Going to the Cloud With the Finance Team
Going to the Cloud With the Finance Team
Cloud computing and cloud adoption in the finance industry requires the collaboration of the CFO and care strategizing.
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The intention of this article is to increase the awareness of financial aspects related to cloud operations as I believe that it doesn't get much attention, yet it is crucial to be successful in the cloud. I hope DevOps teams could use their financial knowledge to win the confidence of financial decision-makers so they can push their innovative ideas easily. Finance teams could play a lead role in making digital companies more successful and this area could lead to a whole new career path for them. I hope both domains will find some value in reading this article.
Cloud computing has been the center of attention in today’s IT world. Gartner predicts cloud computing-related revenue would hit the $330 billion mark by 2022. In today’s digital world, cloud computing forms the nucleus of the business. However, perhaps due to the fact that much of the attention has been given to technical aspects, cloud finance has drawn less attention. However, as more and more enterprises are entering cloud space, experts have started discussions on the subject. If you consider the latest trends in cloud computing, most of them have close links to this subject.
- Great emphasis on TCO and ROI
- Multi-cloud strategy adoption by enterprises; financial implications are a big factor in the decision-making process
- Innovations in the cloud including serverless and the advantages it brings to cloud economics
- SaaS ecosystems are on the rise; industry giants are moving towards ecosystems so more industries will be part of this journey.
Today’s Reality in Finance and Cloud
Organizations such as “FinOps” have been started to build this awareness, codify, and promote cloud financial management best practices and standards. Unfortunately, still, the majority of these discussions take place among technical people who are keen on finance matters rather than finance folks who are keen to be a little more technical. I think it is time we attract more finance community to this discussion and get their input. Ultimately, their domain is going to be disrupted due to the latest cloud technologies so it is imperative that they play a vital role in this process. Another issue in this area is that most of the discussions have been on an operational level not on a strategic level. Enterprises must take a strategic approach using a long term financial perspective, not from an operational viewpoint. This article highlights a few points towards building this approach, including a financial management framework. Additionally, the article discusses how different levels in the finance department could collaborate with the rest of the departments to achieve better results for the organization.
One important organization role we are going to discuss is the CFO role. As mentioned in the digital CFO article by Mark Schwartz, the CFO role needs to be changed amid cloud disruptions. He is the main person who is going to spearhead the integration with other C-level leaders to set the example at the top. He needs to keep a close relationship with the CIO, Chief Product Officer (CPO) and the leaders of each line of business to make sure the organization’s finance function strategically aligns with the rest of the organization.
Financial Management Framework
Establishing a financial management framework will provide structures, processes, and guidelines that are required to make wise strategic financial decisions. The discussions that take place on integrated planning nicely overlap with what is required to meet the demands of the cloud computing world. Integrated planning discusses how the planning process should be an iterative process compared to the linear approach in the past. It also highlights the importance of being collaborative vs. siloed. It also very importantly emphasizes being strategic as opposed to being reactionary. These are fundamentals that drive cloud-enabled digital transformation, too. The proposed framework also should consider how marginal values can be used in the decision-making process. Once a framework is established it should provide the guidelines for middle and lower-level managers to make decisions based on them. Otherwise, the speed of delivery provided by DevOps teams can be adversely impacted.
Monitoring and Governance
One element that comes into play here is the need to form an entity, a Cloud Finance Governance Team, who could form the structural body that will make governance policies. In this team, technical/engineering teams could act as technical experts. The CFO team can provide an IT financial framework and KPIs. Ensuring transparency through this body is essential to make it a success. In order to do this, they can make use of third-party tools or native tools provided by cloud vendors to collect data, organize, and present to the rest of the organization. This data could be of multiple accounts and multiple cloud platforms. This monitoring platform should alert leadership at necessary levels about negative patterns, spikes, and exceptions so informed decisions could be made using near-real-time data to address such issues.
Not having such a mechanism would lead to a lot of risks. The whole idea of entering the cloud is to fast-track the digital transformation of an organization. If proper financial monitoring and control are not in place, cost variability could go up to frustrating levels which may lead to a stop in funding for essential digital transformation processes which defeats the original purpose for going to the cloud. Also, we have seen a bad history of “Shadow IT” causing havoc by creating multiple accounts making it difficult to consolidate and keep a track. Tools form an essential part of the financial management framework.
How this framework could be integrated with the corporate financial planning process needs to be further discussed. It is very important that financial professionals come to the forefront of this discussion and establish the necessary best practices with the help of technical experts.
As mentioned in the first part of this section, the CFO has to keep a close relationship with other leaders in the organization. If the product management group is planning on major product upgrades, with new features, the CFO should consider new cloud resource additions to the existing resource pool. Furthermore, he should take into account past usage and purchasing data. He can request anticipated revenue details from these enhancements from product and marketing teams. Once theCFO has all cost and revenue details he should be able to provide informed financial input on the upgrades. The team-level small feature additions can go through the financial analyst who can make a judgment on the worthiness of those additions from a financial perspective using the guidelines depicted in the financial management framework.
Finance managers and financial analysts could take a lead role when it comes to operational level matters. As does the CFO, they, too, have to collaborate with their counterparts in other departments. They need to work closely with the DevOps teams and can play a financial advocate role to achieve a few objectives.
It is impossible to keep a track of detail transaction records of a cloud operation in a worksheet as in past. Resource usage keeps on changing every second. The cloud infrastructure produces millions of transaction records at the enterprise level. Technologies such as serverless could multiply this number to an extraordinary level. Some enterprise-level real-life transaction files are of 450 GB size uncompressed so it will be impossible to track manually. Finance analyst needs to make the best use of the tools available or request for same. Unfortunately, the finance industry researches have indicated many existing technologies remain vastly underutilized. This clearly shows a gap that needs to be closed sooner than later.
Financial analysts become vital in identifying the product feature worthiness by considering various cost and revenue elements related to new features at the product level. Serverless computing brings an important aspect to this context by enabling the calculation on a margin basis. If your transactions are running as a set of components that get activated when revenue-generating customer action is triggered you can compute how much it will cost to run each microservice that is needed to complete given transaction in a serverless environment. A methodology like this will have to be soon utilized because the percentage of companies around the world that use a serverless approach will rise to 20% by 2020.
Also, finance operation teams could work with the technical operation and engineering teams to periodically evaluate the cloud footprint of the organization. They can consolidate all account details by each LOB and make decisions in scenarios like purchasing reserved instances. They can perform periodic cleansing activities such as shutting down any detached EBS volumes if those are not performed by automatic jobs. In fact, they should push technical teams to implement such basic steps without resorting to manual operations as it will be time-consuming and less cost-effective.
Speed of delivery is a crucial factor to overcome competition. Agile teams using DevOps empower faster deliveries. This leads to quick customer feedback which makes it possible to evaluate the worthiness of said MVP to business as a whole. Eventually, this should be a part of the go-or-no go decision by the Scrum team before they continue with the development. I am not suggesting to go ahead with a “Product Worthiness” test to be performed as we run performance tests today. However, this dimension has been neglected because most DevOps teams believe implementing their features in the cloud is cost-effective. That thought may hold true until the majority of industries move to the cloud, at which point we need to be much more cost-conscious. Why not start today?
The objective of this article is to provide a few insights in to finance aspects related to cloud computing which seems lacking in the industry. As cloud computing evolved terms such as DevOps emerged. When security needed to be integrated as part of the building process, the term “DevSecOps” appeared. Business analysts work in the digital era coin the term “DevBizSecOps,” I am not trying to promote another term, but I am certainly promoting the idea of the entire organization, top to bottom, being financially savvy to be successful and sustainable in this game.
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