Published : 1 year ago, on 15/05/2023

The brutal truth about cloud overspending in capital markets

By Jason Pennell, Sr. Solutions Architect at Advantage Communications Group

In their zeal to modernize and execute digital transformation, many financial companies unwittingly end up overpaying for unnecessary cloud storage and compute services.

Findings from a study commissioned by Veritas are alarming: 94 percent of respondents reported that their organization has incurred higher costs than originally anticipated when using a public cloud service provider (CSP) and is overspending by an average of 43 percent.

The widespread layoffs at banking and financial service organizations make the topic of cloud elasticity quite timely. As headcounts are slashed by thousands at a time to cut costs, organizations must also ensure that their IT environments are scaled back accordingly. If left unchecked, or if licenses and contracts are automatically renewed without appropriate adjustments, the actual impact on bottom lines will be a fraction of intended savings.

Cloud computing has been a game-changer allowing businesses to increase efficiency, reduce costs, and gain access to innovative technologies that were previously out of reach. However, the adoption of these technologies also presents new challenges, particularly around financial management.

To mitigate spending overages while capitalizing on the benefits of cloud environments, retail and institutional banking firms are outsourcing cloud financial operations (“FinOps”). FinOps, as defined by The Technical Advisory Council, is an evolving cloud financial management discipline and cultural practice that enables organizations to get maximum business value by helping engineering, finance, technology, and business teams to collaborate on data-driven spending decisions.

As more workloads move to the cloud, the complexity of ecosystems increases. Accordingly, it is essential to have an effective FinOps strategy in place to manage these challenges successfully.

By including operations, finance, and department leads in the financial management oversight of cloud deployments, FinOps teams empower organizations with the means to optimize costs and resources. Cross-department collaboration enables the holistic shift across organizations, systems, best practices, and culture required to properly understand budgets and make the most of investments. Breaking down silos helps enterprises identify areas of waste, such as underutilized resources or unnecessary services, and take corrective actions before things spiral out of control.

Important to note is the symbiotic relationship between cloud billing and overall cost governance, which begins by understanding subscription hierarchy and alignment with organizational structure. This approach is a key best practice for prioritizing cloud spending according to internal processes and departments.

The shift from capital expenditures to operational expenditures is significant for companies, especially with per-meter billing – a challenge when switching from a fixed cost pattern to a more variable and fluid one. As stated, collaboration between technical departments and cloud cost owners is a requisite for proper budget tracking. That said, moving entire workloads from on-premises data centers to the cloud is just the beginning; adopting a pay-as-you-go model requires changes in mentality, ways of working (such as DevOps), and flexibility that directly affect IT spending.

Effective governance prevents common mistakes of cloud migrations like overprovisioning, which is one cause of overspending. FinOps client success teams employ practices like rightsizing to find the balance between performance and cost, monitoring variance to align applications with storage needs. In addition, project leaders must also consider regional requirements and compliance priorities when creating and enforcing policies for cost-effective resource usage. Lifecycle optimization is also critical, as staying up to date with the latest cloud-native architectures and features prevents unnecessary use of obsolete applications (not to mention enhancing security capabilities). Lastly, establishing on/off policies for unused resources can help cut down on expenses.

In an article explaining the economics of the cloud, McKinsey analysts noted that, “the most efficient cloud economics now hinge on the ability to effectively evaluate capacity demand—and the corresponding incremental or marginal costs—at any given moment. In essence, this is about paying for capacity only when you need it, rather than paying for capacity you don’t use. Companies instead need to develop a dynamic operating-expenditure approach to cloud economics that continuously optimizes incremental costs by choosing the cloud services that best match their current workload requirements.”

In times like these, marked by uncertainty and volatility, it’s easy to fixate on cutting costs. But, as organizations such as the FinOps Foundation are quick to point out, saving money is not the only outcome on which to focus. Rather, the goal of FinOps services is align technical needs with budgets and expenditures to cost-effectively support overarching business objectives.

Cloud ecosystems are complex and difficult to control. Predicting usage and expenditures help ensure success. However, these environments are made up of many moving parts, including servers, storage, networking, and applications, making it difficult to monitor consumption and accurately predict spending. Collaboration and transparency rein in costs and help achieve intended ROI.

The true benefits of FinOps are numerous: predictability to cloud costs, improved forecasting models, greater financial accountability in managing variable spend, cost optimization and resource utilization, visibility into cost drivers, and more. Without exception, these services can have a profound impact on long-term success. By gaining a deeper understanding of associated costs across platforms and vendors, business leaders can identify, assess, and optimize cloud costs and maximize savings and return on cloud investments.

Providing visibility into spending allows decision-makers to adapt operations without impacting productivity – otherwise known as agility. Agility is critical for businesses in competitive environments that need to pivot in response to fluctuating factors in the market without sacrificing output or marketshare.

As capital markets firms continue to move towards digital transformation initiatives such as CloudOps and FinOps cultures, leaders need to understand how these strategies can help them rein in their cloud costs while maximizing their investments. Only through effective management can decision-makers find the right balance between workload, budget allocations, resource utilization, and maximum ROI from digital transformations.

About Author:

Jason Pennell is a Senior Solutions Architect for Advantage Communications Group (Advantage). Advantage is a strategic partner that employs a unique, holistic approach to technology lifecycle optimization that reduces costs, complexity, and administrative burdens through each phase of the tech journey. For enterprises in markets that demand persistent connectivity, cybersecurity, high-speed data and network infrastructure, Advantage is a global, telecom MSP with the expertise, services portfolio, and worldwide partner network to design, deploy and manage IT and telecom environments from end-to-end.