Financial Management Optimization Tips

Go Beyond FinOps With Cloud Financial Management

Go beyond FinOps with cloud financial management to continuously optimize and align cloud investments with strategic business initiatives.

As organizations scale in the cloud, it’s clear they need a new approach to managing and optimizing cost (in addition to managing security and streamlining operations). The problems of distributed teams, coupled with the rapid pace of change and limited visibility and accountability, are real and painful—especially when they lead to unpredictable cloud bills that eat into gross margins.

From time to time, our customers ask us if we’ve heard of the FinOps Foundation. And the answer is, of course we have! We have many customers who are part of it and CloudHealth is included as a Premier Member—it’s a platform for great conversations and a resource for solid best practices. Anything that gives organizations a place to collaborate and solve tough challenges together is generally a good thing.

There are a lot of good ideas in the FinOps “movement,” for example, the concept of enabling distributed teams to make informed decisions and be held accountable for their cloud spend is a powerful one (although not particularly new, this is just budgets right?). I also think that many of the cost optimization tactics that they offer are valid. And collaboration! Everyone likes collaboration. 

It’s important to remember, however, that FinOps is only one piece of the story, a stop along the way, towards a more strategic initiative that is a key component of the much broader Cloud Center of Excellence (CCoE). When I look at the most advanced users in the cloud, they’ve gone beyond FinOps and set up a framework that enables them to transform their infrastructure across cost, operations, and security in relation to business goals.

What I’m proposing here is an alternative to FinOps: cloud financial management. Read on to learn more about what it’s all about.

What is cloud financial management?

When it comes to driving success in the public cloud, many organizations find that the biggest hurdle they must overcome isn’t related to technology. Some of the most significant challenges organizations face are getting their people, processes, and tools to adapt to a faster-paced cloud-centric world.

To help close this gap, leading organizations are establishing a formalized Cloud Center of Excellence (CCoE), sometimes known as a Cloud Business Office, Cloud Strategy Office, or Cloud Program Office. The CCoE is a cross-functional working group that governs the usage of the cloud across an organization and drives best practices across functions. One of the three key areas of excellence is cloud financial management (CFM).

cloud center of excellence overview

The goal of CFM is to align and develop financial goals, drive a cost-conscious culture through best practices, establish guardrails to meet financial targets, and gain greater business efficiencies. This is what I mean when I say FinOps is just a small piece of a larger, more strategic financial initiative: 

blog-img-ccoe-fin.png

 

Capabilities of a mature cloud financial management function

Drive financial accountability and ownership across groups 

A cloud financial management function is a small cross-departmental group with representatives from finance, operations, and development leadership (versus individuals). One of the core tenants of FinOps is that engineers should consider cost and margins when they are deploying infrastructure. Developers are the lifeblood of technology organizations. Our goal should be to have as little friction as possible between them and their ability to deliver value for customers. That’s why a mature CFM function establishes guardrails to asynchronously govern costs, while ensuring no sacrifices are made to developer productivity.

Make business decisions based on accurate ROI analysis

Businesses are not exclusively driven by cost savings. If you save costs at the expense of delivering innovation that could drive top line revenue, was that really the right choice? In other words: cost savings are the byproduct of executing a strategy, not a strategy unto themselves. Instead of just focusing on cost, the CCoE’s job is to remove friction to be more efficient, whether these efficiencies come from operations, security. A CFM function starts with identifying business KPIs in the context of your technology stack and what actions you should take.

Identify best practices and scale those across the organization

Documenting and sharing best practices and successes from one function can provide a significant advantage for another. One of the responsibilities of the CCoE, and the CFM arm in particular, is to collect, document, and share best practices across the business. In other words, define governance policies that provide guidance on topics like budgets, unacceptable cost increases, on-demand ratios, zombie infrastructure, and set benchmarks such as cost per customer or cloud spend as a percentage of revenue. All of these governance policies will likely vary from team to team, but it helps to set an organization-wide standard and give teams a starting place for defining standards that work for their group.

   FinOps  Cloud Financial Management
What is it? Movement Function
Description FinOps is the practice of bringing financial accountability to the variable spend model of cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.  Cloud financial management (CFM) is the process of continuously optimizing and aligning cloud investments with strategic business initiatives.
Objective Bring financial accountability to the variable spend model of the cloud. Distributed IT, finance, and business teams are enabled to tune cloud deployments for speed, cost, or quality.  Align and develop financial goals, drive a cost-conscious culture through best practices, establish guardrails to meet financial targets, and gain greater business efficiencies. 
Focus Tools People, process, tools
Scope Tactics Strategy, part of a larger Cloud Center of Excellence

In short, cloud financial management should be focused on continuously optimizing and aligning cloud investments to strategic business initiatives, within the context of the broader CCoE. Don’t confuse this for FinOps, which is a narrower focus on the specific tactics you can take to reduce cloud spend. 

With cloud financial management, you can take the tactics of FinOps and apply them as part of your CCoE strategy, which goes broader, incorporating business context, and focuses on all ways to improve efficiency, across cost, operations, and security. The CCoE governs the usage of the cloud across an organization and drives best practices across functions. 

Take the next step

Want to learn more about cloud financial management? Read our whitepaper to dive into how you can build a successful cloud financial management practice for your organization.