Cloud costs are on the rise, and most organizations are struggling to keep them under control.
For one thing, most organizations have a passive approval process for realizing spend — that is, no purchase order or written or verbal approval. Cost is based on consumption.
Organizations need deep insight into what's driving increased costs, but that's easier said than done, and the wrong information can be very problematic. For example, inaccurate usage data leads to overspending, and incorrect cost allocation causes billing disputes. In addition, cloud providers frequently update pricing models and discounts, which means relying on outdated pricing data could mean missing out on cost-saving opportunities like reserved instances, spot instances or committed-use discounts.
Not only do finance professionals often bear responsibility for allocating these costs — and optimizing them — but they also have to communicate these costs to their leaders in a meaningful way. Fortunately, there are ways to get a handle on these challenges and ultimately meet your goals with improved visibility and better understanding.
Challenges for finance regarding cloud costs
Two primary challenges emerge in understanding cloud costs, and typically, most financial professionals experience one or the other.
One scenario is where they have limited or no visibility into anything cloud; the breakdowns are timely and confusing to analyze or they don't see the breakdowns at all. They may receive invoices that have hundreds of lines or only have a total, and they have to rely entirely on other teams to break down, translate and itemize that total cost. They are responsible for recording entries related to cost and forecasting in advance, but they have no visibility.
The second scenario is when financial professionals do have visibility, but the process is broken or doesn't happen in real-time. They may even have a way of acquiring and comprehending the needed invoices, and using them in forecasts. But it still requires a lot of manual work and collaboration with the engineering team to ultimately get to where they need to be.
Either scenario can make it difficult for the finance department to fully explain to leadership the reality of cloud spend and what they're forecasting and answer any additional questions. You're supposed to be the master of your budget, so you can lose credibility when you don't know the answers in real-time.
From budget gatekeeper to partner
Finance professionals are in an unusual position where they sometimes must translate between engineering and business leaders — which means they have to straddle both worlds and communicate things in a way that any given business leader will understand.
At the same time, you don't want to be the budget police; you're there as engineering's business partner and want them to feel that way. You don't want every conversation to be about how engineering is over budget because that quickly becomes counterproductive. You might even find they start doubting the data you use for your forecasts.
The good news: You can begin to solve these issues in one fell swoop with comprehensive cost visibility.
You want to be able to see cost spikes in real-time. You want the power to drill into costly resources to identify the root cause of the increase. You want to get answers immediately from the relevant engineering team. The ability to pull data in real-time and analyze it quickly also enables quicker strategy shifts where needed. For instance, you can look at the data in real-time and notice things like on the 10th of each month, you experience a cost spike in a particular resource. You can then investigate the spike, assess whether it's essential or optimizable, and bake the resulting analysis into your forecast.
One way to get comprehensive cost visibility is through a cloud cost optimization platform. Cloud cost optimization is the process of reducing cloud expenses while maintaining or improving performance by rightsizing resources, eliminating waste, leveraging discounts, and optimizing workloads. It replaces the friction between finance and engineering with a bona fide strategic partnership.
From engineering to the board
This all adds a much-needed layer of extra credibility with the board and/or leadership. It also helps improve relationships with engineering and move away from seeming like just a gatekeeper.
When you have all the information you need from engineering, you can impart this insight to leadership and address any additional questions. This, in turn, empowers you to secure additional budget or make budget shifts.
It's possible to get to a place where engineers alert leadership to certain code changes before they push them. The finance team gets educated about what engineers are doing day to day. The result is that in conversations with leadership, finance pros can communicate what's going on in a concrete fashion instead of giving vague answers like, "It's a customer bug fix."
The optimal state is that the engineering and finance teams together create the potential for strategic outcomes beyond cost, including:
- Understanding an unprofitable product line or feature that needs to be deprioritized — or conversely, a particularly profitable product that requires more investment and focus;
- Investing confidently in AI products or features; and,
- Reassessing pricing parameters when cost/margin per customer is more intimately understood.
Shifting your cloud cost strategy
Financial teams often struggle to understand what's behind cloud costs. They also struggle to communicate those costs to executives and the board. Overcoming this dual challenge requires being able to speak to the engineering department in a meaningful way to get the right information without being seen merely as the budget gatekeeper. The next step is to become a strategic partner with the engineering team to uncover what's profitable and not, where to retrench, and where to double down. That's the genius of cloud cost optimization.
