Cloud Governance includes a focus on forecasting, budgeting and cost accountability. This addresses a big challenge that organizations face – accurately setting and managing cloud spending targets, while meeting services and revenue objectives. Unfortunately, poor cloud budget planning and cost management can negatively affect financial performance and impact business objectives.
The Cloud “Budget Battle”
According to a 2019 report from Cloudability, 80% of IT and Finance professionals said that poor cloud financial management has a negative impact on their business, and 85% of organizations overspend their cloud budgets. Gartner also recently predicted that in 2020, 80% of organizations will overshoot their cloud budgets due to ineffective cloud cost management.
The responses to an internal Google study from IT and Finance professionals are also not a surprise. When asked what capabilities were most sought after for cloud cost management, the priorities were:
- Keep costs within the budget
- Identify opportunities for IT cost savings
- Forecast IT spend
- Keep IT costs consistent and limit surprises
The Art of Managing Cloud Budgets
The root cause of many cloud budgeting issues can be attributed to immature Cloud Governance. More robust Cloud Governance processes need to be established between IT and Finance teams, encouraging them to work closely together on financial implications of cloud architectures, procurement approaches with cloud vendors, cloud financial forecasts, and tracking of cloud spending. To address potential disconnects, organizations need to collaborate on several key steps:
- Defining cloud cost allocation structures aligned with business structures
- Setting cloud budgets based on rules for spend forecasts
- Defining spend tracking, reporting, and optimization methods
Defining cost allocation structures involves identifying and categorizing classes of cloud resources, and associating spending with proper cost centers. This requires “cloud resource tagging” enforcement to ensure accurate cost tracking, visibility and allocation across organization groups. A well-designed and disciplined approach to tagging is critical to good Cloud Governance and cost accountability. Sufficiently detailed allocation of cloud costs to resource owners is needed to hold teams accountable for their cloud spending. Performance incentives can also help drive behavior of resource owners to use cloud services prudently and optimize their spending.
Setting budgets, establishing forecasts, and tracking spending against targets requires a robust set of processes. Setting budgets starts with a shared understanding of how forecasts are developed, and how actual spending is influenced. Cloud teams need to regularly review cloud costs, investigate and respond to unexpected anomalies, and adjust forecasts. This requires a new level of collaboration between IT and Finance teams. Budgeting discussions can be very complex, and are helped by using cloud service providers billing portals, and cloud cost management visualization tools for showing how costs are incurred, and modelling projected spending.
An important cloud budget management best practice involves tracking monthly spending, monitoring trends, and sending real-time alerts when spending approaches defined thresholds. This can flag issues to Finance and IT teams and allow for proactive actions to mitigate potential cloud cost overruns. Automation tools make it easier to “catch surprises”, and stay within defined budgets and reduce spending volatility.
Cloud Budgeting is a New Game
Cloud budgeting and financial management requires new continuous monitoring processes, with new responsibilities for each group in the organization. Unlike traditional IT budgeting, cloud budgeting is not a one- time annual process. Cloud budgeting and cloud finance is a completely new “art” of variable spending and continuous optimization. Cloud spending must be monitored and regularly adjusted, with dynamic cloud usage and complex billing rules. IT and Finance collaboration is more important, with shared responsibilities for cloud cost governance. Cloud Governance incorporates good cloud budgeting and cost management, and is the necessary foundation of successful cloud implementations.