Modernize Your AWS Cloud Financial Management

With a full-featured cloud cost intelligence platform, such as CloudZero, you can uncover cost metrics that are difficult to measure with traditional AWS cost management tools.

The CloudZero platform empowers engineers, finance, and executives to measure unit costs, such as COGS, cost per customer, cost per product, cost per feature, cost per development team, and more.

CloudZero's real-time cost analysis helps engineers identify the cost impact of their architectural decisions while they are building, so they can develop cost-effective solutions. Cost-conscious engineers are also easier to align with finance and participate in cloud decision-making.

As engineers almost always notice cloud cost anomalies before finance teams do, CloudZero empowers engineers to understand costs and receive anomaly alerts to know what to do when they notice abnormal indicators — rather than waiting until finance can no longer do anything about it.

You also receive access to an expert Cost Intelligence Analyst who can support you with setting up and getting the most out of CloudZero.

CloudZero’s approach fits every budget and scale, whether you are a startup seeking revenue growth, a scaleup trying to attract investors, or an enterprise striving for higher profitability.

Request a demo today to see how CloudZero can help you reap the benefits of the cloud without burning a hole in your cloud budget.

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