How can you justify your cloud costs to stakeholders?

Cloud computing costs may jump quickly if we don’t right set of monitoring & logging in place. In order to understand the cloud computing cost, tagging plays an important role. Resource level tagging Project level tagging Business level tagging Organization level tagging across the different resources such as 1. Compute 2. Storage 3. Network 4. Databases 5. Security

In the era of cloud computing, visibility has emerged as a pivotal aspect, marking a transformative shift in organizational perceptions of IT infrastructure. The transition in procurement methods for IT infrastructure necessitates alterations in financial reporting, compelling a shift from CAPEX to OPEX models. Historically, CFOs relegated financial oversight in this domain to IT. However, this delegation poses substantial risks, particularly when departments surpass their allocated budgets before the fiscal year concludes. departments, human resources, and business leaders to collaboratively engage in this endeavour, reflecting the integral role of technology in aligning with and propelling business strategies forward.

This is a significant cultural shift for most large organizations. In additional to the discussion about actual costs / benefits for the company there should also be an education process with key finance stakeholders about the cloud model. In a business where POs are issued for exact dollar amounts, finance needs to understand that cloud is a pay as you go conumption based model. Costs in many cases are estimates and POs many times will need to be re-issued or issued as in a blanket style to cover expected usage. This will appear as very basic concept to many who have experience in this area, but it's critical for finance to be exposed to these concepts early in the cloud adoption process.

There are 2 scenarios where we can justify cloud cost with our stakeholders . scenario 1: our internal or external customers are new to cloud scenario 2: our customers already using cloud and mid of a massive digital transformation So both the cases my approach is to understand the target workloads, applications and tech stack running we are planning to migrate to cloud or already hosted in cloud . some of the examples hosting a saas app, building a data platform or data lake , POC for big compute etc. once we understand the workload then choose the right cloud services and before adoption or migration , we need to do a financial assessment that includes TCO, ROI analysis or creating a strong business case that will surely justify

I think the concept of understand the cloud costs has really evolved and find tool that can easy track it for you and use AI to suggest the optimization to save every single penny are a solved problem. All of we have to do now is to make sure that we are utilizing the information available and creating actionables against them.

Justifying cloud costs to stakeholders involves a comprehensive understanding and clear communication of the costs and benefits. It’s crucial to clarify how cloud computing aligns with organizational goals and offers advantages like flexibility and innovation, potentially offsetting expenses. Clear, jargon-free communication of costs and benefits, coupled with visual aids, aids in understanding. Optimization strategies and regular monitoring can highlight efficiency and cost-effectiveness. Inclusion and collaboration with stakeholders in decision-making processes can align cloud investments with organizational expectations, fostering a shared understanding and acceptance of the associated costs.

The rise of FinOps has tried to align cloud budgeting into the development path. As new other services become used (e.g. AI) so will costs - indeed I work with a FTSE 100 company had to shelve a project purely because their cloud costs exceeded expectation. What is needed is an analysis of SCOPE, SCALE and SCRAM. SCOPE - what is your future service usage path and will it require more and more cloud services? SCALE: If your demand increases cloud usage (and thus cost) is this correctly aligned with the company revenue / profit, or misaligned from that? SCRAM: How locked in will the company be to the cloud provider and how easy would it be a scram to a cheaper service (or will the provider gouge you for their monopoly)?

You must understand that the cloud business model gets you hooked with its low pricing and offloaded management through economies of scale...But by no means is it the best solution. You don't justify cloud costs, you compare them to on-premise costs and you calculate the TCO (Total Cost of Ownership) over a full year of operations. The numbers will speak for themselves.

To justify cloud costs to stakeholders, businesses should: 1. Connect cloud costs to key performance indicators (KPIs) like revenue, profitability, growth, and customer satisfaction, demonstrating the value of cloud investments. 2. Align cloud expenses with business objectives to optimize costs and prioritize crucial goals. 3. Clearly and transparently communicate costs, using plain language and visuals to address stakeholder concerns. 4. Optimize cloud spending through monitoring, analysis, and policies, ensuring efficiency and goal alignment.

✅ Carbon taxes are coming in for some countries? It will be good to review the instances and its required resources for your organisation. Always good to plug the leaks by turning off the taps.

Linking cloud costs to business goals is essential for the success of an organization. There are times when an increase in cloud costs isn't necessarily a bad things. One example of this is if the cloud application drives profits. When creating cloud application put extra effort to link all components not just to cost centers but to the overall benefit that their functions are providing to the company. Applying tags and correctly defining environment are two great ways to assist with this.

An excellent way to align cloud costs with your strategy is to link between cloud costs and key performance indicators (KPIs) like revenue and growth is commendable, making stakeholders see cloud investments as strategic enablers rather than mere costs. Moreover, shedding light on less tangible cloud benefits like resilience and security broadens the understanding of cloud adoption's holistic value.

I think the time in recent past when we used to do an ROI on cloud costs is over. The traditional method was thinking about conventional TCO when compared to brick and mortar data center. Now you have to really think fast and innovate fast and make sure the time to market is not going to depend long hardware acquisition and placement costs. Now, it is alll about leaving all the brick and mortar management to someone else and finding fast route to strategic advantage using the cutting edge tech and without lot of CAPEX involved. It is also about how to Pivot really fast without any asset baggage involved depreciating in value faster than falling from sky. It is really about being able to see beyond cost saving and aligning with the future

Increasing cloud costs is necessarily not a bad thing if it is due to increased business performance or an increase in revenue of the specific product units leveraging the cloud. So the intent should be to align cloud costs with specific business units through unit metrics definition and discipline in adopting the same. But, it is not going to be easy to achieve this if you are just getting started with FinOps or Cloud Cost Management as a serious topic in your organization. This requires a top-down sponsorship to drive a FinOps strategy that outlines the unit metrics in collaboration with various business units to define unit-specific measures. This is crucial as not every business unit will have the same success measures.

Aligning cloud costs with business strategy is paramount. This necessitates illustrating to stakeholders how cloud investments underpin the organisation's mission, enhance competitive advantage, and fuel innovation. It’s vital to demonstrate the connection between cloud costs and key performance indicators, such as revenue and growth. Additionally, highlighting intangible benefits like agility and resilience, which aren’t easily quantified, is crucial. This alignment fosters a comprehensive understanding of the strategic importance and inherent value of cloud investments, ensuring they are viewed not just as costs, but as catalysts for organisational advancement.

It is usually not feasibility to causation analysis of cloud costs to KPIs. Correlation is kind of a useful tool, but is highly subjective. You might even have the side effect of the costs factoring into KPIs. This should be used with caution.

Comparing a cloud "buy" approach to a "build" approach highlights cost-effectiveness. Building on-premises solutions requires hiring, training, and ongoing maintenance, leading to higher Total Cost of Ownership (TCO). Conversely, buying cloud services lowers TCO with faster deployment, scalability, and flexibility. The cloud enables quicker market response, safeguarding market share and fueling innovation. Direct comparison not only showcases cost savings but accentuates the strategic advantages of cloud adoption, providing a comprehensive perspective to stakeholders on the long-term value and efficiency that cloud computing brings to the table.

Traditional IT models often involve high upfront capital expenses for hardware, software, and infrastructure. Cloud, on the other hand, transitions these to operational expenses, spreading costs over time. Compare the total cost of ownership (TCO) over a set period, factoring in depreciation, maintenance, and potential hardware replacements for on-premises solutions. Additionally, consider the opportunity costs: agility, scalability, and innovation speed offered by the cloud. Importantly, many cloud providers are now prioritizing sustainability, utilizing renewable energy and efficient data centers, which lowers the environmental footprint. It's essential to evaluate the broader business and environmental impact each option offers.

If your TCO is equal to or greater than $250,000 for the year, on-premise may be for you. Don't be fooled by metered pricing because of cost overruns when not monitored properly.

Justifying cloud costs often requires comparison with alternatives like on-premises or hybrid models. It's crucial to evaluate the total cost of ownership (TCO) for each, considering both direct and indirect costs, including maintenance, upgrades, and associated risks. Understanding opportunity costs, like potential market share losses or reduced innovation capabilities by not adopting cloud solutions, is key. Moreover, considering long-term value propositions of cloud computing, such as scalability and future-proofing capabilities, helps to contextualise costs, revealing the cloud's inherent strategic and economic advantages over more traditional infrastructural investments.

Effectively communicating cloud costs to stakeholders is pivotal, requiring clarity and transparency. Utilising simple language and avoiding technical jargon is essential, as is explaining any specific terms or acronyms. Visual aids like charts and dashboards can effectively illustrate cloud costs and their business impact, making the information more digestible. Tailoring the message to the audience, addressing their concerns and expectations, enhances engagement. Being honest about the challenges, trade-offs, and potential areas for improvement in cloud computing fosters trust and sets realistic expectations, ensuring a balanced and informed view of the investments involved.

This is where I believe is the crux of the problem for this articles approach. Try explaining a cloud services cost, just one, to a stakeholder in a clear and effective manner. It is complicated. Then, factor in estimates of usage, which regions if region specific. Now combine the services used in the product. I’m not arguing not to try and explain clear usage, but this article drastically oversimplifies the mechanisms to understand communicate to stakeholders on an ongoing basis.

I believe effective communication of cloud costs is crucial for bridging the gap between technical teams and stakeholders. This involves breaking down costs, showcasing the value gained, explaining optimization strategies, ensuring compliance, and educating stakeholders. It's not just financial reporting; it's a strategic necessity that builds trust and aligns cloud investments with business goals. Being honest and clear upfront saves you from further misunderstandings and trust issues.

Environmental considerations are paramount. As the emphasis on carbon emissions grows, many firms assess their Scope 3 emissions, encompassing all indirect emissions outside Scope 1 and 2. Cloud providers, due to their scale, can invest in green tech, aiding in carbon footprint reduction. Transitioning to the cloud can thus trim a firm's Scope 3 emissions. With stricter environmental regulations on the horizon, partnering with sustainability-focused cloud providers can shield businesses from future compliance costs, making the cloud choice both a fiscal and green strategy.

Cloud is not a virtual Data center. Cloud is a business enabler, Cloud will help to meet your business Goals, react to market and Go to Market at speed and scale. Align cloud with business goals and not just IT Goals.

Justification of the cloud costs depends on the improvement in the business performance (improved revenue, increased sales etc.). To find whether there has been an impact (positive or negative) or not, there needs to be a means to Measure and Act. This is only possible when cloud cost management is considered a top-down initiative from either the CTO or CIO organization. Investments are required to build a FinOps practice either part of the Cloud Center of Excellence or as a standalone practice. It need not be an army of experts but can be a lean team with a single focus on implementing various FinOps best capabilities like Cost Allocations, Forecasts, Chargebacks, Usage Optimization, Price Optimization and more.

Time to market has always been an important concept in the business world. Today, it is a survival trait. In this day and age: Can your BofD wait one to two months for you to order, receive, install and deploy that new server you need, instead of launching a virtual machine on a cloud provider in hours, if not minutes? Are they willing to borrow money to get the CAPEX needed to buy equipment and professional services when they could leverage their finances with OPEX? Stakeholders know about business, know about cost optimization and maximizing profits. A well thought of cloud services strategy is something they will understand and value. Talk to them in business terms, and they will get onboard with your vision for the future.