The Cloud has transformed the business landscape, and for CFOs leading the finance function, it has meant big changes. Due to the flexibility, agility, and mobility offered by Cloud storage and computing, the way financial operations run can now be delivered more efficiently and in real-time.
In a nutshell, Cloud financial management is the process of directing, organising, and controlling commercial activities. This includes the acquisition of revenue from the business, the application of financial principles to the firm's assets and other areas relating to revenue management. However, the running of a successful Cloud financial management practice is relatively “new turf” for many organisations.
Building a successful Cloud financial management practice
Innovation in the Cloud comes with a price, however, having a successful Cloud financial management practice in place can help businesses manage the unpredictable costs of the Cloud. All too often, optimising Cloud costs may not be the first concern for businesses when first migrating to the Cloud as flexibility, speed, and innovation are typically considered more important.
Cloud financial management has become a key business strategy for organisations seeking to engage customers, partners, and employees remotely. It's become apparent, however, that without adapting their Cloud financial management practices, organisations have found they are unable to manage infrastructure spending in the Cloud as they do in the physical world, which can result in unexpected and heavy costs.
By building successful Cloud financial management practices, the finance function can provide accurate data related to raising money from various sources, the cost of financing projects, and the potential returns achieved during the process. This ultimately provides the C-Suite with an accurate picture of how to proceed with investment decisions on fixed and current assets, in addition to working capital decisions.
It’s important to think of the complete financial picture as more than just cost, as successful Cloud financial management practice is what will provide you with a 360° view of how your IT and business are using Cloud.
As you consider leveraging the four pillars covered in this article, remember that the end goal of the Cloud is to drive agility, increase productivity, and find opportunities to innovate for competitive advantage.
4 pillars of successful Cloud finance management
There are four key pillars that a successful Cloud financial management practice must establish: Visibility, Optimisation, Governance and Automation, and Business Integration.
By building your Cloud environment around these four key pillars, the business will gain complete control while enjoying the benefits of Cloud. Through this, you will need to establish an understanding of your business cost drivers alongside measurable KPIs and metrics. As each of these pillars builds upon the previous one, it’s best practice to tackle them in order.
Visibility
Step 1 - Accurately allocate costs by team for show-back or chargeback.
KPIs to consider:
- Cost of daily Cloud run rate
- Cost of all untagged resources
- Percent of total bill charged back
- Percent of noncompliant tagged resources
- Percent of reserved resource coverage/utilisation
There are two types of visibility challenges faced by businesses related to Cloud financial management:
- Wanting to migrate to the Cloud but unable to identify which workloads to migrate and what the expected costs could be.
- Already migrated onto the Cloud but unable to see who is using which resources and how this is impacting on cost.
Having a better understanding of cost drivers and spend across different teams will naturally lead to a reduction in spending over time. With cost visibility, businesses can better predict their Cloud bills, close their books faster, and feel more confident about Cloud initiatives overall. Other benefits include better budget alignment, improved forecasting, and smarter decision making.
Here are some ways to improve financial visibility
- Make sure your teams are all working from the same, accurate dataset and agree on KPIs and metrics that will be measured continuously.
- Standardise operating in the Cloud by collaborating across various teams on best practices such as chargeback and show-back.
- Improve the identification and allocation of spend and usage by developing a consistent tagging strategy.
- Analyse information based on tags and business groups using dashboards and trend reports.
- Using governance policies or alerting tools, set budgets, align cost drivers to business decisions, and alert stakeholders to changes in cost and usage.
- Find out how you can improve your Cloud consumption by benchmarking against industry peers.
Optimisation
Step 2 - Optimise Cloud spending and costs and find opportunities to eliminate waste.
KPIs to consider:
- Rightsizing savings
- Cost per resource
- Cost effectiveness per resource rate as a metric
- Cost optimised over time
Once migrated to the Cloud, most business’ optimisation activities start off as predominantly manual as you identify which resources should/shouldn’t be optimised moving forward. Document processes, such as metrics for analysing resources, which you find beneficial and share them with teams across different departments.
When managing your Cloud effectively, having the right toolset in place is crucial. Without it, you may overspend and/or overprovision resources. It then becomes all too easy for your Cloud consumption to become unpredictable, financial spikes to occur, and resource management to become ineffective, leading to confusion within your organisation.
By leveraging best practices, an optimised Cloud environment means less waste, more savings, and greater accountability. It also means easier budget justification, better governance, reduced Cloud spend, and faster decision-making.
Here are some ways to reduce spend in the Cloud
Leverage upfront commitments
Almost all public cloud providers offer discounts in exchange for an upfront commitment. Known as Reservations or Savings Plans, these contracts can offer savings of up to 80%+ over consuming infrastructure on-demand.
Rightsize your environment
By analysing your infrastructure's performance and usage metrics you can determine whether your infrastructure is running efficiently, what actions need to be taken to improve efficiency, and if changes need to be made to it (upgrading, downgrading, terminating).
Identify and delete zombie assets
Assets that were once used for a particular purpose but have not been deactivated or ceased to exist, once identified, must be isolated, evaluated, and terminated if nonessential. Examples of zombie assets include relational databases, unattached storage volumes, Google Compute Engine VMs, Amazon EC2 Instances and more.
Governance and Automation
Step 3 – Set governance policies, automate cost control measures and delegate to teams.
KPIs to consider:
- Cost per resource
- Cost optimised per policy over time
- Efficiency scored MoM/YTD
- Percent of instances underutilised
- Number of security lapses
- Number of automated reservations
In the context of Cloud financial management, governance is the process of defining the “ideal state” of the Cloud for your business. Once this criterion is established, you can get notified when environments drift out of compliance via alerts and policies.
Many equate this process to setting guardrails, however in reality, it enables everyone to throw strikes and stay in control. Taking the first steps from governance alerts to governance automation can be daunting, so experts recommend starting slowly and ramping up over time: automate within an approval workflow so a human can give the final approval.
Automation and governance help you save money, effort, and time on all your manual tasks, as well as help you adopt technology more rapidly (with better management practices), remove time-consuming bottlenecks, and justify your additional resource requirements more effectively.
Here are some ways to implement governance and automation in the Cloud
Set and monitor budgets
A budget defines how much a group will spend over a period of time, so ensuring budgets are defined clearly and then alerting needed stakeholders about potential overspending is crucial to success in Cloud financial management.
Identify cost increases in good time
The cost of services increases all the time, so it's crucial to set criteria to know when they become concerning. Many businesses define this as a percentage increase over a day or week (if a service spend increases by 10% over a day, I'm alerted).
Define how much infrastructure should run on-demand
Many businesses will look to keep computing hours to a maximum of 20% or less when using on-demand computing (usually the most expensive option) versus upfront commitment plans (such as reservations, savings plans, and committed use discounts).
Business Integration
Step 4 – Continue to optimise costs based on business strategy (i.e., margins and COGS).
KPIs to consider:
- Cross-team money saving opportunities identified MoM/YTD
- Cross-team money saving opportunities captured MoM/YTD
- Time saved through approval workflows, API and integrations
- Cost per customer
- Percent of total bill charged back
By this point, you will have already gained complete visibility into your Cloud spend across your organisation, built continuous optimisation practices, and established well defined governance policies that are automated as much as possible.
For the final step in implementing a successful Cloud financial management practice, you must integrate your Cloud processes into business processes. For some, this may involve aligning Cloud costs with go-to-market strategies for packaging and pricing, while for others, it could involve transparent KPIs that cascade from the business to the customer level. At this stage, your goal is to have Cloud costs fully integrated into finance systems to enable chargeback.
An effective business integration involves more than numbers or systems; it also involves people from different functions working together and communicating effectively. The absence of having the right communication channels in place increases complexity, negatively affects efficiency, and puts your Cloud strategy at risk, which is why key metrics should be communicated in business context and benchmarked against peers. With a good collaborative culture, you can develop a ‘do-it-right-first-time’ attitude and discard finger pointing that can impede your business initiatives.
Benefits of Cloud financial management
A successful financial management system in the Cloud increases visibility throughout the organisation and encourages understanding of the numbers at all levels. This in turn leads to investor confidence. Investors often want assurances regarding the security of their investments. A successful financial management process ensures both risk reduction and profit maximisation.
Having access to real-time financial information in the Cloud as a single source of truth also facilitates better decision-making when the relevant facts are accessible. Bottom line, good financial management makes it easier to determine solutions based on the circumstances of the situation.
Having a successful Cloud financial management practice in place, your business can benefit from
- Eliminates guessing and estimates and provides the C-Suite accurate data in real-time about business operations and overall reduces financial complexity.
- Easier to determine solutions based on the circumstances of the situation.
- Better budgeting, planning, and forecasting as well as clearly categorised expense management.
- Accurate financial analysis helps businesses forecast, assess scenarios, and analyse market data/trends for more informed planning and decisions further down the line.
- Better understanding of how departments across work together and how this impacts overall financial health.
- Greater transparency and more accurate reporting reduces the likelihood of fraud and prevents financial losses, theft, and mismanaging funds.
- Insight into business growth across markets and products as the business continues to evolve over time.
Take the next steps
It’s clear that the shift to successful Cloud financial management practices will determine tomorrow's success for businesses. Without these effective Cloud financial management processes in place, your business will fail.
Our Accounting and Financial Management Software, Advanced Financials is a robust Cloud accounting software system which allows businesses to realign their data and develop more accurate forecasting and management capabilities.
Finance functions can utilise financial management processes in the Cloud to streamline everything from keeping the C-Suite informed about cash flow trends to automating previously manual processes while ensuring that all areas of finance are taken care of.
Streamline your financial management processes with rich, intuitive functionality
- Robust functionality- The core of Advanced Financials is powered by robust accounting and financial management functionality which enables finance teams to accurately manage all elements of accounting from a flexible general ledger, accounts payable, credit management, bank reconciliation and more.
- Accounts payable and receivable- Track income and expenses to monitor cash flow and ensure payments.
- Sales invoicing- Easily summarise outstanding purchase orders with regularly updated commitment reporting and ensure cash flow is continuous by matching goods receipts to purchase orders easily and efficiently.
- Credit management- Reduce credit risk by managing all aspects of the credit management lifecycle and as you focus activities appropriately, see exactly where your aged debt is.
- Bank reconciliation- Import bank statements which will automatically match transactions, meaning you always have an up-to-date view of your cash position across multiple bank accounts.
By setting the tone for your financial management processes in the Cloud, you can ensure smoother operations in the future and the possibility of scaling up your business even further. Get in touch with one of our experts today.
