Leveraging the CFM lever to move your business world
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world” – Archimedes.
451 Research’s recent whitepaper “Cloud Financial Management, Small Changes Can Make Big Impacts” (April 2020) highlights how organizations who are able to embrace the CFM lever correctly are able to accelerate both top and bottom line results for their businesses. For those of you who are not familiar with Cloud Financial Management (CFM), it is a framework that shares best practices, capabilities, and guidelines for tools, skillsets, and processes in managing and optimizing your cloud spend.
The effective cost management helps identify opportunities to reduce usage waste and match the technology capacity with your true business and organizational demand. On average, survey respondents in the 451 Research study saved 56% of their cloud costs as a result of applying Cloud Financial Management practices in their organization. The success of their CFM practices reinforces the significance even small changes can have, and encourages these organizations to look for ways to scale or establish a culture of cost accountability by embracing these best practices to grow savings over time.
451 Research also found that the benefits of CFM extend beyond just costs and can impact the way businesses create value. Rather than focusing on cost minimization, as we’re used to with the traditional infrastructure management, more and more organizations are establishing mechanisms to track business value that measures the overall business impact of migrating to and expanding in the cloud. As such, we recommend organizations to track and allocate cloud costs back to specific business initiatives, such as improvement of existing e-commerce sites, new product initiatives, and create KPIs that can allow them to calculate the actual value created by their cloud investment. Developers and operation teams can focus more on their primary responsibilities instead of finding ways to squeeze costs. From a business resilience perspective, 451 Research’s study found that 63% of the respondents said CFM has helped reduce business risks. From a business agility perspective, 67% of survey respondents have used CFM practices to grow revenue, and 64% stated that they improved their profitability because of CFM. So while CFM doesn’t explicitly establish a framework for growing your business or accelerating innovation, when adopting CFM best practices, we see customers start to reinvest efforts in making applications better, innovate more, or think beyond maintenance or basic cost accounting.
Benefits Increase with Maturity
When looking across customers who are in various stages of cloud journey, we see that CM benefits grow as customers mature in their adoption of AWS. As mentioned above, survey respondents see an average of 56% cost reduction after applying CFM practices. The cost reduction grows to 60% for those who have used AWS for more than five years versus 51% for those who have two to three years of experience. CFM is making organizations more resilient. 69% of survey respondents who have more than five years of AWS reported improvements in overall business risks, versus 57% of those with 2-3 years of experience. Similarly, on average, 67% of survey respondents have seen growth in revenue and 64% has improved profitability. These business benefits become more obvious with organizations with 5+ years of experience on AWS, out of whom 78% have seen revenue growth and 71% have improved profitability, as opposed to 55% and 62% for those with two to three years of experience on AWS.
Exactly how difficult is it to get started with your Cloud Financial Management journey? The good news is that there are many easy wins and AWS provides many free cloud cost management services. For example, you can get full visibility of your cloud spend summary and a breakdown of your spend by your preferred dimension, e.g. services, accounts, business units, using AWS Cost Explorer. AWS provides usage-specific recommendations to help you continuously optimize and save with. You will receive recommendations to right size your resources, as well as to leverage the pricing models, e.g. Savings Plans for your payer and member accounts. For customers looking for ways to adopt more cloud-friendly budgeting and monitoring processes, AWS Budgets can help customers set and track cost and usage budgets, as well as utilization and coverage targets for Reserved Instances and Savings Plans. In 451 Research’s study, we learned that companies with more maturity on AWS tend to use CFM tools on a weekly basis to help them embrace and reinforce these capabilities across various teams and businesses.
We recommend starting your CFM journey early and taking small steps. Whether it be tagging and categorizing your resources, so your teams can make sense of your cost and usage data; intentionally managing your user permissions, so users have access to resources based on their roles; setting up budget reports and alerts, so you can stay informed and attend to any outliers when warranted; or enabling Cost Explorer Resource Recommendations to identify opportunities to rightsize. Small changes can have big impacts, and these benefits increase with maturity.
Research source: Cloud Financial Management, Small Changes Can Make Big Impacts, 451 Research and AWS, 2020, All Rights Reserved.