Visualizing a Successful Cloud Financial Management Model

Jason Rhoades
Jason Rhoades in Community Highlight
6th May 2020

In a recent blog post by a FinOps Foundation member from Intuit, Jason Rhoades lays out a killer visual model for understanding the jobs-to-be-done in Cloud Financial Managment on two axis: 1) Strategic vs. Tactical and 2) Finance vs. Cloud Tech. Jason maps these decision points on a cloud cost landscape and discusses the critical component of how to get executive buy-in for cloud financial management discipline. Looking forward to seeing more of this content from Jason.

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Cloud Cost Landscape and Organizing for Success

Who should be looking at Cloud Cost Management at my Company?

The problem space for cloud cost management is large and multi-dimensional. To get started in thinking about how to best line up your organization’s resources to meet the challenge, we’ll start with this diagram:

In this graph, the vertical or Y-axis is the “Altitude” Axis. A value higher (more towards the top) of the graph indicates a problem that is more strategic in nature. In this context, a strategic decision is one that is more abstract, has farther-reaching consequences, and is probably more heavily deliberated. The highest-level of these decision types are generally made by a function’s executive leadership. A lower placement on this axis, indicating a more tactical problem, are the sorts of things dealt with more often, and by persons closer to the front lines.

The horizontal or X-axis is the “Discipline” Axis. While in reality many disciplines will be brought to bear, the spectrum of this axis has traditional Finance/Accounting at the far left, and traditional Technology at the far right.

To show how cloud cost management hits us with problems all over the map, here are some challenges likely to be faced by any organization on its cloud journey. This isn’t every challenge to be faced, and those listed might not all be faced on the same day, but they are all problems with non-obvious solutions that your organization will one day have to solve for itself:

  1. How does the arrival of a new prepay product (ex: AWS Savings Plans) affect our prepay rate-lowering strategy?
  2. On average, what was the cost to my organization to run an m5.2xlarge Linux EC2 instance in the us-east-2 region in the 4pm hour yesterday afternoon?
  3. How do our company’s financial objectives influence our prepay strategy for the coming 1-3 years?
  4. Who inside our organization should be managing the cloud vendor relationship and our portfolio of prepaid investments? Should it be centralized or distributed?
  5. How will our transition away from traditional EC2 and into containers affect our usage patterns – and thus our prepay strategy?
  6. How will we hold teams accountable for inefficient operations, even if they still manage to meet their budget?
  7. What prepay investments should we be making RIGHT NOW?
  8. What’s the right way for us to handle the amortization of our prepay investments?
  9. Should we be trying to lock-in with a single cloud vendor, or should we be considering a multi-cloud approach?
  10. How should we handle the $25,000 credit we received on last month’s cloud invoice?

Two key takeaways from this exercise:

  1. The challenges faced by an organization in optimizing its cloud use are “all over the map” and involve a mixture of technical and financial disciplines.
  2. A lot of the key pieces are in their own disciplinary lane in the center of the map. This area represents a distinct body of knowledge and experiences which can be considered a discipline unto itself.

Unless you have peoplepersons experienced in this space already on staff, you’ll need to get your Finance folks together with your Cloud/Technology folks to form a cross-functional team to address the challenge. Together, their objective is to build a bridge of knowledge from their disciplines and into what is for your org, the undiscovered world of successful cloud cost management.

One other skill setskillset not called out above but paramount to success – data engineering and analytics. While some large enterprises may have dedicated data teams, most do not, but the cloud is inherently a thoroughly data-driven place. Even for modest-size customers, it is actually a “big data” problem, as one month of detailed cloud costs can easily amount to 100x more than what Excel can handle. To really get to the bottom of your organization’s cloud operation will require the skills to manage and query this data, harvesting it for the value insights it can provide your org in maximizing its outcomes.

In some places this collective discipline might be called “Cloud Cost Optimization”, in others, “Fin Ops”. Whatever the name, it is important to establish and nurture this capability within your organization to ensure it is empowered to make the most of its cloud.

What guides this team in its efforts ?

A few years ago Netflix gave a presentation at AWS Re:Invent on their internal approach and tooling to running their cloud efficiently. In the industry, Netflix is one of the most mature and sophisticated organizations in cloud optimization.

Here’s the video replay:

One of the earlier slides is key in illustrating something every cost opt team will have to figure out early on – what’s important to our organization?

Credit for this image to Andrew Park and Sebastien de Larquier of Netflix from the above Re:Invent talk, slides available here: https://www.slideshare.net/AmazonWebServices/tooling-up-for-efficiency-diy-solutions-netflix-abd319-reinvent-2017

Indicative of its maturity, Netflix exhibited a high degree of self-awareness in this image. As a consumer-focused video streaming service, their organization’s focus is on creating and capturing market growth. They recognized how delivering product and service innovations was key to their overall success, and was consciously willing to live with some inefficiencies to make it happen. Recognition of this balance became a compass to the myriad of fork-in-the-road decisions their team made daily.

Of course not everyone is Netflix, and the priorities of a bank, a nonprofit strapped for cash, or a company that makes most of its revenue on just 2-3 days each year, might have different priorities. There is no right or wrong shape to an organization’s priority spread – it’s only wrong to not be conscious of the balance for your org.

Another question to have in mind when looking at the radar graph is, “How good are we at providing for each of these things?” To those watching costs, it might be painful to see new services launched in a wastefully overprovisioned state because time-to-market trumped efficiency-minded engineering experiments. To product managers fighting to deliver for their customers, frustrating to see development teams suffer through weeks of laborious security review processes to release a single change, due to absence of trusted security automation.

Every decision an organization makes in conducting its business impacts the continuous set of tradeoffs being made between these priorities. The initial response to every new business challenge – whether it’s a new regulation, a new piece of technology, or a change in the market – should favor the characteristics most important to your business. Each initial response might come with unsatisfactory impact to other characteristics. It is through focused investment we can minimize the negative effects of these changes over time.

As tempting as it might be to strive for it, there’s no such thing as “being perfect at everything”, and that includes efficiency, the focus of this blog. What’s better, is to be aware of the pros and cons of each decision, and in your role as a champion for efficiency in the org, ensure the best mitigations are put in place to preserve and optimize efficiency in the appropriate balance with the other characteristics.

As shifts occur in the organization’s priorities, it is important too, to be responsive and offer options and solutions to increase efficiency when appetite for a different set of tradeoffs becomes apparent. At the time of this writing (April 2020, in the midst of a global-economy-ravaging pandemic) many companies are re-addressing their prioritizations, and more willing than ever to sacrifice a little bit of innovation, some reliability, and while it’s not always safe to admit it – yes, even some security – in the interest in efficiency gains.

How do we get executive buy-in to invest in the space?

A problem I’ve seen many groups encounter is a difficulty in convincing leadership – particularly those holding for the corporate checkbook – to commit to the resource investments required to really optimize their cloud. While every org and leader is unique, remember the world of cloud cost management and optimization is very deeply data driven. In contrast with other spaces which might be driven more by feel – and where the journey from investment to return can be fuzzy or unconvincing, the data set describing a non-optimized cloud tells a clear and rich story. Real $ opportunities lie right on the surface, no hijinx required to show what is possible.

Think of how hard it is to generate true profit. How many people in sales, marketing, product development, and so on, have to work to secure each new customer? How much is left after the cost of goods sold? Cloud cost optimization offers a path from investment to return that’s faster, simpler, and more certain that just about any other material financial vehicle.

I know of a small, struggling enterprise software company where every million-dollar deal closed shakes the halls from the ensuing celebration. Yet this same company is hesitant to make any financial commitments to cloud use, despite the immediate effects to their corporate profitability being equivalent to closing several of those deals.

Coffee is for … savers?

It’s rare for the path from an investment to its return to be so simple and certain. Yet, because it is so new and unfamiliar to those in traditional Finance or Cloud Ops roles, many cloud customers leave these opportunities on the table.

Jason Rhoades
CloudBombe.com

This article includes re-post of Jason’s full article on his own blog, with permission.

About the guest author, Jason Rhoades

Jason’s bio is a classic example of the path to FinOps and Cloud Financial Management. From a diverse background he was thrust into the world of cloud cost management and had to piece together his expertise with long hours of research and figuring it out on his own. Here’s more about his journey in his own words:

“From there I joined a much larger enterprise as it entered an aggressive journey from data center to AWS cloud. In late 2015 I was approached with the question “Hey we just got back from Re:Invent and heard about Reserved Instances* – could they maybe save us some money?” and thus began what has been a 4+ year effort to optimize the enterprise’s use of AWS. This singular focus has been a marked departure from my many-hats past. At 2000+ hours/year x 4 years at the epicenter of optimizing one of Amazon’s largest and most complex AWS customers, must have me near 10,000 hour expert creds in the space.”

*Apparently, Jason reports that this was the AWS RI talk his colleague saw in 2015. See anyone familiar? 🙂 )

Putting this model to work

As a FinOps practitioner, did this model add more coherence to various roles and activities that are spread across your IT and finance teams? Did it perhaps add more questions to be answered?

We’d love to discuss the best practices and model Jason outlined and more on the FinOps Foundation Slack. Join us there if you haven’t to meet more like-minded people and talk about the latest and greatest in FinOps. You can also reach out to him on Slack if you have any questions about the model.

If you see other FinOps content that you think would be great to share with our community or that would drive lively and constructive debate or conversations, or perhaps have authored something yourself that might be of interest, please send them our way.