5 min to readFinOps Services

What is cloud financial management?

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Dan OrtmanFinOps & Cloud Services Director, SoftwareOne
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Cloud financial management or FinOps is when a company creates a strategy and governance structure to solve the problem of cloud inefficiencies and higher cloud costs.

While moving to the cloud is non-negotiable for organizations, not everyone has been able to realize its full potential.

Organizations usually chalk out a plan to migrate existing data and applications to the cloud and enable stakeholders to create and deploy new applications that offer new functionalities, features, and more. The cloud, ultimately, becomes the engine that delivers growth, business value, and innovation.

The journey to the cloud is exciting. However, in order to make the most of what the cloud has to offer, organizations need to build some kind of governance framework in the early stages of their migration journey.

Although it may seem like an administrative task at first, it is critical to orchestrate cloud resources that are aligned with the company’s original cloud mission and vision. Neglecting to do this creates inefficiencies in an organization’s cloud ecosystem that must be addressed later at a significant cost.

What is cloud financial management or FinOps?

Cloud financial management, also known as FinOps, involves devising a strategy and implementing a governance structure that addresses cloud inefficiencies and higher cloud costs. Investing time, effort, and resources in FinOps helps companies deliver the best experience to internal and external users. Cloud financial management ensures stakeholders receive the cloud-related return on investment (ROI) they were initially promised.

Cloud financial management is a critical milestone in the cloud migration journey. FinOps is an essential phase in any cloud maturity model. Without it, organizations risk paying more for a cloud infrastructure they do not need. Companies set themselves up for failure by creating complexities in their cloud footprint that require more effort and costs.

Why are cloud costs variable and difficult to estimate?

When business leaders initially talk about the cloud, they believe that move will bring several cost advantages to their organization. Further, it is often claimed that this advantage accrues immediately, as soon as organizations choose the cloud.

Typically, organizations have had to spend significant sums of money on building IT infrastructure, investing in real estate space and hardware, and creating capacity and supporting their digital ambitions.

Since these costs have to be paid up-front, they are considered capital expenses (CAPEX). They are often amortized over some time without creating any actual financial capability for the organization to upgrade, overhaul, or rebuild these facilities when needed in the future.

Comparatively, moving to the cloud looks simple from a financial standpoint.

Organizations have to pay cloud vendors for resources based on agreements that allow dedicated use of specific fixed capacity every month while providing an option to support a temporary or permanent rise in demand at a particular cost.

Since this model allows vendors to issue invoices for expenses incurred, they are considered operating expenses (OPEX). They are deducted from revenues in the organization’s profit and loss (P&L) statement annually.

On the surface, any organization that can estimate its needs accurately should be able to determine its cloud expense with a high degree of certainty. Further, as usage patterns become apparent, their ability to determine costs and control them should improve.

Sadly, managing cloud costs is only easy in theory.

In practice, gaining clarity in an organization's cloud environment becomes difficult because of the number of people able to buy cloud resources by using a credit card or by provisioning additional resources using a dashboard or portal.

A cloud costs scenario

To better understand this, let’s visualize the following scenario. A retail company’s IT and finance teams set up a cloud budget based on past usage patterns and forecasts at the start of the year. Two of their operations teams say—inventory management and logistics—came up with new ideas during the year to create applications that enabled the company to deliver better experiences to customers. They pitched the idea to the engineering leaders in the organization, who saw the benefits, allocated development resources to the project, and deployed them on new cloud instances.

This was an excellent opportunity to deliver innovation to the engineering team's leaders, an essential key performance indicator (KPI). However, the new instances added additional line items to the organization’s cloud bill that its IT and finance teams couldn’t foresee. Further, once the organization migrated to the cloud, it has been focused on re-architecting applications for the cloud and running them smoothly.

Nobody is assigned the responsibility of reviewing and optimizing cloud usage for the organization. As a result, data that is not used often, such as historical transaction data and accounting, compliance, and tax reporting backups, are stored in cloud instances meant to hold frequently recalled data and support front-end applications. This automatically means that the organization is not making the most of its cloud investments and demonstrates why it needs help with cloud financial management.

According to a recent study by The FinOps Foundation, as organizations spend more money on cloud resources, they see a greater need for cloud financial management. Specifically, their data revealed that as spending crosses the $1 million-per-year mark, C-suite executives start to place a stronger emphasis on gaining visibility into the cloud bill, managing it, and optimizing it.

Where do we start with FinOps?

While understanding the framework we will discuss next is essential, creating a culture of accountability will be the differentiator in standing up a successful cloud financial management practice. We ask our engineers and developers to create and innovate faster than ever. Cloud and the agility that comes with it is key to their success. Striking the balance of enabling those teams while instilling that culture of accountability is core to FinOps.

This culture change, executive sponsorship, and collaboration will require some strategic planning. Spending the time upfront will massively impact the time to value. Taking advantage of existing change champions/sponsors, learning management systems, and other successful organizational tools will also help launch FinOps initially and foster continuous improvement.

How can companies gain visibility into their cloud spending?

Organizations that want to gain visibility into their cloud spending should consider working with an experienced partner in the cloud space to develop and deploy a cloud financial management plan and solution. Finding the right partner and solutions is critical to success as experience plays a significant role in identifying optimization opportunities.

Ultimately, for any organization, the journey to cloud financial management involves three key phases: inform, optimize, and operate. Together, they help leaders make sure that everyone in the organization understands the importance of the initiative, has all the information they must support cost-related goals and keeps up with their own individual or group priorities when innovating on the cloud.

Because almost anyone can demand (provision) cloud resources, business, IT, and finance teams must cooperate to share data around consumed cloud resources and their costs.


Working together helps gather the information needed to estimate and forecast cloud usage and pinpoint which teams have a stake in cloud technologies and how their usage may be optimized without hindering their need to innovate.

Three phases of cloud financial management

Let’s dive into the three phases of cloud financial management to understand how each helps the organization move towards its goal of optimizing its cloud footprint.

Phase 1: Inform

In the first phase, organizations must clarify cloud usage and create a dashboard that allows everyone to gain access to insights around resources deployed and their costs.

The tactical way to move past this stage is to leverage a solution like SoftwareOne’s proprietary PyraCloud, which not only makes it easy for individual stakeholders to generate reports on-demand but also helps predict the impact on the organization’s cloud bill if new resources are requested or if changes are made to existing deployments.

However, behind the scenes, leaders must work with experts to create a strategic plan when embarking on their cloud financial management journey. They must bring key cross-functional stakeholders together to form a body of cloud governance or a cloud center of excellence (Cloud CoE) to give their cloud financial management agenda some momentum and focus.

The Cloud CoE usually includes representatives of IT and finance teams and operations leaders, and IT/cloud security managers in the company. Further, the Cloud CoE must also have all of the business product owners in the organization; since this cohort works closely with developers to leverage cloud resources to create new capabilities, functionalities, and applications, they can offer significant insights.

Once a Cloud CoE is established, and a solution such as SoftwareOne’s PyraCloud has been deployed, organizations gain visibility into their entire cloud footprint, allowing them to think about the next phase of their cloud financial management journey.

Phase 2: Optimize

When all cloud stakeholders talk to each other, they can create incredible value for the organization. Further, thanks to SoftwareOne’s PyraCloud, they can see usage in real-time, generate reports on-demand, and take action quickly to optimize their cloud bills.

It’s essential to address the fact that when multiple stakeholders work together, they’re not only able to balance their need for public and private cloud environments but are also able to optimize their multi-cloud deployments. One group in the organization might have spare capacity in one cloud instance with a particular cloud vendor. It may be able to share it with another group that seeks a multi-cloud deployment to ensure uptime or support a seasonal uptick in demand.

SoftwareOne’s PyraCloud makes it easy to identify such cost-saving opportunities once it is set up. Further, it can provide intelligent recommendations to business product owners and engineers/developers who are thinking about creating new functionalities, capabilities, or applications to drive the organization’s innovation agenda forward.

Two essential strategies that companies leverage during the optimize phase of their cloud financial management include right-sizing and right-costing. The former involves changing the technical specifications of cloud deployments to maximize resource utilization. The latter identifies and uses commercial cost-savings programs each cloud vendor offers individually.

While right-sizing is a significant first step, the quantum of benefits delivered by right-costing is often more important because it does not involve giving up cloud resources. However, right-costing usually requires specialist knowledge, and hence, working with a partner like SoftwareOne is critical. Further, a partner can help seize other opportunities such as automating elasticity, power cycling, and reducing under-utilized resources.

A recent study by the FinOps Foundation we cited earlier said that organizations often spend more than $1 million per year on the cloud. Further, Gartner has recently forecasted that organizations will spend close to $500 billion on public cloud services in 2022. These statistics show just how valuable advice from a reliable partner can be.

Phase 3: Operate

The final phase of financial cloud management is focused on the future. It directs the attention of stakeholders to the data they now hold, thanks to the platform they rolled out during the ‘inform’ phase and the cost reductions they were able to create for themselves as a result of expert advice received during the ‘optimize’ phase. This helps them think about what the future holds.

Despite their best efforts, organizations might resort to old patterns once this ‘financial management’ exercise/campaign is over if policies around what the Cloud CoE can and cannot do are not implemented and if cloud optimization doesn’t become part of the mandate for every key stakeholder in the organization.

Thanks to PyraCloud, organization’s leaders can monitor costs and utilization in real-time, create dashboards and reports on-demand, gain insights and receive intelligent recommendations about where and how costs can be reduced while delivering the best cloud resources to users inside and outside the organization.

How can cloud financial management help organizations?

Every business leader today understands that the cloud is critical to their success. Cloud resources must be freely available to teams when they want to scale applications quickly, be agile with functionalities and capabilities, and drive innovation that creates new victories. Following the three-phased approach to cloud financial management can help these organizations set themselves up for success in the long term.

Five benefits of cloud financial management

Companies receive five key benefits of cloud financial management. Let’s dive into what they are.

  1. Drive cloud maturity: Investing in cloud financial management, in and of itself, is a sign of a high degree of cloud maturity. Further, cloud financial management solutions help unlock the ROI in long-term cloud investments, making the journey to the cloud more exciting for all stakeholders involved.
  2. Maximize cloud utilization: Cloud resources may be deployed by different stakeholders across the organization based on their individual and group needs. However, using a sound cloud financial management solution ensures that every investment in the cloud is used optimally.
  3. Avoid cloud spend waste: Cloud spending waste is common in the cloud era, as organizations don’t always know what resources their groups and departments have invested in. Cloud financial management helps gain visibility and reduce wasted cloud resources.
  4. Enable automation and forecasting: Cloud financial management solutions such as PyraCloud make it possible to automate the discovery of cost optimization opportunities and forecast future usage based on insights from business product managers. This allows organizations to spend more time on innovating.
  5. Reduce compliance and security risks: Cloud financial management also plays a vital role in identifying and mitigating risks, especially from a compliance and security point of view. Working with a specialist advisors team can help create policies that systemically reduce these risks.

Maximizing the ROI of cloud migration with cloud financial management

Organizations are told that the cloud offers significant cost advantages when moving to it. Companies expect to only pay for what they use, quickly scale their cloud deployment up (and down), and avoid maintenance and management costs.

In practice, it’s easy to see that although migrating to the cloud is critical to business, delivering on the ROI requires careful planning and the support of an experienced partner. Together, they can create an effective cloud financial management strategy, deploy solutions such as PyraCloud, and leverage vendor-led commercial cost-savings programs to get more out of their investments.

Remember, migrating to the cloud can deliver significant advantages to an organization. If optimized and managed efficiently, it can also be advantageous financially. Check out our free online resources to learn more about cloud financial management or FinOps. You may also want to work with our team to explore how your organization can benefit from cloud financial management.


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Dan Ortman
FinOps & Cloud Services Director, SoftwareOne