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Cloud Financial Management

By Mike Fuller, Prem Purushothamraj, and Todd Musgrove

December 13, 2022

Season 3, Episode 43

A discussion of cloud financial management or cloud finance operations, and how best practices and financial governance can help companies achieve the most cost-efficient business outcomes for their cloud applications. With Principal Mike Fuller, Director Prem Purushothamraj and Director Todd Musgrove.

Show Notes

Welcome to The Hackett Group’s “Business Excelleration Podcast,” where week after week we hear from experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to world-class performance. This episode is hosted by Gary Baker, Group Global Communications director at The Hackett Group. Today’s episode will discuss cloud financial management, or cloud FinOps, which is used for best practices and financial governance to achieve the most cost-efficient business outcomes for planned applications. His guests are Mike Fuller, principal in The Hackett Group’s Technology Transformation practice; Prem Purushothamraj, director in the Benchmarking practice; and Todd Musgrove, director in the Technology Transformation practice.

To begin, Mike gives listeners an overview of the research piece produced by The Hackett Group regarding this topic. With a growing interest in the cloud and its capabilities, The Hackett Group decided a few years ago to begin a five-year study on the real-world impact of cloud adoption, operations and migration. Part of the research was analyzing best practices for cloud financial management across many different organizations. From this, they were able to determine which practices companies were using to achieve the best results financially, and for quality and scalability. The companies who utilized best practices are deemed “top performers.” They began thinking about how best practices could be categorized and found that there are four key fundamental best practices. These are planning and forecasting, measurement and accountability, cost optimization, and cloud financial operations.

Then, Prem elaborates on the kind of impact these best practices can have on a company. They looked across several different dimensions and noticed improvements across areas, including cost savings, staff productivity, operation resiliency and business agility. Within each of these drivers, they saw that top performers demonstrated significantly better performance in all of these areas. For example, top performers reduced their enterprise technology infrastructure spending by 47% since migration to the cloud. They saw significant improvements in being able to reorient their infrastructure teams to focus more on strategic value-added decision-making by 43%. Application building teams were able to focus more on capability creation rather than updates and enhancements. There was a 64% reduction in security incidents. Finally, top performers improved their time to market for application functionality close to 60%, meeting customer needs faster. The staffing piece was the most interesting metric for him.

Next, Mike talks a bit about planning and forecasting best practices and their impact. This is an area we see almost every company struggle with because it takes effort and time. The first was the rigor around regularly doing trend and driver-based forecasting. Second is going back to analyze the findings of these conducted forecasting. Next is centralization around governance and spend management. To make this work, it all comes down to training people. The best team consists of people who are consumers of the cloud, actively looking at invoices, participating in forecasting and auditing.

There are two primary best practices when it comes to planning and accountability. First is to have a consistent and systematic approach to monitoring and measuring cloud costs and usage. Second is about building accountability for that level of usage and the amount of spend. This involves creating transparency around that spend to the business users and teams consuming its capabilities. The key performance indicators companies can use to drive improvement include looking at their level of incremental savings and the level of performance of cloud service-level agreements (SLAs). The study revealed that 55% of top performers were analyzing their cost, cloud consumption and performance against cloud SLAs. In terms of accountability, they were allocating 80% of their organization’s cloud spend to the business unit and team that were consuming it. Between continuous monitoring and spending allocation, organizations improved their ability to manage cloud, spend, and achieve savings.

Hear Todd share about cost optimization, which looks at striking the balance between cost performance, availability and scalability. As workloads are being considered, this includes understanding technical requirements and applying the necessary pricing models to optimize costs upfront. Downstream, organizations should make sure to have cost optimization strategies in place. Key strategies include rightsizing of cloud resources; pricing model-based optimizations; on-demand and elastic usage; and looking at cloud providers excess capacity, serverless computing and active modernization of cloud resources.

Finally, we hear about the best practices of cloud financial operations. This includes making sure cloud activities are managed centrally. The FinOps framework is an industry standard that helps with cloud financial operations. You should make sure you have all personas of your FinOps practitioner that can oversee the process globally across your organization. Finally, consider how to continuously improve operations over time. Strategic teamwork with all departments, including finance, is key to making sure you have the governance structure to manage your cost over time.

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