Cloud Financial Management (CFM) is a function that helps you continuously optimize and align cloud investments to strategic business initiatives, within the context of your Cloud Center of Excellence (learn more about how to build your CFM function here).
Within the CFM function, there are four phases of maturity: visibility, optimization, governance and automation, and business integration. These phases follow a logical flow to help your business implement best practices and instill a culture of financial awareness and accountability.
But what does implementation of these best practices look like? Let’s dive into some of the ways the CloudHealth platform can help you build a successful CFM function for your organization (you can download the technical report here).
Improving cloud visibility
Visibility into cost is the initial phase of CFM, where organizations are looking to understand their cloud spend by team, department, or application, forecast based on historical data, and make budgets more accurate and predictable.
Taking these visibility improvements a step further, many organizations are performing chargeback and showback to map actual charges by line of business or groupings as specified for cost and billing validation.
The first step to improving visibility is developing a consistent tagging strategy to better identify and allocate spend and usage. As a best practice, your organization should develop tagging guidelines to ensure consistency in terms of naming conventions, capitalization, abbreviations, etc.. For example, are you standardizing tags to have [lob name]_[environment] (e.g. ch_prod)? Owner vs owner? production vs prod? Once all lines of business agree to adhere to the tagging guidelines and tag their assets appropriately, tags can then be used to filter, search, and allocate assets in reports.
Within CloudHealth, we take tagging a step further with Perspectives, which are dynamic business groups. The most common Perspectives include Product, Team, Owner, Environment, Business Unit, Function, and Cost Center. Each Perspective contains Groups, for example the Environment Perspective might include Groups for Production, Development, Test, and Staging. Assets can only belong to one group within a Perspective, for example the same asset would not be in the Production Environment group and the Development Environment group. On the other hand, the assets can belong to a group within different Perspectives, for example, an asset can be in the Production Environment Group and the Engineering Cost Center. Perspectives are pervasive throughout the platform, and are available as filters in reporting, policies, and recommendations.
Optimizing your cloud spend
Organizations with scaling public and multicloud footprints are often seeking areas where cloud spend can be optimized. Three effective ways to achieve this are by rightsizing infrastructure, terminating any assets that are running and in an idle state (zombies), and taking advantage of cloud provider pricing discounts.
As an example, zombie infrastructure are assets that are incurring costs but are not being used. They can come in many forms, such as compute infrastructure, databases, unattached storage volumes, disassociated IPs, and more. Within the CloudHealth platform, ‘zombies’ can be identified in several ways, including the Health Check Pulse Report, the Rightsizing Recommendations, or through governance policies.
In the CloudHealth Azure Health Check Pulse Report, the Immediate Savings section will report on the cost associated with zombies (see below).
Setting governance policies and automating repeatable tasks
Governance is the process of defining best practices, and then getting notified (or taking action) when infrastructure is out of compliance or has “drifted”. CloudHealth policies give you a simple and effective way to eliminate noise, and focus on key indicators that help you maintain centralized governance across your environment. Policies consist of a set of rules that enable you to govern various aspects of your cloud infrastructure, such as cost, security, performance, configuration, and usage.
When overall costs in your cloud environment increase suddenly, it could be a leading indicator of a larger problem. Many of our users create policies to identify unexpected cost increases. One best practice is to set a policy to alert you if your total cloud bill increases by more than a certain percentage within a specified time interval—e.g. 20% over the course of one week. Additionally, you can create this policy based on the service items you spend the most money on such as: Amazon EC2, Azure Virtual Machines, GCP CloudSQL, Azure Storage Accounts, etc., and further narrow the scope of the policies using Perspectives.
Driving collaboration with business integration
The ultimate goal of Cloud Financial Management is to have cloud costs fully integrated into finance systems to enable chargeback/showback and report on cost of goods sold (COGS) to drive accountability and improve gross margins. To achieve this, organizations must drive a change in behavior and development across teams or lines of business. Some of our customers have referred to this as driving a culture of ‘Cost Consciousness’. This behavior can be influenced or driven through gamification among teams, the availability of integrations and APIs, and metric alignment.
As an example, let’s dive into how organizations have driven a cost-centric culture by gamifying optimization among teams or lines of business. These organizations will share out custom reports and dashboards from CloudHealth to track where teams are in terms of adhering to budget, utilizing reservations, and so forth. In some cases, they use the data from CloudHealth to create their own leaderboards within their offices.
In this sample custom dashboard below, an Engineering team is analyzing their AWS cloud spend by project and owner respectively. On the left, they can see that the department is spending the most money on the Tour project. On the right, they can identify the individuals who are driving the most spend, and in this case Madolyn and Peter are consistently the top spenders. This is a way for this Engineering team to gamify among Project teams and Owners in order to hold each other accountable for their cloud spend.
If you want to learn more about how you can build your own Cloud Financial Management function, check out our technical report. The report provides detailed best practices across visibility, optimization, governance and automation, and business integration, using the CloudHealth platform.