# Cloud Financial Management Cloud Financial Management Managing cloud finance requires evolving your existing finance processes to establish and operate with cost transparency, control, planning, and optimization for your AWS environments. Cloud Financial Management (CFM) involves more than just reining in costs. It is about how to embrace the agility, innovation, and scale of AWS to maximize the value that the cloud provides to your business. Applying traditional, static waterfall planning, IT budgeting, and cost assessment models to dynamic cloud usage can create risks, lead to inaccurate planning, and result in less visibility. Ultimately, this results in a lost opportunity to effectively optimize and control costs and realize long-term business value. To avoid these pitfalls, actively manage costs throughout the cloud journey, whether you are building applications natively in the cloud, migrating your workloads to the cloud, or expanding your adoption of cloud services. CFM solutions help transform your business through cost transparency, control, forecasting, and optimization. These solutions can also help enable a cost-conscious culture that drives accountability across all teams and functions. Finance teams can see where costs are coming from, run operations with minimal unexpected expenses, plan for dynamic cloud usage, and save on cloud expenses while teams scale their adoptions on the cloud. Sharing this with engineering teams can provide necessary financial context for their resource selection, use, and optimization. ## Organize and report with user-defined methods To understand your AWS costs and optimize spending, you need to know where those costs are coming from. This requires a deliberate structure for your accounts and resources, to enable finance to track spending flows and ensure that teams are accountable for their portion of the bottom line. The M&G Guide recommends appointing a dedicated owner or team to develop, obtain stakeholder buy-in, monitor, and actively design and implement the cost allocation model to drive accountability and cost-conscious cloud consumption. Will you charge cloud and internal costs out to business function or product teams (internal chargeback)? Or, will you make the costs visible (show-back model)? The former drives accountability, but can be perceived as a tax. The latter requires less overhead to administer but may not drive as much accountability for costs. ## Manage billing and control costs Establish guardrails and set governance to help ensure that expenses stay in line with budgets. It is critical to establish basic governance policies to guide permissions and accessibility as related to cost control. Customers who are successful doing this have centralized ownership through designated teams, such as a Cloud Center of Excellence (CCoE), or a Cloud Business Office (CBO). These teams help design and implement governance mechanisms and drive best practices company-wide. ## Use license management Cloud Financial Management includes a perspective on vendor license management. License management validates compliance of your purchased assets across AWS. Aligning license management capabilities with your financial management can help you understand a complete cost picture and make appropriate procurement decisions as described in [Sourcing and distribution](sourcinganddistribution.md). ## Plan with flexible budgeting and forecasting Once you’ve established visibility and cost controls, plan, and set expectations for spending on cloud projects. The tools and capabilities described in the M&G Guide are designed to give you the flexibility to build dynamic forecasting and budgeting processes, and help you stay informed on whether costs are adhered to, or exceed budgetary limits. They also help you act quickly in response to negative variances in forecasted spend, and mitigate risks of overspending and failing to meet the return-on-investment target. ## Select a unit metric to support your business [Unit metrics](https://aws.amazon.com/blogs/aws-cost-management/what-is-a-unit-metric/) allow you to normalize your cost and usage information to a common measure, and tie them back to your business outcome. These normalized metrics bring consistency, fairness, and clarity to your IT planning and evaluation cycle. You can use the unit metric to gauge how efficient your team uses technology resources, and you can also use it to forecast how much you need to invest as your business grows. The unit metric is a straightforward tool that helps you get buy-in and tell your IT value story inside your organization. The objective of a unit metric is to present incremental cost or incremental consumption in terms of a unit of the demand driver. A demand driver is a factor that is correlated to AWS spend or AWS resource consumption. The quantity of AWS resources consumed and the cost of using those resources are directly impacted by increases or decreases in the demand driver. To learn more about this topic, refer to the [Unit metrics blog](https://aws.amazon.com/blogs/aws-cloud-financial-management/unit-metric-the-touchstone-of-your-it-planning-and-evaluation/). ## Optimize costs with pricing and resource recommendations Optimizing costs begins with having a well-defined strategy for your new cloud operating model. This should start as early as possible in your cloud journey, setting the stage for a cost-conscious culture reinforced by the right processes and behaviors. The M&G Guide recommends focusing on selecting the right purchase model and matching capacity with demand. # Interoperable functions Interoperable functions The eight management and governance functions, supported by AWS services and AWS Partner solutions, work together and interoperate to reduce complexity. Outputs from these functions are used to inform or integrate with other functions. For Cloud Financial Management this includes: + Setting specific financial **Controls** and organizing them across your environments. + Measuring cost and usage for your **Network connectivity** and adjusting assets to optimize costs accordingly. + Granting access to financial reporting tools and real-time distribution of reports with **Identity management.** + Using **Security management to** detect large variances in spend and respond accordingly. + Using **Service management** tools to integrate AWS costs and forecast for chargeback or showback and provisioning. + Using **Monitoring and observability** to incorporate aggregated financial findings from AWS and an enterprise portfolio perspective. + Transparent financial controls: budget, cost, and forecast for the **Sourcing and distribution** of cloud resources. # Implementation priorities Implementation priorities The M&G Guide recommends that you implement your Cloud Financial Management capabilities with transparency in mind. This includes enabling your builder teams to see the financial impact of their cloud usage for the resources they provision, as well as to define specific controls related to the financial governance of your resources. ## Enable Cloud Financial Management Configure detailed information sources including [Billing and Cost Management](https://docs.aws.amazon.com/awsaccountbilling/latest/aboutv2/billing-what-is.html) tools to create the reporting your organization needs. Regularly review (minimally on a monthly basis) the cost and usage by different dimensions to understand cost drivers. Establish organizational metrics, such as a [unit metric](https://aws.amazon.com/blogs/aws-cloud-financial-management/what-is-a-unit-metric/) to identify cost attribution categories as you scale. If required, ensure that your cost reporting includes all costs (labor, licensing, infrastructure, and more) to create the total cost of application management (TCAM). ## Tag, track, and monitor resource costs across their lifecycle A consistent and [well-designed tagging strategy](https://docs.aws.amazon.com/whitepapers/latest/tagging-best-practices/tagging-best-practices.html) is required to manage and track costs across your AWS environments. Once resources in your environments are tagged, you must activate both [AWS-generated tags](https://docs.aws.amazon.com/awsaccountbilling/latest/aboutv2/activate-built-in-tags.html) and [user-defined tags](https://docs.aws.amazon.com/awsaccountbilling/latest/aboutv2/activating-tags.html) separately to use them in your cost reporting and analysis tools. Enforce [tag options](https://docs.aws.amazon.com/servicecatalog/latest/adminguide/tagoptions.html) using distribution and preconfigured infrastructure as code templates for governance. Use [tag policies](https://docs.aws.amazon.com/organizations/latest/userguide/orgs_manage_policies_tag-policies.html) to enforce and maintain consistent tags across your organization and resources. Track resources over their lifetime and design your workloads to gracefully handle resource termination as you automatically identify and decommission non-critical or low utilization resources. Analyze the design, architecture, and all components of each workload or application for cost effectiveness, including license costs. Use [Managed entitlements](https://aws.amazon.com/blogs/awsmarketplace/how-aws-marketplace-features-help-you-govern-and-manage-software-purchases-for-your-organization/) to track and help ensure that you have compliance with your established agreements while avoiding unexpected true-up bills for exceeding license limits. Determine if the component and resources will be running for extended periods (for commitment discounts), or dynamic and transiently running (for Spot or On-Demand Instances). Implement the appropriate [pricing models](https://docs.aws.amazon.com/marketplace/latest/userguide/pricing.html) for all components of your applications sourced from AWS Marketplace. ## Establish mechanisms for cost governance Create policies and mechanisms that define how resources are managed by your organization. The policies should cover cost aspects of resources and workloads, including creation, modification, and decommissioning over the resource lifetime. Create an obsolescence plan and defined retention period with lifecycle policies for resources as they are provisioned. Implement account structure, groups, and roles to help allocate costs and control who can create, modify, or decommission instances and resources in each group. Identify any new controls that could support a more efficient cost spend. Update your distribution of infrastructure as code templates in [Service Catalog](https://aws.amazon.com/servicecatalog/features/) so that cost is transparent and only approved instance sizes are available in a self-service manner across your multi-account framework. Enforce tagging of resources as they are provisioned to ensure effective cost governance. ## Continually optimize for cost efficiency Review historic spend patterns to detect cost spikes (one-time or recurring) or continual cost increases, assuming 14–30 days of historical spend. Implement mechanisms to periodically identify and [right-size instances based on current workload metrics](https://docs.aws.amazon.com/whitepapers/latest/cost-optimization-right-sizing/cost-optimization-right-sizing.html) and characteristics. This can be evaluated using AWS Cost Explorer, AWS Trusted Advisor, and AWS Compute Optimizer, along with AWS Partner tools, such as VMware CloudHealth, Apptio Cloudability, and CloudCheckr. Cost efficiencies can also be achieved with Compute Savings Plans, Reserved Instances, Spot Instances for ephemeral workloads, and Amazon CloudFront Security Savings Bundle. Continually reviewing cost metrics can help to identify over purchased or underutilized savings mechanisms. For example, you can optimize your storage costs with S3 Intelligent-Tiering, Amazon Glacier, or implementing lifecycle policies and purge processes. Centralize redundant or shared infrastructure to optimize costs. Manage demand and supply resources dynamically by implementing scheduled or automatic scaling, buffering, or throttling. Review new EC2 instance types as they are released to take advantage of a better price-performance ratio. # AWS Cloud Financial Management services and tools AWS Cloud Financial Management services and toolsMinor update Added AWS Billing Conductor. The following AWS services can be used to help you meet the prescribed benefits of the M&G Guide: The [AWS Cost & Usage Report](https://aws.amazon.com/aws-cost-management/aws-cost-and-usage-reporting/) contains a comprehensive set of AWS cost and usage data, including additional metadata about AWS services, pricing, Reserved Instances, and Savings Plans. You should use this information to inform and create controls. [AWS Cost Explorer](https://aws.amazon.com/aws-cost-management/aws-cost-explorer/?track=costma) is a tool that enables you to view and analyze your costs and usage. You can explore your usage and costs using the main graph, the Cost Explorer cost and usage reports, or the Cost Explorer RI reports. You can view data for up to the last 12 months, forecast how much you’re likely to spend for the next 12 months, and get recommendations for what Reserved Instances to purchase. You can use Cost Explorer to identify areas that need further inquiry and see trends that you can use to understand your costs. AWS uses [cost allocation tags](https://docs.aws.amazon.com/awsaccountbilling/latest/aboutv2/cost-alloc-tags.html) to organize your resource costs on your cost allocation report, which makes it easier for you to categorize and track your AWS costs. AWS provides two types of cost allocation tags: AWS-generated tags and user-defined tags. AWS (or AWS Partners) defines, creates, and applies the AWS-generated tags for you, and you define, create, and apply user-defined tags. [AWS Cost Anomaly Detection](https://docs.aws.amazon.com/awsaccountbilling/latest/aboutv2/manage-ad.html) is an AWS cost management feature that uses machine learning to continually monitor your cost and usage to detect unusual spends. [AWS Budgets](https://aws.amazon.com/aws-cost-management/aws-budgets/) allows you to set custom budgets to track your cost and usage on a wide variety of use cases. With AWS Budgets, you can choose to be alerted by email or Amazon SNS notification when actual or forecasted cost and usage exceed your budget threshold, or when your actual RI and Savings Plans utilization or coverage drops below your desired threshold. With AWS Budgets actions, you can also configure specific actions to respond to cost and usage statuses in your accounts, so that if your cost or usage exceeds or is forecasted to exceed your threshold, actions can be run automatically or with your approval to reduce unintentional over-spending. AWS Budgets integrates with multiple AWS services, such as AWS Cost Explorer, so that you can easily view and analyze your cost and usage drivers, AWS Chatbot, so you can receive budget alerts in your designated Slack channel or Amazon Chime room, and Service Catalog, so you can track costs on your approved AWS portfolios and products. [AWS Cost Categories](https://aws.amazon.com/aws-cost-management/aws-cost-categories/) is an AWS cost management feature that enables you to group cost and usage information into meaningful categories based on your needs. You can create custom categories and map your cost and usage information into these categories based on the rules defined by you using various dimensions such as account, tag, service, charge type, and even other cost categories. [Tag policies](https://docs.aws.amazon.com/organizations/latest/userguide/orgs_manage_policies_tag-policies.html) are a type of policy that can help you standardize tags across resources in your organization's accounts. In a tag policy, you specify tagging rules applicable to resources when they are tagged. [AWS Resource Groups Tag Editor](https://docs.aws.amazon.com/ARG/latest/userguide/tag-editor.html) allows you to add tags to—or edit or delete tags of—multiple AWS resources at once. With Tag Editor, you can search for the resources that you want to tag, and then manage tags for the resources in your search results. [AWS License Manager](https://aws.amazon.com/license-manager/) enables management of your software licenses from vendors across AWS and on-premises environments. AWS License Manager lets administrators define and enforce licensing rules that mirror the terms of their licensing agreements and prevent breaches. Portfolio administrators gain control and visibility of all their licenses with the AWS License Manager dashboard integrated with AWS Organizations and reduce the risk of non-compliance, misreporting, and additional costs due to licensing overages. Independent software vendors (ISVs) can also use AWS License Manager to easily distribute and track licenses. [AWS Compute Optimizer](https://aws.amazon.com/compute-optimizer/?nc2=type_a) recommends optimal AWS resources for your workloads to reduce costs and improve performance by using machine learning to analyze historical utilization metrics Compute Optimizer helps you choose optimal configurations for three types of AWS resources: Amazon EC2 instances, Amazon EBS volumes, and AWS Lambda functions, based on your utilization data. [AWS Application Cost Profiler](https://aws.amazon.com/aws-cost-management/aws-application-cost-profiler/) provides you the ability to track the consumption of shared AWS resources used by software applications and report granular cost breakdown across tenant base. [AWS Billing Conductor](https://aws.amazon.com/aws-cost-management/aws-billing-conductor/) simplifies the show-back and charge-back workflows for AWS Solution Providers and Enterprise customers. Using AWS Billing Conductor, you can customize your AWS pricing and monthly billing report according to the billing relationship between you and your end customers. A pro forma billing and cost and usage report is available for viewing and cost allocation purposes. If you would like support implementing this guidance, or assisting you with building the foundational elements prescribed by the M&G Guide, we recommend you review the offerings provided by [AWS Professional Services](https://aws.amazon.com/professional-services/) or the AWS Partners in the [Built on Control Tower program](https://aws.amazon.com/controltower/partners/). If you are seeking help to operate your workloads in AWS following this guidance, [AWS Managed Services (AMS)](https://aws.amazon.com/managed-services/) can augment your operational capabilities as a short-term accelerator or a long-term solution, letting you focus on transforming your applications and businesses in the cloud. # Integrated Cloud Financial Management partners Integrated Cloud Financial Management partners The M&G Guide recommends you consider the following questions when choosing an AWS Partner solution for Cloud Financial Management: + Does it help track spending at desired granularity and trace it back to approved initiatives, or allocate costs to the right business unit or project? + Does it provide guardrails to control and govern cloud spending, which helps prevent unexpected or unexplainable costs, compliance, and security risks? + Does it help estimate future costs and create financial predictability? + Does it help analyze the implications of different AWS services, Availability Zones, or pricing models that can improve unit costs? The following integrated Cloud Financial Management partners have provided integrations that align to the M&G Guide, and are available for entitlement in AWS Marketplace: [CloudCheckr](https://aws.amazon.com/marketplace/solutions/control-tower/cost-management-and-governance/#CloudCheckr) CMx by NetApp is a unique, end-to-end governance solution that enables users to gain total visibility into their AWS environments, optimize costs, and perform cost allocation and chargebacks. CloudCheckr users can reduce their monthly cloud spend by 30% or more by acting on hundreds of optimization recommendations. The platform has tailored dashboards and analytics to address reserved capacity purchase options, including Savings Plans and Reserved Instances. CloudCheckr CMx features an advanced cost query engine that surfaces the most detailed level of information available to help AWS users properly analyze consumption and associated costs. [Flexera](https://aws.amazon.com/marketplace/solutions/control-tower/cost-management-and-governance/#Flexera) cloud cost optimization simplifies cloud cost management and gives enterprises full visibility into cloud usage and costs. Powerful functionality enables cloud governance teams to work collaboratively with business units and cloud resource owners to report, manage, and optimize cloud spend. [Kion](https://aws.amazon.com/marketplace/solutions/control-tower/cost-management-and-governance/#cloudtamer.io) is a comprehensive enablement software solution that delivers visibility and control of cloud workloads. [Kion](https://aws.amazon.com/marketplace/solutions/control-tower/cost-management-and-governance/#cloudtamer.io) provides insights to enable planning and reporting, allocates proper budgeting, and prevents overspending. [Kion](https://aws.amazon.com/marketplace/solutions/control-tower/cost-management-and-governance/#cloudtamer.io) allows enterprises to manage their cloud presence at scale with automation and orchestration, financial management, and continuous compliance. [Spot](https://aws.amazon.com/marketplace/solutions/control-tower/cost-management-and-governance/#Spot) by NetApp's solutions allows end users to use Amazon EC2 Spot Instances and Reserved Instance capacity without operational overhead and complexity. Spot by NetApp automates and optimizes your AWS infrastructure delivering SLA-backed availability and performance at the lowest possible cost. Machine learning and application-driven scaling enables you to run workloads of various sizes, providing an optimal blend of Savings Plans, Reserved, Spot, and On-Demand Instances.