October 22, 2021

Managing the fine balance in cloud finance management

Article is attributed to Nathan Besh from Apptio

By Nathan Besh

Senior Director of Product Management (Global) at Apptio, a provider of cloud-based technology business management and IT financial management solutions.

If there was any doubt left, the last 18 months of pandemic have made it abundantly clear that cloud services are essential for business – whether to enable hybrid work, expedite procurement, launch new services and processes faster, expand data protections, or to capitalise from scalable pay-as-you-go pricing structures. It is, hence, not surprising that companies are spoilt for choice in choosing cloud technology offerings. 

So much so that many organizations are not aware of how much money they are spending on cloud computing solutions, missing opportunities to optimize their financial outgoings. The findings raise questions regarding how well businesses are managing their cloud expenditure.

It’s a bitter pill to swallow, but most organisations still struggle to track and manage technology investments effectively – especially with the influx of collaboration apps and other cloud software that companies turned to in response to the COVID-19 pandemic and lockdown measures.

And without visibility, it’s even more difficult to track value-add, the impact on the quality of life of workers, the effectiveness of customer services, and so on.

Incidentally, according to a BCG report, Singapore is one of the most advanced public cloud markets in the APAC region. Investment in the public cloud is expected to grow at a CAGR of 20% over the next five years, from US$1.5 billion in 2018 to about US$3.6 billion in 2023. South East Asia’s healthy mix of global companies and small and medium-sized enterprises (SMEs) presents a significant opportunity for cloud adoption as well.

The Singapore government has also been consistently calling on the small and medium enterprises (SME) to use the public cloud as they cannot afford to invest in servers, storage, and networking gear. Multiple segments of the private sector — including tens of thousands of businesses — continue to benefit from various government digitalisation programmes, which strongly support the adoption of cloud technology.

There isn’t an app for everything

Given the increasing digitalisation of businesses, a vast number of large companies – including banks, media companies, and government agencies – are up to a third iteration of cloud.

Part of the blame lies in the perception that technical solutions are a magic bullet, and were sold as such. However, the root of the problem is that companies continue trying to solve what is (and must be seen as) a behavioural issue – including historic methods for managing spend – with technical solutions. 

Public cloud services represent a new form of computing that involves new ways of acquiring and managing computing resources. Companies should note that certain risks that arise from public cloud usage need to be managed differently from traditional on-premise IT infrastructure risks due to the unique characteristics of public cloud services.

We’ve gotten a bit lazy. When it comes to technology decisions, we want that tool that fixes everything, rather than investing in cultural and behavioural change over an extended period of time and across the whole organisation.

Currently, some of the main questions giving companies headaches include: do we still need all the services we signed up for last year? Have employees subscribed to new apps that were never flagged? What are the human costs and benefits of new investments? How can we create visibility into all spend pertaining to cloud in the long run as business needs change?

Technology – monitoring tools and the like – plays a key part, but understanding ownership costs to avoid cloud cost blow-outs requires analysis of far more than a few monthly bills.

Cloud must become a financial conversation – one focused on cloud cost optimisation (or FinOps) – and backed by tangible investment. Cloud financial management (FinOps) sits at the intersection of engineering, finance, and security.

While it might not seem an ‘ideal’ time to invest in this level of change management, particularly in the context of current economic conditions and operational hurdles, now is probably the least ‘worst’ time to do it.

This is because getting a handle on all costs pertaining to cloud – including infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS)– will only get more complex as IT spend increases.

FinOps practitioners pay for themselves

A critical starting point is how an organisation develops its cloud capability in the first place – an internal analysis of the people, processes and tools needed – whether that’s to support operations, security, or a specific project. More than basic reporting, cloud cost optimisation takes regular cadence upgrades, and the application of processes to cost models.

It’s just as important to establish a broader internal capability – make FinOps someone’s job, or bringing in talent to fill the gap – to bring together business, finance and IT.

How do you find the right capability with a guarantee they know what they’re talking about? That may appear a challenge given the nascency of FinOps in Singapore – it’s only within the last three years that companies have started experimenting – in addition to the limited depth in training in existing university degrees or commercial offerings.

But the advantage of FinOps is that it allows companies to start at a small scale, based around their current needs and anticipated future requirements. That employee needs a financial mindset, with a thorough understanding of the 101s of depreciation, TCO, and budgeting and allocation, as well as the ability to handle and manipulate large data sets. 

The concept of hiring someone to do nothing but FinOps could seem drastic, but with enterprises spending well in excess of $600,000 annually on cloud services, they not only pay for themselves, but become cost management engines.

In creating these roles, companies also create new jobs at a time when the majority of public cloud investment is going towards multinationals. And because these aren’t ‘deep tech’ jobs – they are a blend of technology, finance, and business positions, this opens significant opportunities to non-tech professionals to enter the technology and cloud domain, as well as those at the fringe of traditional technology roles.

As much as heightened technology spend reflects business recovery, in the long-term, a lack of proper cloud investment management will see companies haemorrhage inordinate sums of money as they oversubscribe to apps and services, and often without ever seeing a notable return on their investments despite paying three times: for the initial ‘waste’, to find the problem, and finally to fix it.

With financial mechanisms in place to manage, monitor and report on the value of this fiscal year’s technology budgets, organisations will understand where their operations are succeeding, and where they need to alter their remaining spend.