I hate budgets. Whether in my personal or professional life, budgets tend to suppress my creativity and limit what seems possible. Budgets are usually based on past experiences or preconceived notions – and missing a budget is often considered a failure. Although I loathe budgets, they are a necessary evil. There’s no doubt successful businesses have strong financial management practices, and they rely on them for a clear understanding of which parts of the business need investment and which need maintenance of the status quo or even a divestiture.
A critical area in most businesses today is the cloud budget. Cloud computing has accelerated growth and financial rewards in many firms that use it as a foundation for innovation and differentiation. Cloud-native firms like Google, Meta, Netflix, Instagram and Amazon continue to disrupt and define cloud models. Traditional brick-and-mortar companies also are spending aggressively on cloud capabilities as a mechanism to modernize their business. But cloud budgets are new for many firms, and there is a dearth of historical data to guide modern fiscal management. In addition, cloud spending can occur (and skyrocket) throughout an enterprise – and create cloud sprawl with outcomes that are difficult to measure.
Cloud budgets are required in every business today. Similar to utilities (electricity, networks, HVAC), cloud powers almost every part of the enterprise, and it’s critical to understand its consumption. Creating and managing cloud budgets must have multiple components to effectively understand the benefits and rewards of this investment. Below are several imperatives that must be included in creating and managing cloud budgets.
Lastly, a cloud strategy should be a living document. Given the rate and pace of technology and business dynamics, firms must pivot as appropriate to stay competitive.
Although many firms began their cloud implementations years ago, cloud business models and budgets are relatively immature. At the onset of a cloud migration, many firms complete a business case that outlines the business objectives as well as the financial costs and benefits. It’s important to note that a cloud budget is not a one-time event, it is an ongoing journey. Leveraging cloud technology has become vital for most businesses and must be incorporated into the fabric of the enterprise. The business case should outline benefits and costs by year as well as by critical milestones. Significant deviations from the business case should be addressed immediately.
There is a general perception that leveraging cloud computing is cheap and will lower costs significantly. Many cloud service providers have made it easy for anyone with a credit card to set up a server in minutes and leverage cloud resources. This is a procurement nightmare and fosters maverick buying and cloud sprawl. “Easy access” to cloud services does not always mean lower costs and, in fact, often results in the opposite.
Responsible cloud budgets must include the following:
Since cloud models and technical deployments are fledgling initiatives, firms often do not understand how they are billed or who is generating the cost inside the enterprise. Initial cloud contracts may include significant commitments that are not being met and could result in large usage fees or substantial termination charges. Many firms are not equipped to understand and remediate these issues, which can span across the entire enterprise.
The good news is that there are actions that firms can take to implement solid cloud budgets:
Once the enterprise cloud strategy is in place, contracts must be structured and executed to meet the needs of the business. A cloud contract should be linked to the business case and financial plan for the cloud journey. Special attention should be given to how usage is billed and create a clear outline of the scope of services. Given the rate and pace of technology, a firm should be wary of vendor lock-in and long-term contracts with inflexible exit terms.
Many firms use multiple clouds from different providers. Multi-cloud estates are effective strategies that select providers based on optimizing specific applications. Companies also use multiple clouds as an effective mechanism to deal with resiliency and disaster recovery. This strategy is a hedge on preventing vendor lock-in. A multi-cloud estate can make IT management and governance complex, but budgets for these estates that are integrated into a single cloud budget and leverage FinOps practices will drive efficiency and accountability.
ISG helps enterprises build cloud budgets, contract with cloud service providers and track cloud spend and usage. Contact us to find out how we can help you.