Being in the cloud presents unique challenges for both finance and engineering. The most fundamental of which is that moving to the cloud represents a shift from Capex to Opex, shifting costs from being fixed to variable.
This shift puts engineering in a position that they might not necessarily have expected to be in as an externality of moving on to the cloud. Migrating to the cloud is often viewed by engineers as an exciting opportunity to iterate quickly, test products, and due to the elastic nature of the cloud, do things they could not do on-prem.
That excitement - of being able to build great products more efficiently can sour quickly when it comes with a burden that engineers did not expect - that is, the scrutiny of managing their architecture because it has real world cost impacts. Not only that, but management often expects engineers to be able to predict usage with very limited data (and attach dollar amounts to that usage) and be scrutinized if there are budget overruns.
Therefore, from the perspective of the engineers, the move to the cloud has resulted in an administrative burden that has nothing to do with delivering great products.
From the finance perspective, the shift from Capex to Opex represents a significant change in their process.
The biggest barrier that we’ve seen within organizations trying to deal with this problem is the lack of communication between engineering and finance. Finance expects that engineering should provide precise numbers – misunderstanding the complexity of cloud systems – while engineering often feels that it’s a superfluous exercise.
To bridge this gap:
- It is essential that both engineering and finance meet in the middle and communicate often.
- Engineering should understand that they own the budget and should take pride in that
- Finance needs visibility into usage and cost information trends
- Finance has a pulse on architectural changes that might impact usage in the future
The philosophy of having engineering and finance work together collaboratively has resulted in the creation of the burgeoning field of FinOps.
If you’re a finance professional or leader you can leverage FinOps principles to get better visibility and control over cloud costs: tasked with reporting what the current state of cloud costs look like and how it’s expected to trend in the future.
This reporting is essential to track gross profitability and is a key input on how your investors view the sustainability of your business model. Missing the mark on this comes with severe consequences – losing credibility with stakeholders, inability to raise subsequent rounds of funding, miscalculating cash burn, and for public companies – an undervalued share price.
But keeping track of cloud costs is challenging for a multitude of reasons...
Making sense of the data:
- How do I keep track of the potentially hundreds of cloud assets, and the thousands of products and services that are offered by the cloud service providers?
- How do I tie that back to operational activity that’s happening in my business?
Complexity in the Budgeting Process:
- What are the key inputs I need to develop my Long Range Plan?
- Who are the key stakeholders I need to speak with to set an operating plan for my upcoming fiscal year?
- How do I keep track of it all for my month in month out forecasting?
Difficulty relating cloud bills to your Operating Plan and forecasts that exist within your financial reporting systems (Anaplan, Workday etc):
- How do I compare what I’m seeing in my billing console to what’s in my operating plan?
- If I’m spending more than last month, did we already account for that in the latest forecast or operating plan?
Understanding operational reasons behind increase or decrease in usage:
- If I see an increase in usage month over month, what’s driving those changes?
- Is the impact a one time anomaly or a recurring issue? How concerned should I be?
Ambiguity around risks, opportunities and trade offs for committed usage discounts and reserved instances:
- I know that the cloud providers offer discounts if I commit to a certain usage amount, but how do I know what’s a ‘safe level’ to commit to?
- What is the total risk I’m taking on if I don’t meet the commit?
- Does it require a cash outlay?
- How can I incorporate changes that engineers will make to the tech stack to inform my decision?
Lack of common ecosystem and shared vernacular between engineering and finance:
- I know engineering is working on cost saving initiatives, how do I keep track of the status of those?
- Engineering speaks the language of usage, how do I translate those into dollars?
- How can engineering be held accountable for delivering on cost saving opportunities?
So how do we turn these challenges into solutions? We know it's possible to have the best of both worlds – an environment, open to constant innovation, and a way to easily visualize and report on spend.
With services like Cloudbakers’ Managed Cloud Optimization (MCO), customers gain visibility into their cloud finances using leading-edge, intuitive tools. New routines are then established for connecting technical services to business units, giving finance departments the information they need in a form they expect.Originally published on April 27, 2021