Why finance directors can’t afford to ignore Cloud costs

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Guest Comment by Eldar Tuvey

In times of prolonged economic uncertainty, cost-cutting strategies are a key focus for almost every finance leader worldwide. In 2023, many CFOs have had no choice but to take extreme measures – from laying off employees to closing offices for good.

But the reality is that many businesses are running out of ways to save money and finance leaders need to think creatively about new initiatives to reduce company spending.

One area of significant and relatively untapped savings opportunity is the Cloud. Cloud spending represents a meaningful chunk of a company’s expense line, typically ranging from anywhere between 5%-20% of total costs. Alarmingly, average spending on Cloud is growing by 35% year-on-year and is showing no signs of slowing down.

Ballooning costs are in part due to growing usage but also amplified by the 23% price increase in on-demand computing capacity from AWS and other pricing changes from vendors. As with employees or cost-of-goods, Cloud investments tend to scale with growth. More products, more features, more development, more customers, more services, more analysis: it all results in increased costs.

Amid price hikes and escalating usage, there is a real opportunity for finance directors to take control of surging costs, but only if they have the right visibility and control. Efforts to curb Cloud spending have been maturing for many years, and the discipline of FinOps (a portmanteau of finance and, confusingly, DevOps) is well established inside some businesses in a bid to get engineering, finance, technology, and business teams to collaborate on data-driven spending decisions.

Cloud spending can be incredibly detailed and technical, and understanding your Reserved Instances from your Enterprise Discount Programmes isn’t necessarily as obvious as it might seem

Despite these efforts, finance directors still have little visibility into how money is spent and more importantly, how costs can be reduced. Even companies that have invested in FinOps are still lacking the granular visibility needed to effectively manage costs. In a recent survey by my company, 55% of finance leaders said that their biggest roadblock in reducing spend was a lack of transparency from tech leaders, with 44% saying they can’t get visibility of cloud costs.

With many finance leaders unable to interpret cloud spending reports and subsequently measure ROI, there tends to be a heavy reliance on technology teams to demonstrate Cloud efficiency . This means that finance teams often have to take the tech or engineering team’s word that the cloud environment has been optimised, even though costs continue to rise.

Effective Cloud cost management starts with finance leaders getting access to a real-time and detailed view of spending. CFOs might rely heavily on DevOps teams to demonstrate efficiency but the responsibility to reduce spend largely remains in a finance director’s wheelhouse. It’s therefore crucial for finance teams to understand how money is being spent, as well as what opportunities exist to make savings.

The other aspect of Cloud cost management is building a culture of accountability within your organisation, which means knowing which team and which function are responsible for each part of your bill. Cloud spending can be incredibly detailed and technical, and understanding your Reserved Instances (RIs) from your Enterprise Discount Programmes (EDP) isn’t necessarily as obvious as it might seem to some.

Deciphering an invoice or negotiating with vendors often requires a fairly advanced technical understanding of Cloud discount programmes. Once that knowledge is available, leaders need to ensure that engineers are aware of what each line of code is costing the company and that they consider the cost implications before shipping new features.

The obvious challenge with these solutions is that it’s time-consuming for finance leaders to predict spending and persuade engineering teams to devote the time to making efficiencies.

The good news is that there are now options to automate some of the more painful and time-consuming aspects of cloud cost management, which can lead to bigger savings of time and money. For example, using advanced algorithms to trade Amazon Web Service Reserved Instances (RIs) and manage discount commitments on your behalf – a process that is usually manual and cumbersome.

Developing a robust Cloud cost management program takes tooling, collaboration, and resources, but an effective FinOps strategy can improve a company’s gross margins and help to chart a path toward profitability, as well as alleviate investor concerns around revenue metrics.

Eldar Tuvey is Founder & CEO at Vertice


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