With cloud investments continuing to make up a bulk of enterprise technology budgets, leaders need to be sure they're making the most of those investments. Maximizing ROI on cloud investments not only supports stronger cloud growth, but it also promotes stronger business transformation programs by laying a more solid, innovative foundation on which the business can build a future-ready enterprise.
Unfortunately, this is often easier said than done with cloud. Many enterprises are seeing cloud costs skyrocket due to the unique nature of cloud spending. This is attributed to the additional processing and computing scale required to take advantage of emerging technologies like AI, generative AI and machine learning, as well as creating testing sandboxes and accommodating new user adoption.
Cloud spending is also based on consumption and, therefore, is constantly variable—unlike a fixed-cost model such as a non-SaaS ERP system. However, like an ERP system, many departments and business functions use the cloud, meaning a single enterprise can have multiple functions accumulating their own cloud costs. Such siloed management can lead to duplicative spending, inflating the cost of cloud and diluting the ROI for the business.
How can businesses get the control they need over cloud spending without limiting innovation or the new technologies only truly enabled through the cloud? The answer lies in cloud economics.
What Is Cloud Economics?
Cloud economics is becoming an increasingly popular discipline among business and IT leaders because of the clarity it brings to cloud spending.
This collaborative, pragmatic process engages leadership throughout the organization (IT, operations, finance, development, business units) to define what value means in terms of cloud investments and then develop a strategy that will deliver that value to the business. In doing so, the various business functions are encouraged to look beyond optimizing costs in order to make decisions that will maximize the business value of the cloud.
The shift in focus from cost to value is key to a successful cloud program. So many first-time cloud migrations deliver lackluster results because the business is focused primarily on moving to the cloud as a way to cut costs. While moving to the cloud can absolutely help make some processes more cost-effective, doing so will likely require time and money upfront.
If a business is only focused on cutting costs, making those investments might seem like a failure. However, if a business is focused on saving money in the long run by incorporating AI and automation throughout its operations, for example, or enhancing data processing capabilities to become more data-driven, teams can feel confident investing time and resources in specific areas of cloud development knowing that those investments will lay the groundwork for capabilities and advancements critical to the larger business goals.
Cloud economics can help businesses identify their unique cloud goals and the actions necessary to achieve them. In doing so, the businesses learn how to optimize cloud costs and maximize the value of cloud by aligning the various business teams around shared investment goals. This is an organizational change management endeavor that requires the business to act in concert to achieve like-minded goals.
As the cloud program progresses—as the spending models for these investments change or the needs of the company evolve—other tools such as FinOps can help business managers further optimize cloud spending and business value.
FinOps: A Valuable Addition
FinOps is a component of cloud economics that focuses on the operational aspects of cloud economics. Now that the business has moved to the cloud, how does it best manage its cloud spending to achieve its cloud goals? What are the areas of extraneous cloud spending? What areas need greater investment? How can teams focus or redirect their cloud investments without disrupting business operations?
To answer these questions, FinOps uses a three-phase iterative approach: inform, optimize and operate.
- Inform: Increasing transparency of cloud spending, budgets, benchmarks, forecasting, etc., and giving teams the information they need to make decisions about cloud spending that align with the goals of the business.
- Optimize: Implementing changes to optimize cloud consumption.
- Operate: Integrating analysis and optimization into day-to-day operations, tracking the progress of cloud programs and adjusting as needed.
Through FinOps, businesses can identify areas of overspending, corrective actions and the best way to reinvest those savings. For example, through FinOps, a company may learn that it's paying for much more storage space than it needs based on average usage. Downsizing the storage could free up funds that the company could reinvest in other avenues based on the cloud goals outlined through cloud economics.
FinOps is an ongoing process. Teams focus on small sections of a cloud program at a time, making changes that will deliver the most value to the organization. Low-hanging fruit investments like downsizing storage space are great starts because they can offset the costs of more significant changes with minimal disruption to the business. As the company starts making bigger, costlier changes, working in stages will make it easier to monitor success, strategize corrective action and implement those actions effectively.
By implementing FinOps as part of a centralized cloud cost center of excellence (CoE), cross-functional finance, technology and business teams can collaborate more effectively to maximize business value.
A cloud cost CoE governs cloud adoption and spending throughout the organization to ensure teams are making decisions that align with the organization's larger cloud goals. FinOps is integral to these decisions and can help the CoE establish a single source of truth for cloud spending, breaking down cultural silos and institutionalizing cloud economics management to promote a stronger, more successful cloud program.
The value of a strong cloud program cannot be overstated. Investments in AI and other advanced technologies that require the support of the cloud are on the rise, making cloud capabilities key differentiators. Cloud economics and FinOps can help enterprises make more informed decisions about how they advance their cloud programs and feel more confident making the kinds of bold investments that will help them stand out among the competition.
