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This guide covers Cloud Financial Management (CFM) in full detail from the basics of CFM to best practices you can employ for cloud financial success.
As companies migrate to the cloud, they often overlook costs, instead focusing on innovation, speed, and flexibility. They assume the cloud is inherently cost-effective and less costly than on-premise infrastructure.
As they expand their cloud operations, though, organizations soon realize that the same things that make the cloud alluring and extensively flexible, can also potentially push usage bills way beyond budget. Companies can struggle to find a balance between innovation and rising cloud costs.
It’s because of these challenges that strategic organizations saw the need to implement Cloud Financial Management. Although the concept itself is still new, its results have been positive across not only large enterprises, but also small to medium-sized businesses.
To better highlight the benefits of Cloud Financial Management (CFM), this guide covers the practice in full detail from the basics of CFM to principles you can employ for cloud financial success.
Table Of Contents
Cloud Financial Management is the process of measuring, monitoring, and optimizing cloud costs. It’s made up of several procedures and tools that combine to help organizations regulate their cloud spend — in a way that maximizes their cloud investment.
Why is this important?
While the cloud inherently comes with several issues, cloud spend is one of the top barriers to driving real business value. In a research survey conducted by IDG, cloud users admitted that their cloud operations were consistently being disrupted by rising service bills.
40% of the enterprises identified insufficient cost control as the number one obstacle to drawing value from the public cloud.
This comes at a time when more than two-thirds of organizations across every industry have already adopted the cloud. Their emphasis on cloud innovation has led many of them to scale their cloud resources without taking into account the resultant cost and value implications.
That’s precisely what Cloud Financial Management tries to remedy. The goal is to safeguard business value by maintaining a favorable balance between innovation and usage costs. You can think of Cloud Financial Management as a process for optimizing not only cloud costs, but also usage, and resource scaling.
However, Cloud Financial Management is not only about cutting cloud costs. Cost reduction may only be one of many goals. Cloud Financial Management can drive more than just cost benefits. It can also enhance business agility, operational resilience, and staff productivity.
If you’ve read our FinOps guide, you may have noticed a number of similarities between FinOps and Cloud Financial Management.
So, what’s the difference between the two? Is there a connection or do they happen to run separately?
FinOps, short for Financial Operations, is a system of procedures and tools that consistently seek to find an ideal balance between performance, quality, and cost for the sake of achieving financial accountability in variable cloud spending models.
These approaches can help you achieve significant cost savings. But, that doesn’t always have to be the case. Mature FinOps teams are known to stretch beyond basic cloud spending analytics. Instead of restricting themselves to cost savings, they may set their processes to monitor cloud costs based on business success factors.
Put simply, cost doesn’t necessarily have to be your principal focus. You could, instead, structure your FinOps to prioritize business productivity parameters like delivery speed, while the corresponding cloud costs would follow as the secondary consideration.
Whichever priority sequence you choose to follow, the fundamental objective of FinOps is to empower business stakeholders with comprehensive cost insights and visibility into their cloud operations. You can then use that insight to make strategic decisions on what to optimize for the sake of achieving better business outcomes — such as how to increase profit margins.
The FinOps Foundation takes all this into consideration and then sums up the whole process as a cycle of these three fundamental phases: Inform, Optimize, and Operate — which we cover in full detail here.
When you compare all these guidelines with the Cloud Financial Management principles, it’s fair to conclude that the two are one and the same thing. Even the FinOps Foundation itself explicitly refers to FinOps as a short-form for “Cloud Financial Operations”, “Cloud Financial Management”, or “Cloud Cost Management”.
When implemented properly, Cloud Financial Management can benefit your organization in the following ways:
Cloud Financial Management tools integrate with your cloud ecosystem to monitor not only service usage bills, but also the operations, tasks, and resources that drive them.
With this, you should be able to monitor a wide range of cost factors across your cloud environment. This cost insight is vital to identify the specific applications, projects, teams, and departments that are impacting your cloud costs.
Another area where you could leverage this cost insight is budgeting. You can review your past usage trends and then use the corresponding cost information to predict future cost patterns.
Once you find relevant metrics from your usage bills and cloud operations, Cloud Financial Management can help you control, optimize, or reduce costs through cloud cost optimization.
Cost optimization helps you to identify and eliminate unutilized resources that result in wasted spend, applications that disproportionately consume your cloud resources, redundant integrations, and more.
Beyond that, you can discover multiple cost minimization opportunities. For instance, you could group and consolidate different resources, downscale packages without compromising performance, streamline your cloud operations, set up resource sharing across different departments, as well as build a cost-efficient hybrid system.
As part of ensuring minimal usage costs, Cloud Financial Management tries to keep you fully compliant with your cloud budget.
The budget itself is defined based on your past usage patterns, as well as your business growth plans. Then when it comes to implementation, automated tools compare the predefined budget figures with your spending to keep you from exceeding the limits. In case of any anomalies or usage irregularities, you’ll be notified accordingly for corrective actions.
While running Cloud Financial Management processes, FinOps teams should consider prioritizing the following:
Since the principal objective of Cloud Financial Management is to help organizations realize the business value of the cloud, you should set your system to achieve a favorable balance between cost, quality, and performance.
For example, instead of randomly downscaling resources to cut costs, you should secure all the assets you need for business agility, operational resilience, and staff productivity.
Although costs might increase, such a strategic move would ultimately push your profit margins much further than you would have with reduced costs. Before moving forward with cost reduction or optimization, you should take into account the impact this might have on business outcomes.
Before you leverage cloud services, you need a budget. You should always begin your Cloud Financial Management with an appropriate budget — based on your standard usage patterns and projected needs.
Creating a cloud budget is often easier said than done because of many unknowns. Organizations may find it difficult to comply with figures over time, as cloud processes tend to be dynamic with constantly changing needs and parameters.
Use cost and usage insights to come up with realistic budget forecasts, and then set up an automated alert system that’ll keep you compliant with your budget figures. If the usage bills happen to hit the preset budget limits, you’ll receive alerts to help you prevent cost overruns.
Cloud cost management isn’t just about dedicated resources and assets. You should expand the Cloud Financial Management framework to cover even shared costs.
While cloud platforms don’t typically provide functionalities for managing shared costs, Cloud Financial Management tools try to make things easier for you. You can manage shared costs by tracking user groups separately, reviewing their individual usage costs, allocating budgets accordingly, etc.
As you track resource usage and the corresponding bills, you’ll get the chance to identify various cloud waste instances. These are the underutilized cloud resources that progressively attract extra charges on your bills. So, of course, you can treat them as cost optimization opportunities — as they offer a simple and straightforward way to reduce your cloud costs.
It’s worth noting, however, that while some cloud waste instances are obvious, others are not. A resource allocation might appear underutilized only to negatively affect your overall performance after elimination.
Therefore, don’t be quick to draw conclusions here. You should, instead, base your decisions on the insights provided by Cloud Financial Management tools, along with your analysis of the business operations.
Cloud Financial Management procedures are never identical across organizations. They differ quite extensively in structure, architecture, reach, tools, analytics, and efficacy from one cloud user to another.
So, while some Cloud Financial Management systems manage to effectively empower businesses, others struggle with inconsistencies and a poor performance record.
Here are some of the best practices that make all the difference — and can help you achieve Cloud Financial Management success:
Since each organization is different, priorities tend to vary broadly from one cloud user to another. Every single one has its own public cloud preferences and requirements, which should be replicated directly on their accompanying Cloud Financial Management plan.
You can start by establishing a set of clear goals based on your business needs, industry categories, organization size, the scale of operations, technical expertise, cloud environments, and overall budget. This will provide a foundation on which you can model an appropriate Cloud Financial Management plan.
If you’re building a startup, for instance, you might be interested in a Cloud Financial Management system that can effectively facilitate product launches and market rollouts.
Established enterprises in highly competitive industries, on the other hand, might prioritize cost reduction and delivery optimization — while other brands would be more concerned about platform reliability and scalability.
The list of possibilities here is endless. So, don’t settle for a generic goal. You should break it down in detail for a personalized Cloud Financial Management plan.
Cloud Financial Management is not a one-man show. Nor is it an operation for a single team or department.
Even organizations that have a dedicated FinOps team don’t leave it all to the practitioners. While FinOps professionals are typically at the center of Cloud Financial Management, the whole operation relies on multiple teams and departments across the entire organization.
The cloud strategy team, for instance, determines the precise business outcomes for cloud adoptions, while the cloud governance team is concerned with mitigating cloud risks through solid corporate policies. Some businesses even come with cloud adoption teams, which are rather tasked with cloud tech deployment.
All these and many other IT-focused teams are essential to Cloud Financial Management. The success of the entire framework depends on not just their individual skills, but also how they collaborate with each other.
Consequently, you might want to brief all the departments about their roles, as well as maintain a collaborative environment that encompasses all the stakeholders.
As the public cloud develops, it gets more dynamic and complicated. AWS itself has morphed its infrastructure to offer not only On-Demand Instances, but also Spot Instances, and Reserved Instances — all of which come in the form of different categories and classes of EC2s.
While users appreciate all these options and the resultant flexibility, keeping up with such an architecture can be pretty challenging. In fact, it’s technically and logistically impossible for organizations to perform in-depth Cloud Financial Management with precision — unless they seek assistance from automated software tools.
At the very least, you should be able to automate resource allocation, usage monitoring, and cost billing. But, that’s not all. When you combine the default platform tools with integrable third-party assets, you get the chance to automate the full lifecycle — from goal setting and resource tracking to cost optimization and incidence resolution.
Speaking of automation, one particular category of Cloud Financial Management tools you should prioritize is cloud cost intelligence software. This specialized software is designed to help you measure and monitor cloud costs — and the engineering decisions that impact those costs.
Cloud cost intelligence software acts as a core data and cost metrics tool that gives you the cost insight you need to make informed engineering, product, and business decisions that will affect your cloud spend.
However, you may notice that they are not always the easiest tools to use — and it can be difficult to get the cost insights you need from these platforms. Amazon’s billing and usage reports are incredibly complex, particularly if you’re trying to track multiple teams. You’ll likely even find yourself manually slicing your bill and crunching numbers to find the data you need.
Thankfully, there is a better option. Using a full-fledged cloud cost intelligence platform, like CloudZero, you can uncover cost metrics that are difficult to measure using native AWS cost tools — or even legacy cloud cost management tools.
CloudZero is a cost intelligence platform that aligns cloud spend with the metrics you care about, allowing you to measure costs such as unit cost, COGS, cost per customer, feature, product, dev team, and more.
Additionally, CloudZero empowers engineers to see the cost impact of their work and be able to better report on cost metrics to finance. Engineering teams can drill into cost data from a high-level down to the individual components that drive their cloud spend — and see exactly what AWS services cost them the most and why. Automated cost anomaly alerts also keep teams from overspending.
Combine all of this with expert cost optimization recommendations from a CloudZero Cost Intelligence Analyst, and you have a platform that is complete for helping organizations to manage, optimize, and control their cloud costs. Request a demo today to see how CloudZero can help your organization succeed in Cloud Financial Management.