Over the last several years working at Microsoft and AWS, I have seen large enterprise customers struggle with adopting cloud. Lack of cloud education and skills across finance, procurement, engineering, security and other functions has contributed to a state where people are learning by making mistakes, often costing enterprises a lot of time and money. For instance, a recent study by RightScale (acquired by Flexera) estimates 35% of cloud spend (~ $10B) is wasted.
While the complexity of cloud adoption spans across multiple functional areas, in this post I’ll focus on the financial aspects of cloud adoption. Cloud Financial Management (CFM) is a System and a Discipline that maximizes returns for its stakeholders, as enterprises must manage resources effectively during the transition from traditional capex models to opex models enabled by the cloud. The system part of CFM includes measurement, optimization, and forecasting of spend.The discipline part includes automated and transparent flow of information across functions. Together they drive a collaborative culture focused on a single goal – maximize the return on cloud spend.
Most vendors and studies I have seen focusing on cost optimization strategies miss out the bigger picture of CFM. Don’t get me wrong – these studies are great as they point to common pitfalls and missed opportunities (such as in AWS case – use Reserved Instances or Savings Plan, right size instances, measure utilization, and shut down unused or underutilized assets leveraging AWS Cost Explorer, CUR, and other reporting).
My intent from this post is to bring your attention to a key point often missed by others – Associate your business metrics to your cloud spend and create an organization culture where maximizing the return on spend is everyone’s job – engineering, finance, procurement, operations, and other functions. Once you have this culture in place, smart folks in your organization will collaborate to identify what’s a good spend (one which drives the business metrics) and what’s wasted. For the wasted spend, they’ll chase down all opportunities to eliminate it using internal measures (via revised architectures and operational controls) as well as external measures (e.g. negotiating with cloud vendors).
As an example, Lyft went all-in on AWS committing $300M over 2 years to AWS and presented at AWS Re:Invent 2019 on how they are establishing CFM at Lyft. While Lyft’s is a great story, what worked for them may not work for you.
For what it’s worth, here is my humble guidance:
If you are just starting your cloud journey, just as you’d put a security framework in place to comply with your organization’s security and compliance policies, put a CFM and governance model in place before you unleash your DevOps teams. Setting up a cloud center of excellence (CCOE) at the outset would be a good way to accomplish this objective.
If you are already on cloud and are scaling, you need to think about the readiness of your organization and devise a plan to establish CFM in your organization. Here are some basic questions to get you started –
- If you are in C-suite, do you have a good understanding of cloud as a potential vehicle to help your business grow faster and provide a competitive advantage?
- Is your finance team formally educated on Cloud 101, and has a good understanding of controls, guardrails and levers offered by the cloud provider (e.g in AWS case, at the very minimum – AWS Cost Explorer, Cost and Usage Reports, AWS Budgets, AWS Organizations, cost differentials across regions, data transfer costs, on-demand instances, spot instances, reserved instances, savings plan, resource tagging)
- Are your engineering teams educated on cost aspects of their architectures and following “Well-Architected” practices as published by cloud vendors?
- Do you have the tools/technology in place that allow your functional teams to collaborate in context ? (Emails and spreadsheet exchanges aren’t the most efficient ways). For instance, what’s the approval process for an architectural change that’s going to result in exceeding the forecasted spend? Oh .. wait, do you even have a well defined process for forecasting cloud spend?
- How do product managers or business leaders create a view of COGS and margins when your cloud spend is spread across multiple accounts spanning dev, test, staging, and production? Can that process be improved and automated?
Regardless of where you are in your cloud journey, establishing a robust CFM as core to your growing business would serve you well, maximizing your return on cloud spend