Part 1 : Cloud Economics - A definition 

In this brief article Danny Nicholson, Principal Cloud Specialist at Claranet, explores the need for all teams to work together closely to effectively manage cloud consumption and associated costs.

Cloud economics is “a branch of knowledge concerned with the principles, costs, and benefits of cloud computing”. This definition is a pretty simple way of explaining the complex problem organisations around the world face. As we all know, adoption of cloud computing introduces huge potential for businesses to drive operational efficiencies while truly innovating across their revenue streams. However, it also brings with it a number of new challenges and managing cloud costs is proving to be one of the most difficult.

When using cloud, traditional enterprises that are financially capex-oriented are now billed continuously as consumption occurs. That means organisations are now confronted with extreme granularity of billing that can easily reach hundreds of lines, even if their consumption is relatively low. The potential consequence of this is for financial account management to be overlooked until spend is out of control.

Looking on the downside...

  • Cloud providers use pricing models and billing structures with hundreds of combinations and possibilities. This introduces a huge overhead on your finance teams as they try to understand an ever-changing landscape.
  • The ease and speed at which services can be provisioned is a blessing and a curse which can lead to sprawl and consequently unexpected charges or ‘bill shock’.
  • There is constant change in cloud offerings, their pricing, and even pricing models. As a result, organisations can struggle to keep up with and translate these changes to their financial models.

But all is not doom and gloom. The ability to easily and instantly scale up when business demand increases, and scale down when this is needed, should not be ignored. Post COVID-19, cloud technology is exactly what businesses require to adapt and flex to more volatile conditions

What’s more, with the inherent granularity cloud provides, comes unlimited visibility into technology costs and this can be used to drive further efficient consumption of IT. To control these costs - preventing overspend and driving efficient technology use - organisations need to develop financial processes that are designed to keep pace with this new environment. Importantly, these process models affect multiple roles and departments, meaning finance teams and the cloud centre of excellence (CCOE) need to work together on budget cycles.

In our experience, cloud economics is often overlooked and not addressed until it’s too late. To be successful, teams need to focus on collaboration at the start of their journey to cloud. That means service partner, governance, architecture, operations, product and project management, finance, and application development teams all working together and tightly aligned.

In other words, a world without siloes.