Over the past decade, the cloud has played a central role in enterprise digital transformation strategies. As organisations adopted a mix of cutting edge software, platform and infrastructure as a service solutions to accelerate their digital journeys, the issue of cost has never been far from their minds.
Although smarter companies see the cloud as a platform to innovate and drive agility, they are also mindful of the risks of costs spiralling out of control. These challenges have only multiplied as the complexity of hybrid and multi-cloud deployments has mushroomed. Luckily, the tools and practices used to monitor, manage and optimise cloud costs have also become more sophisticated.
Phase 1: Cost management tools
The very first tools knowledgeable companies used to understand and guide cloud spending were basic cloud cost management solutions from hyperscale cloud providers and independent software vendors. These tools gave companies better visibility into cloud spending and enabled them to make tactical changes to lower costs.
An enterprise can use these solutions to visualise cloud spending, run budgets and forecasts, detect anomalous spending, right-size allocations, and address issues such as wastage via running unused instances. But these tools were initially deployed in a siloed, tactical way that focused on immediate challenges rather than on long-term business optimisations.
Smarter organisations that are further down the road in terms of cloud maturity understand that driving business value from the cloud is not simply about using a software tool to address immediate problems in the IT department. It is about ingraining processes and a culture that allows for cost optimisation balanced with the need to achieve business value.
Phase 2: The rise of FinOps
Here is where cloud financial management—also known as FinOps—comes into play. FinOps is built on the insight that cloud spending is a company-wide, strategic concern—not just an IT operations matter. Cloud cost management and optimisation is often about tactical wins, FinOps is about the long-term business and technology strategy.
Whereas cloud cost management and optimisation is about the IT team, FinOps is cross-disciplinary in nature. A FinOps team will engage people from finance, IT, product, procurement and R&D to refine spending, budget wisely and improve efficiencies. FinOps asks everyone to take ownership of their cloud usage, regardless of their role and department.
Phase 3: Mature unit economics
As companies level up their FinOps maturity level, they will master cloud unit economics. This is an approach to maximising profits based on objective measurements of how well the company is performing against its FinOps goals and as a business in the market. Cloud unit economics allows companies to benchmark the marginal costs and marginal revenue associated with cloud services.,
By calculating the difference between marginal cost and marginal revenue, a company can determine where cloud operations break even and begin to generate a profit. In an example from the FinOps Foundation, a professional services firm could measure the cost per team, and identify which teams are driving high costs with excessive discretionary application usage.
Not only can the business drive more responsible use of cloud resources by end users and build a plan for cloud cost optimisation, it can tie cloud investment to business results. Insights such as these can guide an enterprise in making smarter data-driven business decisions regarding its cloud investment.
At Nebula, we have years of experience in helping businesses to simplify cloud operations and understand IT spending through FinOps tools and processes. Get in touch to find out how our knowledgeable team can guide your digital transformation journey.