A beginners’ guide for Finance and Operations teams in their cloud migration journey
Finance teams maintain a unique position in their organization enabling them to accelerate strategic business imperatives. As custodians of capital, they play a crucial role in deciding where to place strategic bets. A cloud migration comes with many unknowns, variables, and new capabilities that business teams must unpack for a seamless cloud journey. This blog post discusses some areas that finance as well as operations teams should keep in mind while approaching a migration to the cloud.
Is cloud a cost savings lever or a growth accelerator?
The value of a cloud migration is more than just cost savings, organizations can realize increased value in the areas of staff productivity, operational resiliency and business agility that lead to increased innovation and reduced time to market in launching new features and products. With cloud adoption, infrastructure procurement and consumption are not beholden to a chain of operational and financial dependencies. Cloud technology and product teams are not just builders but operators and owners of their products. They now have responsibilities for many of the activities historically associated with finance and operations teams including procurement and deployment. The ability to spin up and tear down experiments improves agility for technology teams and enables them to innovate faster.
What is the correct migration Strategy?
The short answer is that finance, operations, and business teams should not solve for all variables upfront. It is s essential to have the right migration strategy for your cloud migration and these strategies span across time and cost investments while returning varying degrees of cloud value realization. Often, organizations analyze or overanalyze to create the perfect strategy for migration leading to delays and lost opportunity. The project cost can be directly proportional to the duration of the migration. During a cloud migration phase, organizations have to pay for both on-premises as well as cloud costs for running their workloads. This is known as a “double-bubble cost.” Organizations should strive for incremental value and not wait for the perfect migration strategy. They should take the time to prioritize their workloads and then apply an appropriate migration option for those prioritized workloads to shorten migration cycles while simultaneously setting the foundation for continuously modernizing their cloud workloads. The migration to the cloud is not the end but the beginning of an organization’s digital transformation journey.
What operational mechanisms should be in place for an effective cloud migration?
Many enterprises build business cases by employing a Return On Investment (ROI) metric as justification for a cloud migration. This ROI includes costs for running on AWS, cloud optimization opportunities and a roadmap to maximize cloud value based on managed services such as serverless and/or AI/ML. Once finance teams approve the business case that was used to create the ROI, they need mechanisms to track accrued costs to ensure that the ROI is actually realized. Establishing operational control mechanisms right from the inception of the migration engagement ensures cost transparency and maintains accountability across all parties (finance, technology, operations) involved in the migration.
Finance teams should focus on developing mechanisms for measuring and monitoring cloud spend for workloads or applications involved in the migration. AWS can enable finance teams to create this level of visibility. Adopting AWS Organizations helps enterprises to centrally manage and govern their cloud environment as their cloud investments grow and scale. Implementing a multi-account structure by using AWS Organizations coupled with AWS cost categories and tagging best practices enables allow finance teams to understand better how business units and functional groups are utilizing AWS resources. Finance teams can then start to correlate their AWS spend with business revenue to capture a snapshot of value realization.
Finance and operations teams can further set various financial guardrails on overall spend projections at the AWS service or an AWS account level to reduce the risk of overspending by using AWS Budgets. AWS Budgets allows you to set a budget and alerts you when you exceed (or are forecasted to exceed) your budgeted cost or usage amount. Using AWS Budgets actions you can also define the action you want to take within your account if your cost or usage exceeds a configured threshold or is forecasted to exceed that threshold. These actions can be executed automatically or with approval to reduce unintentional overspending. Refer to How to manage cost overruns in your AWS multi-account environment for insight on how to manage your cost overruns.
How can finance align supply and demand to accelerate business growth?
With the cloud’s ‘pay-as-you-go’ model, it opens up new possibilities to connect your company’s business demand with cloud operating costs. The move to cloud enables visibility and new cost management capabilities to distinguish good spending versus unproductive spending on your cloud deployment.
Business metric unit costs relevant to your organization can be per transaction, cost per trade, cost per ride, cost per flight, or cost per widget. Measuring and reporting costs using a unit metric Key Performance Indicator (KPI) provides a more accurate representation of how efficient is your cloud usage. It provides a data-driven determination to assess if the increase in spend is a sign of success or a sign that something needs to be investigated for finance to align supply and demand in order to accelerate business growth
Are there additional levers to optimize cloud spend?
AWS provides enterprises with multiple ways to consume AWS services based on their business needs. Taking advantage of various discount programs like Savings Plans and Reserved Instances are crucial to driving down the cost per unit on your AWS bill. For example, Reserved Instances are ideal for applications with steady-state or predictable usage and can provide up to a 72% discount compared to on-demand pricing, while Amazon EC2 Spot can reduce costs by up to 90% on compute instances fault-tolerant workloads. In addition to these billing discount strategies, it is essential to have governance to monitor and control your AWS environment. These include technical mechanisms such as rightsizing instances, deleting unused EBS volumes, implementing Amazon S3 lifecycle policies, and fine tuning Auto Scaling policies. Refer to this blog post that describes 10 things you can do to reduce your AWS costs.
In summary, there are many questions that finance and operations teams need to answer when they embark on their cloud journey in partnership with their business teams. In this blog post we have attempted to provide examples of some of those common questions and outlined answers to them. Moving to the cloud can be not just about cost savings but rather accelerating your organization’s innovation journey. You should take a programmatic approach, with proper operational control mechanisms in place from the beginning for a successful cloud journey. Finally, remember to strive for incremental value by getting started sooner instead of waiting for the perfect migration strategy that encompasses every migration workload.