Cloud cost management

Authors: Nik Jethi, Wendy Choi, Vishveshwara Vasa

With the increasing challenges amid rising interest rates and greater government scrutiny, private equity (PE) firms need to continue to manage expenses to drive returns. By expanding a portfolio company’s footprint in the cloud, PE firms gain the competitive advantage of added security, agility, and scalability. With access to the latest features and functionalities at their fingertips, the IT team can now stay at the forefront of strategic innovations. However, operating within the cloud is not without its challenges.

With costs on the rise, companies must be careful in managing their cloud resources and reducing waste. Some organizations are finding it a struggle to balance the value of cloud performance against the need for fiscal guardrails, and that can leave both the finance and IT departments facing new challenges.

To realize the efficiency and savings that made the cloud attractive to begin with, a company must closely monitor its cloud consumption and costs. However, the qualities that make subscription-based cloud services agile and scalable also make usage and cost harder to predict and track. The accelerating adoption of multi-cloud architecture adds complexity to this change and makes a comprehensive understanding of the associated costs—across different platforms and vendors—even more vital. There are other complicating factors: IT infrastructure and related costs no longer aggregate as capital expenditures but show up instead on the operating budget. And engineers who work independently from finance and procurement teams may make technology-based decisions that commit the company to excessive spending.

This model shift requires a corresponding mindset shift, one that moves beyond the fixed nature of legacy data center hosting. The new view must embrace the variable, on-demand, consumption-based expenses of the cloud.

With FinOps, stakeholders have a better chance to see the value cloud adoption is meant to provide. Speed, flexibility, and scale are just one side of that ledger—the savings also depend on cost transparency, spend management, and efficient billing and chargeback. When organizations can collaborate internally on data-driven spending decisions, the engineering, finance, and business teams can all contribute to taking advantage of the cloud’s variable cost model.

For engineering teams, the FinOps model adds financial transparency and responsibility to their cloud expenses. It helps improve cost and budget efficiency and drive process improvement savings. With that information and motivation, making the most of a cloud deployment’s business impact and controlling cost and waste become complementary goals, not competing ones.

The FinOps model has three phases: Inform, Optimize, and Operate. Within these phases, feedback loops allow continuous refinement of cloud design, usage, and spending. The Inform phase focuses on financial accountability by using tools and dashboards to show business units what they’re spending. The Optimize phase helps identify and enhance cloud spending, reduce resource waste, and implement leading cost-efficiency practices. Lastly, the Operate phase involves tracking and analyzing cloud spend and performance to identify opportunities for continual improvement, implementing metrics-driven financial management processes, and embedding a cost culture throughout the organization.

Today’s cost and performance pressures make this the right time for a FinOps model that helps the cloud operate more economically, now and in the future. Planning ahead for cloud consumption is a must. Cost monitoring must now be continuous, not periodic. Transparent, accurate reporting helps organizations gain a deeper understanding of how well their increasingly complex systems are working across platforms and vendors.

Where spending issues do arise, early visibility leaves more time and options for corrective action. Finally, more effective FinOps empowers organizations to determine the right workloads to migrate to cloud, knowing ahead of time which mix is more likely to generate more ROI. Cloud is a journey, and it’s vital to stay on track. FinOps unlocks capabilities that help you adjust your cloud planning, usage, and spending to meet your needs as they change.

With proper assessment and implementation of the FinOps framework, experts in Deloitte’s FinOps practice can help identify the areas of focus for cloud cost management, drive strategy, implementation, and cloud governance across the portfolio of companies. This can help private equity firms achieve:

1. Better understanding and control over cloud cost fluctuations.
2. Better organization alignment on cloud investments.
3. Better strategic vision on end-to-end operations.

Learn more about standing up FinOps capabilities for your portfolio of companies and how Deloitte can help. Reach out to Vishveshwara Vasa, Nikhil Roychowdhury, and Nik Jethi today.

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