Cloud Financial Management - Management and Governance Cloud Environment Guide

Cloud Financial Management

Managing cloud finance requires evolving your existing finance processes to establish and operate with cost transparency, control, planning, and optimization for your AWS environments. Cloud Financial Management (CFM) involves more than just reining in costs. It is about how to embrace the agility, innovation, and scale of AWS to maximize the value that the cloud provides to your business.

Applying traditional, static waterfall planning, IT budgeting, and cost assessment models to dynamic cloud usage can create risks, lead to inaccurate planning, and result in less visibility. Ultimately, this results in a lost opportunity to effectively optimize and control costs and realize long-term business value. To avoid these pitfalls, actively manage costs throughout the cloud journey, whether you are building applications natively in the cloud, migrating your workloads to the cloud, or expanding your adoption of cloud services.

CFM solutions help transform your business through cost transparency, control, forecasting, and optimization. These solutions can also help enable a cost-conscious culture that drives accountability across all teams and functions. Finance teams can see where costs are coming from, run operations with minimal unexpected expenses, plan for dynamic cloud usage, and save on cloud expenses while teams scale their adoptions on the cloud. Sharing this with engineering teams can provide necessary financial context for their resource selection, use, and optimization.

Organize and report with user-defined methods

To understand your AWS costs and optimize spending, you need to know where those costs are coming from. This requires a deliberate structure for your accounts and resources, to enable finance to track spending flows and ensure that teams are accountable for their portion of the bottom line. The M&G Guide recommends appointing a dedicated owner or team to develop, obtain stakeholder buy-in, monitor, and actively design and implement the cost allocation model to drive accountability and cost-conscious cloud consumption. Will you charge cloud and internal costs out to business function or product teams (internal chargeback)? Or, will you make the costs visible (show-back model)? The former drives accountability, but can be perceived as a tax. The latter requires less overhead to administer but may not drive as much accountability for costs.

Manage billing and control costs

Establish guardrails and set governance to help ensure that expenses stay in line with budgets. It is critical to establish basic governance policies to guide permissions and accessibility as related to cost control. Customers who are successful doing this have centralized ownership through designated teams, such as a Cloud Center of Excellence (CCoE), or a Cloud Business Office (CBO). These teams help design and implement governance mechanisms and drive best practices company-wide.

Use license management

Cloud Financial Management includes a perspective on vendor license management. License management validates compliance of your purchased assets across AWS. Aligning license management capabilities with your financial management can help you understand a complete cost picture and make appropriate procurement decisions as described in Sourcing and distribution.

Plan with flexible budgeting and forecasting

Once you’ve established visibility and cost controls, plan, and set expectations for spending on cloud projects. The tools and capabilities described in the M&G Guide are designed to give you the flexibility to build dynamic forecasting and budgeting processes, and help you stay informed on whether costs are adhered to, or exceed budgetary limits. They also help you act quickly in response to negative variances in forecasted spend, and mitigate risks of overspending and failing to meet the return-on-investment target.

Select a unit metric to support your business

Unit metrics allow you to normalize your cost and usage information to a common measure, and tie them back to your business outcome. These normalized metrics bring consistency, fairness, and clarity to your IT planning and evaluation cycle. You can use the unit metric to gauge how efficient your team uses technology resources, and you can also use it to forecast how much you need to invest as your business grows. The unit metric is a straightforward tool that helps you get buy-in and tell your IT value story inside your organization.

The objective of a unit metric is to present incremental cost or incremental consumption in terms of a unit of the demand driver. A demand driver is a factor that is correlated to AWS spend or AWS resource consumption. The quantity of AWS resources consumed and the cost of using those resources are directly impacted by increases or decreases in the demand driver. To learn more about this topic, refer to the Unit metrics blog.

Optimize costs with pricing and resource recommendations

Optimizing costs begins with having a well-defined strategy for your new cloud operating model. This should start as early as possible in your cloud journey, setting the stage for a cost-conscious culture reinforced by the right processes and behaviors. The M&G Guide recommends focusing on selecting the right purchase model and matching capacity with demand.