Cloud Cost Management: Cloud Considerations for Financial Services

The Market Imperative for Cloud Cost Management

In the dynamic landscape of modern business operations, cloud computing has emerged as a transformative force, offering unparalleled scalability and resource optimization. This transformation, however, is not without its challenges: unexpected cloud expenses can disrupt even the most carefully constructed budgets. The ability to anticipate and manage consumption costs becomes critical, especially as the trend of multi-cloud adoption gains traction, adding layers of complexity.

A Cloud Cost Blueprint for Success

A cloud cost management strategy becomes a blueprint for future-proofing cloud service consumption and costs, as well as providing a comprehensive framework for budgeting and shared responsibility. The prevalence of multi-cloud environments only underscores the urgency of establishing an effective cost management approach and embedded controls. In-depth visibility into cloud usage and associated costs becomes not just a goal but a critical necessity.

More than just a practice, cloud cost management stands as a strategic asset, empowering organizations to meticulously monitor and influence their expenditures on cloud services. As cloud deployments become increasingly intricate, the task of eliminating and managing costs grows equally complex.

Benefits of Using a Cloud Cost Management Strategy for Financial Organizations

The advantages of implementing such a strategy are multi-faceted:

Decreased Costs: Strategic planning helps organizations steer clear of overspending on underutilized resources.
Predictability: Unexpected surges in costs become a thing of the past, fostering stability and foresight.
Efficiency: In-depth cost analysis minimizes waste and optimizes resource utilization.
Performance: Smooth operations can be achieved without compromising cost-effectiveness.
Visibility: The strategy provides a clear view into the intricacies of cloud expenses, ensuring cost transparency that aids informed decision-making.

“One of the key artifacts we create with clients is the FinOps Strategy which ensures early collaboration with the finance team, and concerns and requirements are met early in the build process.”
— Jo Reid, Senior Director Technology, Cloud and DevOps COE

Extracting the Full Benefits of the Cloud from a Financial Services Perspective

Extracting the full benefits of moving to the Cloud is not a passive outcome but must be managed through proactive engineering steps. Successful FinOps means collaborating with engineering to align and automate within a Cloud Centre of Excellence to implement these practice steps:

Cost Ownership/Allocation: All costs need to be identified and correctly attributed to their drivers by tagging (tagging strategy) to avoid orphaned costs.
Industrialized Business Case Process: Develop the necessary templates and skillsets to create adoption business cases efficiently and accurately, particularly when examining target state benefits (e.g., “all-in” run costs and pro-forma savings).
Cost Risk Guardrails: Cloud services are categorized according to their spend risk, with more stringent controls and limits placed around services posing the highest spend risk.
Budget Alerts and Spend Controls: Set budget alerts for each account, validated when onboarding workloads. If there’s a spending problem, it should be identified early, and the team is given help to improve their practices.
Cost Management Tools: Provide real-time cloud native cost reporting and dashboards. As adoption grows and matures, select and provide access to a SaaS cost management tool. This will provide cost transparency and build confidence to be cost-conscious with engineering teams.
Multi-Cloud Visibility: Ensure that appropriate behaviors, systems, and tools are in place to facilitate real-time cost visibility across all utilized cloud service providers.

According to Publicis Sapient analysis, by investing in cloud management tools, it is possible to optimize cloud spending and achieve a reduction of 15 to 30 percent within a span of 12 weeks.

What to Consider with Cloud Cost Management: Key Factors

One of the primary concerns around Cloud, from a Chief Finance Officer (CFO) perspective, is uncontrolled and unexpected operating expense (OpEx) costs. The ability to show responsibility and usage, costs, and value is key to helping the organization move from the traditional capital expenditure (CapEx) fixed-cost model. The primary considerations are:

CapEx to OpEx Transition
- Shift from fixed CapEx depreciation to pay-as-you-go OpEx
- Impacts on accounting practices and financial treatment
Dual Running Funding
- Managing CapEx depreciation alongside growing OpEx as consumption increases
Variability of Billing
- Unpredictable cloud bills due to elastic consumption
- Impact on operational costs with fixed consumption models
- Independent purchases within the organization
Account Structure and Billing
- Setting up correct account structures with CSPs
- Impact on cost transparency and discount tiering
- Establishing a billing cycle management process
Challenges of Shared Services
- Allocating shared services in monthly bills (e.g., load balancers, Kubernetes clusters)
Challenges of Forecasting
- Complex billing structures and pricing variations across CSPs
- Budget alignment during the onboarding process
Cost of Data Egress and Replication
- Considering costs for moving data out of the cloud
- Important in multi-cloud solutions
Shift in Ownership and Behavior
- Promoting short-lived, cost-optimized consumption with decentralized ownership
- Encouraged by direct billing to motivate proactive cloud estate management

Responsibility of Cost and Capacity Management

The Cloud “pay-on-consumption” model requires the utilization of only the necessary resources, as the management of costs is consistently influenced by the interplay of scalability, capacity, and elasticity.

From Infrastructure to Applications

In the On-Prem infrastructure, IT costs were based on setup cost (CapEx) and management cost (OpEx) of an application, relying on a number of static and constant values, such as the networking infrastructure and the cost of operating a server. On-Prem IT infrastructures are mostly adopting an overpowered resource model, with high management costs and expensive, slow change.

In the Cloud, everything is extremely flexible with a greater impact on governance. The difference between planned cost and actual consumption is not constant and tends to adjust over time, as monitoring provides the data to assess and reduce the natural initial divergence. Cloud flexibility changes the way cost is managed; applications become owners of their cost and capacity control and planning, as the first line of responsibility.

Cloud Cost Management Maturity Model

Cost management maturity is a journey, not a destination. Organizations typically progress through a series of stages as they mature their cloud cost management capabilities:

Visibility
Allocation
Optimization
Automation
Self-service
Innovation

As the journey progresses, security, risk management, and resilience become integrated into self-service cloud platforms. This shift can be facilitated by a Cloud Centre of Excellence, ensuring ongoing compliance and proactive cost optimization.

Using the FinOps Framework in Cloud Software to Manage Costs

FinOps, short for “financial operations,” is a management practice that promotes shared responsibility for an organization’s cloud computing infrastructure and costs. Within a FinOps framework, information technology (IT), Cloud, and DevOps groups collaborate with purchasing, finance, and other teams to address cloud costs across the entire organization. The core element of this management practice is the application of cost controls to cloud deployments, while preserving the developers’ access to cloud resources.

Establish FinOps Principles and Capabilities

There are some key principles and capabilities that must be incorporated to mitigate the cloud cost management considerations:

Establish accountability for cloud costs and proactive optimization and reporting across all CSPs (within a Cloud Centre of Excellence (CCoE)).
Ensure the cloud tagging implementation is consistently applied across CSPs; there should be zero orphaned costs.
Aim for direct billing to consuming products/business functions to drive the right cloud consumption behaviors.

“Zero orphaned costs is a key dependency on building trust between developers, engineers, and finance. Nobody wants a billing surprise and an unplanned budget pressure.”
— Jo Reid, Senior Director Technology, Cloud and DevOps COE

FinOps Capabilities

A centralized team drives FinOps: Some activities must be centralized in order to reduce duplication, such as cost reporting and anomaly detection. Other activities make the most sense when applied “in the aggregate,” such as identifying bulk discounts or negotiating rates. This often resides as a function with a Cloud CoE.
Decisions are driven by the Cloud business value, so pick the right Key Performance Indicators (KPIs)/Objectives and Key Results (OKRs): There are constant trade-offs between cost, quality, and speed. By itself, total cost is often a poor measure. Sometimes it is strategically more important to increase revenue by focusing on short-term features or improved reliability, even if costs increase. Other times, cost considerations will influence the appropriate service levels to offer customers.
Everyone takes ownership of their cloud usage: Cloud resources can be charged by the second (or less), making near real-time cost analysis and reporting critical. These costs should be shared with all relevant stakeholders, although each may require a different style of report.
Take advantage of the variable cost model of the cloud and continuously optimize: This is an opportunity to reduce costs; turn off unused resources, experiment quickly without long-term commitments, and make regular, incremental improvements to optimize cloud usage.

FinOps Lifecycle: Building Scalable and Controllable Cloud Cost Solutions

Cost is one of the top priorities for Cloud COE, with a continual process of refinement and improvement to control cloud costs. You will exploit the variable cost model to your advantage through:

Automated budget definition for each subscription
Budget alerts (70%, 90%) on usage
Daily/weekly forecast notifications for each subscription

Key Questions:

How much am I spending on cloud?
How is it trending and what is driving it?
How do I know if spend is going off-track/out of tolerance?
How optimized is my environment?

Usage Optimization:

Is autoscaling built into workloads?
Does everything need to be on 24x7?
What is unused or underutilized?

Rate Optimization:

Are we paying the lowest possible rates?

“Cost as a metric” culture
Are budgets and forecasts accurate?
What optimization processes can be automated?
Is my cloud spend providing business value?

“Teams need to collaborate: No one team can tackle FinOps. It requires near real-time collaboration and continual improvement to deliver efficiency and innovation. FinOps needs to be a cross-cutting team to make sure everyone is aligned and following best practices.”
— Jo Reid, Senior Director Technology, Cloud and DevOps COE

Tagging Strategies, Ownership, and Governance for Cloud and Multi-Cloud

Tagging can be used as a tool to manage expenditure, as well as support automation and control usage. All the hyper-scale CSPs (AWS, Azure, GCP) allow customers to assign metadata to their resources in the form of tags or labels. Each tag is a simple label consisting of a customer-defined key and an optional value that can make it easier to manage, search for, and filter resources. Although there are no inherent types of tags, they do enable customers to categorize resources by purpose, owner, environment, or other criteria.

Tagging Governance

Proactive governance leverages tools or Identity and Access Management (IAM) resource-level permissions to ensure standardized tags are consistently applied at resource creation in the Cloud Service Catalogue. This is where organizations can add portfolio and product tags that are combined and applied to a provisioned product automatically when launched. More rigorous forms of proactive governance include automated tasks (e.g., regularly scanning a cloud environment’s tags or running scripts to quarantine or delete improperly tagged resources.)

The most pragmatic governance approach for a company evolving into this space is to enforce both and then, when proven, reduce reactive governance when appropriate over time.

Define
- Develop tagging dictionary
- Disseminate and revise
- Define success metrics
Audit
- Implement the audit process
- Promote your tagging initiative
- Notify violations
Automate
- Enable auto-tagging
- Embed tags in provisioning automation
Enforce
- Prepare for enforcement
- Implement preventative controls
- Implement retrospective remediation
- Track compliance and measure value

General Best Practices for Tagging

Get everyone involved in the process (Finance, Operations, Engineering) to understand what is needed. If some tagging already exists, audit and understand the gaps and levels of consistency.
Always use a standardized, case-sensitive format for tags, and implement it consistently across all resource types.
Consider tag dimensions that support the ability to manage resource access control, cost tracking, automation, and organization.
Implement automated tools to help manage resource tags. It enables programmatic control of tags, which makes it easier to automatically manage, search, and filter tags and resources.
Tags are free-form text, so consistent correct spelling is important.
It may be simple to start, but the growth over time will show where the value/benefit is justified and controlled.
It is not recommended to create large numbers of unique labels, such as time stamps or individual values for every Application Programming Interface (API) call.
Consider the ramifications of future changes, especially in relation to tag-based access control, automation, and upstream billing reports.
Assign a tagging owner and keep the label policy/standards up to date.

Note: Do not include sensitive information in labels. This includes information that may be personally identifiable, such as an individual’s name or title. Labels are not designed to handle sensitive information.

Rogue Cloud Costs Risk Mitigation

As part of FinOps Operate, mitigate rogue cloud costs risk through clear accountabilities, transparency, observability, and guardrails/compliance as code (CaC). To ensure ongoing compliance and effectively mitigate cost-related risks, a recommended approach involves establishing a continuous compliance mechanism. This mechanism would facilitate the adaptive refinement of services, rules, and guardrails, as well as address risks associated with unauthorized cloud usage. This strategy is built upon three fundamental pillars:

Prevent non-compliance by automatically asserting that planned changes are compliant.
Detect non-compliance through automated estate scanning, notifying stakeholders when offending infrastructure is identified.
Remediate non-compliance by making immediate changes to infrastructure to ensure the maximum level of compliance at scale.

Assigning responsibility for appliance and workload scalability and capacity plays a pivotal role in harnessing the advantages of cloud elasticity. This approach is essential to maintain the visibility into the cost implications. This transparency can be achieved through the establishment of well-defined standards and principles, enabling a dynamic and transparent approach to cost and capacity management.

Cloud Cost Management Maturity Model

Advanced

Cost management is fully automated and integrated into the software development lifecycle.
Self-service cost management tools are available to all teams.
Cost optimization is continuous and driven by machine learning and AI.
Cloud spend is aligned to business value and innovation is maximized.

Intermediate

Cost allocation and chargeback are implemented across all business units.
Cost optimization is a regular, proactive process.
Automation is used for some cost management tasks.
Cloud spend is predictable and within budget.

Foundation

Basic cost visibility and reporting are in place.
Tagging and resource organization are implemented.
Manual cost optimization is performed periodically.
Cloud spend is tracked but not always predictable.

Legacy

Limited or no visibility into cloud costs.
No formal cost management processes.
Cloud spend is unpredictable and often exceeds budget.
Cost optimization is reactive, if it occurs at all.

Conclusion

This playbook serves as a valuable guide for enterprises aiming to harness the benefits of cloud technology while maintaining a firm grip on their financial considerations. By understanding and implementing the principles of optimal cloud cost management, organizations can pave the way for sustainable growth, streamlined operations, and the maximization of resources—ultimately leading to a competitive edge in the ever-evolving landscape of cloud computing.

We understand the management of cloud costs and how to best implement cloud cost management.

Talk to us.

To find out more about cloud cost management, please contact:

Jo Reid
Senior Director Technology, Cloud and DevOps COE, Financial Services
jonathan.reid@publicissapient.com

About Publicis Sapient

Publicis Sapient is a digital transformation partner helping established organizations get digitally enabled, both in the way they work and the way they serve their customers. We help unlock value through a start-up mindset and modern methods, fusing strategy, consulting, and customer experience with agile engineering and problem-solving creativity. As digital pioneers with 20,000 people and 53 offices around the globe, our experience spanning technology, data sciences, consulting, and customer obsession—combined with our culture of curiosity and relentlessness—enables us to accelerate our clients’ businesses through designing the products and services their customers truly value. Publicis Sapient is the digital business transformation hub of Publicis Groupe.

For more information, visit publicissapient.com