COST01-BP02 Establish a partnership between finance and technology
Involve finance and technology teams in cost and usage discussions at all stages of your cloud journey. Teams regularly meet and discuss topics such as organizational goals and targets, current state of cost and usage, and financial and accounting practices.
Level of risk exposed if this best practice is not established: High
Implementation guidance
Technology teams innovate faster in the cloud due to shortened approval, procurement, and infrastructure deployment cycles. This can be an adjustment for finance organizations previously used to running time-consuming and resource-intensive processes for procuring and deploying capital in data center and on-premises environments, and cost allocation only at project approval.
From a finance and procurement organization perspective, the process for capital budgeting, capital requests, approvals, procurement, and installing physical infrastructure is one that has been learned and standardized over decades:
Engineering or IT teams are typically the requesters
Various finance teams act as approvers and procurers
Operations teams rack, stack, and hand off ready-to-use infrastructure
With the adoption of cloud, infrastructure procurement and consumption are no longer beholden to a chain of dependencies. In the cloud model, technology and product teams are no longer just builders, but operators and owners of their products, responsible for most of the activities historically associated with finance and operations teams, including procurement and deployment.
All it really takes to provision cloud resources is an account, and the right set of permissions. This is also what reduces IT and finance risk; which means teams are always a just few clicks or API calls away from terminating idle or unnecessary cloud resources. This is also what allows technology teams to innovate faster – the agility and ability to spin up and then tear down experiments. While the variable nature of cloud consumption may impact predictability from a capital budgeting and forecasting perspective, cloud provides organizations with the ability to reduce the cost of over-provisioning, as well as reduce the opportunity cost associated with conservative under-provisioning.
Establish a partnership between key finance and technology stakeholders to create a shared understanding of organizational goals and develop mechanisms to succeed financially in the variable spend model of cloud computing. Relevant teams within your organization must be involved in cost and usage discussions at all stages of your cloud journey, including:
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Financial leads: CFOs, financial controllers, financial planners, business analysts, procurement, sourcing, and accounts payable must understand the cloud model of consumption, purchasing options, and the monthly invoicing process. Finance needs to partner with technology teams to create and socialize an IT value story, helping business teams understand how technology spend is linked to business outcomes. This way, technology expenditures are viewed not as costs, but rather as investments. Due to the fundamental differences between the cloud (such as the rate of change in usage, pay as you go pricing, tiered pricing, pricing models, and detailed billing and usage information) compared to on-premises operation, it is essential that the finance organization understands how cloud usage can impact business aspects including procurement processes, incentive tracking, cost allocation and financial statements.
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Technology leads: Technology leads (including product and application owners) must be aware of the financial requirements (for example, budget constraints) as well as business requirements (for example, service level agreements). This allows the workload to be implemented to achieve the desired goals of the organization.
The partnership of finance and technology provides the following benefits:
Finance and technology teams have near real-time visibility into cost and usage.
Finance and technology teams establish a standard operating procedure to handle cloud spend variance.
Finance stakeholders act as strategic advisors with respect to how capital is used to purchase commitment discounts (for example, Reserved Instances or AWS Savings Plans), and how the cloud is used to grow the organization.
Existing accounts payable and procurement processes are used with the cloud.
Finance and technology teams collaborate on forecasting future AWS cost and usage to align and build organizational budgets.
Better cross-organizational communication through a shared language, and common understanding of financial concepts.
Additional stakeholders within your organization that should be involved in cost and usage discussions include:
Business unit owners: Business unit owners must understand the cloud business model so that they can provide direction to both the business units and the entire company. This cloud knowledge is critical when there is a need to forecast growth and workload usage, and when assessing longer-term purchasing options, such as Reserved Instances or Savings Plans.
Engineering team: Establishing a partnership between finance and technology teams is essential for building a cost-aware culture that encourages engineers to take action on Cloud Financial Management (CFM). One of the common problems of CFM or finance operations practitioners and finance teams is getting engineers to understand the whole business on cloud, follow best practices, and take recommended actions.
Third parties: If your organization uses third parties (for example, consultants or tools), ensure that they are aligned to your financial goals and can demonstrate both alignment through their engagement models and a return on investment (ROI). Typically, third parties will contribute to reporting and analysis of any workloads that they manage, and they will provide cost analysis of any workloads that they design.
Implementing CFM and achieving success requires collaboration across finance, technology, and business teams, and a shift in how cloud spend is communicated and evaluated across the organization. Include engineering teams so that they can be part of these cost and usage discussions at all stages, and encourage them to follow best practices and take agreed-upon actions accordingly.
Implementation steps
Define key members: Verify that all relevant members of your finance and technology teams participate in the partnership. Relevant finance members will be those having interaction with the cloud bill. This will typically be CFOs, financial controllers, financial planners, business analysts, procurement, and sourcing. Technology members will typically be product and application owners, technical managers and representatives from all teams that build on the cloud. Other members may include business unit owners, such as marketing, that will influence usage of products, and third parties such as consultants, to achieve alignment to your goals and mechanisms, and to assist with reporting.
Define topics for discussion: Define the topics that are common across the teams, or will need a shared understanding. Follow cost from that time it is created, until the bill is paid. Note any members involved, and organizational processes that are required to be applied. Understand each step or process it goes through and the associated information, such as pricing models available, tiered pricing, discount models, budgeting, and financial requirements.
Establish regular cadence: To create a finance and technology partnership, establish a regular communication cadence to create and maintain alignment. The group needs to come together regularly against their goals and metrics. A typical cadence involves reviewing the state of the organization, reviewing any programs currently running, and reviewing overall financial and optimization metrics. Then key workloads are reported on in greater detail.
Resources
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