Further Thoughts on Unit Metrics

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After the blog series on Unit Metrics, the call was put out for future topics.  There were some excellent suggestions received from the community.  Three in particular struck a chord:

• Building strong links between technology and other business teams
• Projecting AWS cost.  The role of traditional FP&A in the FinOps culture
• How to pitch Cloud Financial Management within an organization

I want to start with a focus on these core topics as they are pertinent to building a solid foundation for Cloud Financial Management (CFM).  Without a good foundation for your company’s CFM efforts, you might as well spend your day pushing rope up a hill.  It will be less frustrating.

Building strong links between technology and other business teams – most importantly accounting

It was said in the Unit Metrics blog series published on the AWS Cloud Financial Management Blog and it will be said again here.  Architects, developers and DevOps professionals (collectively referred to as engineers) will not only need to understand the technical capabilities and operational levers associated with running an AWS Service, they will also need to understand the cost levers associated with that service’s operations.  We need to actively teach the bits & bytes people about debits & credits.  There is no way around it.  There also needs to be a great working relationship between engineering and Tech finance.

To build strong links, consider the following:

High performing engineering teams will:

• Learn how to manage cloud costs efficiently as a builder
• Have performance standards for workloads and define:

What happens when the workload exceeds standard?

(too much crunches profit margins)

What happens when the workload is below standard

(not enough irritates customers or causes SLAs to be missed)

• Deploy solutions that manage “too much” and “not enough”
• Understand the costs associated with the services used to process a workload
• Include cloud operational costs as a non-functional requirement (NFR) for all stories to be put in the backlog
• Have a positive working relationship with their accounting and finance counterparts
• Have an appreciation that doing all of this well isn’t easy
• Develop empathy for accounting and finance and the job they have to do

High performing tech finance teams will:

• Learn the basics of the cloud by getting their AWS Cloud Practitioner certification
• Ensure there are operational standards and operational cost estimates for workloads.  What are the costs when a workload is operating at min, max and under a typical operating conditions?
• Understand the costs associated with the services used to process workloads
• Train the architects how to add cost modeling into their work product and develop a system of cost reviews to ensure systems operate as intended with respect to cost – especially after the code is deployed to production.  Trust but verify.
• Have a positive working relationship with their engineering counterparts
• Have an appreciation that doing all of this well isn’t easy
• Develop empathy for the engineers and the job they have to do

Projecting AWS cost.  The role of Traditional FP&A in the FinOps culture

To project AWS costs, you can read our unit metrics blog series to learn how unit metrics can evaluate the true efficiency of your investment and align your technology spending with business objectives.  You can also learn about how you can make data-informed decisions when you plan and forecast for your variable IT expenses by going to our solution page “Strategic IT Planning and Evaluation”.

If you can accurately forecast your demand drivers, you can estimate costs in a variable consumption environment.  Hint: FP&A folks already know how to build a demand-based forecast and conduct variance analysis.  Partner with them.

How to pitch Cloud Financial Management within an organization?

Cloud Financial Management, in my opinion, is the merging of accounting principles with the dynamic operational nature associated with effective cloud use.  Start with defining what FinOps/CFM is and why it is a value add by visiting FinOps.org.  I can’t top what the FinOps.org team has put together so why try.  They are a magnificent resource and asset to the cloud community.

Cloud Financial Management is required to support a cultural change that works in concert with shifting to the variable consumption/cost model that is core to the goodness of using the cloud.  There needs to be a group that is driving education for our debits & credits people and our bits & bytes people to understand their respective roles and responsibilities as they relate to effective cloud use.  There needs to be deliberate and concerted efforts to drive ownership of and responsibility for cloud costs beyond P&L owners and product managers right down to the edge where designers, builders, and operators of cloud-based resources work and play.  In the cloud, engineers are responsible for functional correctness and operational cost equally.

Cloud Financial Management practitioners work to develop systems of controls, reporting and benchmarking to ensure that cloud usage leads to the creation of business value.  If you’re getting the work done and you’re not making sufficient profit margins at the end of the day…your business plan is either to be acquired by a company with more dollars than sense before your series-B funding runs out or you plan to run a “lifestyle” business where you only answer only to yourself as you stagnate or slowly go broke.

Someone needs to sit in the middle between tech finance and engineering to bring them together.  That someone is on your CFM team…until something better comes along.