by Tanya Seda, Chief Strategy Officer
With the proliferation of cloud services being employed by businesses today, the expenses related to this fast growth area is ever increasing. As a result, it has become imperative to make sure you have control of your cloud services and related finances. Not surprisingly, CFOs have moved this to the top of their priority list to ensure there is no wasted spend. While cloud services have proven a boon for technology innovation, this type of elastic infrastructure poses a challenge for finance. Accordingly, CFOs are now engaging more closely than ever with their counterparts in IT in order to ensure that IT and development are optimizing spend even as they are driving innovation and growth.
Finance and Sourcing departments continue the search for optimization and lower costs while prioritizing new business models and flexibly expanding business. Unfortunately for Finance, with this flexibility comes forecast challenges. If the enterprise is not cautious, cloud spending can spiral out of control. Finance and IT must come to and work together build and agree upon an actionable cost control strategy. CFOs need to address finance questions as they pertain to the cloud. They need to understand their impacts on operations and processes. Below are some questions CFOs should ask:
1. Is our cloud cost model accurate based on our needs?
IT, who still may be in the on-prem mind-set and are moving to the cloud often purchase far more capacity than they actually need. It is important that CFOs talk to their IT counterparts about cloud spending to ensure that everyone is now in an OpEx mindset, rather than the on-prem model of CapEx. Further, working with the cloud vendor on their various pricing models can provide both near- and long-term financial benefits. It’s important to remember that one of the many virtues of the cloud model is the ability to flex storage, bandwidth and computing capability based on the characteristics of the business (e.g., seasonality, growth, geographic expansion, mergers/acquisitions).
2. Do we have waste in our cloud?
Typically, this answer is yes. A major contributing factor is around idle resources. The cloud is structured to run 24/7. However, a lot of non-production resources used for development and testing are needed during the work week. Knowing this you are paying for resources to stay idle after work hours. Most business models use a twelve-hour workday window five days a week. This equates to over 60% of the time being wasted. As above, cloud vendors can and will work with you to optimize the total cost of ownership (TCO) model that optimizes your spend.
A second factor is oversized resources. Many studies show that CPU usage of resources managed in their platform is averages 5%. This indicates massive underutilization when resources can easily be sized down for 50-70% cost savings, one of the many advantages to pushing infrastructure to the cloud!
3. How do we control and reduce cloud spend?
It is recommended that your technical departments have an actionable and automated plan in place to stop wasted cloud spend. There are both vendor-based and third-party cloud tools available to assist with these efforts. Beyond tools, however, it’s equally important to have someone working with you who understands the cloud landscape and can help interpret and model, especially if your IT organization is in the early stages of the cloud transformation process. These resources can set up reports broken down by project or team over time. They also have bench-marking data to help optimize your cloud environment that will help you discover cost-savings opportunities and enable more efficient workflows between departments.
Bringing this full circle, Finance can direct the cloud conversation toward optimization of resources, ensuring that IT departments are both innovative and within budget. Create a competitive cloud finance strategy to include visibility and governance for the business to function effectively across departments. By implementing these tactics, positive ROI will be achieved, and the most efficient TCO possible will be in place.