This whitepaper is for historical reference only. Some content might be outdated and some links might not be available. # Cloud Financial Management capability The Cloud Financial Management capability provides the ability to manage and optimize your expense for cloud services. This capability enables you to track, notify, and apply cost optimization techniques across your environment and resources. Expense information is centrally managed and consumed, and access to critical stakeholders can be provided for targeted visibility and decision making. **Stakeholders:** + Finance (Primary) + Central IT + Operations + Software Engineering **Personas: ** + **Finance Team** - the team involved in defining and approving cloud budgeting and forecasts, business case development for new workload migrations, defining a cost allocation mechanism (including accounting treatment for cloud spend), analyzing cloud spend for insights, performing variance analysis, participating in developing a tagging dictionary, and integrating existing finance processes (accounts payable and procurement) with cloud billing and procurement. + **CFM/FinOps Team** - single-threaded owner (individual, or team) that defines and oversees the programmatic implementation of the Cloud Financial Management uses case. + **Software Development Team** - the team that builds cloud-based software that is cost-aware, applies changes to software that reduces cloud waste, provides inputs to an organization’s commitment-purchase process to improve the accuracy of commitments being purchased, participates in the cost forecasting process for existing and new cloud products, and participates in variance analysis and root cause identification for unexpected/anomalous cloud costs. **Scenarios:** + **CF16 - S1: Cost allocation** + **CF16 - S2: Cost forecasting ** + **CF16 - S3: Cost monitoring ** + **CF16 - S4: Cost optimization** + **CF16 - S5: Financial operations** Topics + [Overview](cloud-financial-management-overview.md) + [Cost allocation](cost-allocation.md) + [Planning and forecasting](planning-and-forecasting.md) + [Cost monitoring and reporting](cost-monitoring-and-reporting.md) + [Cost optimization](cost-optimization.md) + [Cloud financial operations](cloud-financial-operations.md) # Overview Having visibility and understanding of the spend in your cloud environment is critical to your business. Setting up the right measures to monitor your resources will allow you to create reports, dashboards, and anomaly detection of the cloud spend of your budget and plan for cost optimization to avoid or reduce unnecessary spend. Implementing these mechanisms and tools will help you support business decisions and establish cloud financial operations in your environment to socialize cost awareness across different business units, application teams, and other stakeholders without affecting the innovation of your teams. In order to implement a cloud financial management function, you need to implement a tagging strategy for your environment. Refer to the [tagging capability](tagging-capability.md), to find recommended tags for your environment. Some of these tags within the tagging capability can be used to track spend in your cloud environment, and allow you to create dashboards, reporting for individual business units, workloads, and types of environments You need to incorporate the tags and the values for these tags defined within your cloud financial management capability into the tagging dictionary defined as part of your [tagging capability](https://aws.amazon.com/solutions/guidance/tagging-on-aws/). We recommend that you make these tags widely available across your different stakeholders and teams in order to enable them to track spend back. This will allow your cloud team or your FinOps team to analyze the usage and work towards building a cost allocation strategy. # Cost allocation Leveraging metadata across your environment, helps you to accurately allocate cost for workloads and applications. Using a showback approach you can identify the costs incurred by a business unit, product, or team. However, material spends, may not be accounted for due to the lack of enforcing tagging mechanisms. Grouping your different resource and establishing boundaries between them can help you identify how those groups of resources are using the budget assigned to a specific business unit or across different stages software development lifecycle of a workload. Creating categories to consolidate groups of resources based on your business needs (some examples of categories would include: Business Unit, Product Line, Environment). Once these categories are established and set up, you can use them to monitor cost and usage information within these categories. Additionally, you can retrieve meaningful information from these groups of resources leveraging multiple dimensions (such as, who created a resource). For example, the Line of Business where a resource belongs. Leveraging infrastructure as code to deploy infrastructure and resources for your workloads will allow you to consistently apply tags from your tagging dictionary, avoid untagged resources, and enforce your tagging policy to ensure the cloud financial management capability allows you to allocate costs for your infrastructure when needed. With the appropriate mechanisms in place, the Cost Allocation methods allow you to carve out material cloud charges, including commitment purchases, standalone, and shared resources. For example, networking, log retention and archival, security tools, and operational tools charges. Establishing chargeback mechanisms will allow you to report costs incurred by different business units, products, and teams. # Planning and forecasting If the workload you bring to your cloud environment is a new cloud native based workload, or a migration from your on-premises data center you need to model and plan costs. Using cloud native tools, you can extract data that will allow you to determine a total cost of ownership (TCO) to quantify the expected cloud costs. Additionally, for your overall environment, there are other non-cost cloud values that you need to consider, including staff productivity, operational resiliency, and business agility, which will showcase the business value of moving to the cloud. We recommend regularly reviewing cloud budgets, to understand different variances, so you can plan ahead for spending. We also recommend performing forecasting exercises to define future IT and workload-based budgets. Cloud forecasting can be performed by using a combination of trend-based, and driver-based methods to closely align to future cloud usage (such as, new products, new launches, or changes in cloud deployments) as well as future cloud demand (such as, forecasted customer demand for cloud-hosted products). Cloud spend planning should be a part of the organization’s overall IT financial planning process, which may include on-premises or other hybrid spend planning. # Cost monitoring and reporting Visibility across your cloud environment is critical. Your cloud team and your finance teams will require visibility into the cloud spend, and stakeholders owning business units and workloads need the ability to generate and save custom reports. Doing so, will create a [cost-aware culture](https://docs.aws.amazon.com/wellarchitected/latest/cost-optimization-pillar/cost-aware-culture.html) within your organization. Specific reports generated for the different workloads in your environment will allow different stakeholders to create different views of the environment, based on groups of resources, environments, or stages of development, and will enable them to forecast the spend or detect anomalies in costs during a specific time frame. The level of granularity and visibility in reports can be enabled at different levels for different dashboards, and is granted based on roles and groups for each of the workloads via federation. A few examples are: 1. In order to analyze and monitor your entire environment, your cloud team and/or your FinOps team will need access to the environment level billing. From here, they can set up budgets, analyze spend trends, and detect anomalies across the entire environment. 1. A business owner needs visibility across the different workloads and applications, access can be granted for the specific group of resources or custom dashboards to visualize the spend for each of the workloads. 1. A builder, a developer, or an individual user needs visibility, access can be granted to visualize the cost associated with the resources they are using, or within their sandbox environment. Setting up the right monitoring tools for spend in your environment will allow you to evaluate different spend patterns. Evaluating your patterns weekly or monthly with these reports, can help you determine if any anomalies in spend patterns exist, and quickly identify and remediate the root cause. Defining metrics that allow you to identify if your cost strategy is successful, for example `unit-cost`. This will feed into your overall finance strategy, allowing your technology and business stakeholders identify cost-saving opportunities and repurpose some of the savings to new initiatives or projects to enhance your cloud environment. # Cost optimization Cost optimization is treated as an essential component when performing tradeoffs between various designs and architectures during the early stages of product ideation. Cost optimization for your environment can happen across the entire life of your environment and workloads, from the design and architectural stage, all the way until the resources have been launched on the cloud. This can include proof-of-concept designs to help you estimate the cost before moving any resources to non-production or production environments. Using a centralized model to acquire and manage billing and costs can benefit your environment as you can reserve resources or purchase saving plans that can be shared across all the teams. Grouping resources and managing them centrally throughout your environment can also offer the benefit of usage volume discounts, that you will receive when all the billing is consolidated. Each team will get recommendations and information from the central team and tools to optimize their usage and workloads, and should implement resource modifications before these commitments are in place to benefit from the discounted prices. As the environment and the workloads are designed, managing network and licensing centrally will reduce the overall cost and overhead for individual teams. Each team should analyze the resources they own once they are deployed, to identify cloud waste associated with each workload. These recommendations include the size of the compute that is recommended, different tiers of storage available, and any committed pricing models that can be leveraged. Additionally, each team should analyze and identify opportunities to modernize their environments to use the newest tools and technologies that often include better performance ratios, leading to a reduction of the cost for the workloads. # Cloud financial operations Cloud financial operations focuses on capabilities that allow customers to evolve organizations, processes, automation and tools, and establish a self-sustaining cost-aware culture of innovation. This ensures that stakeholders across organizations have a common understanding of cloud costs, and can be done through establishing new working partnerships between finance and technology teams to allow more accurate budgeting and cloud spend monitoring. Reporting, education, gamification, and celebrating efficiency wins can drive organizational cost awareness and help foster a cost-aware culture. We recommend establishing a centralized function (individual or team) that owns cloud financial management activities across your cloud environment. This central function provides and controls access to the billing and costs tools, co-owning a cross-organizationally approved tagging dictionary defining cost categories, managing commitment purchases, and being a primary business partner for the finance organization. This central function is responsible for driving awareness about how the cloud environment is being used within the organization, performing budget reviews, and helping with forecasting exercises. This function is also responsible for defining and implementing a cost management tooling strategy, which may require the procurement and curation of partner tools for internal consumption, or identify internal resources to build in-house cost management tools. Tools should be built to automate as many cost management activities as possible to reduce undifferentiated work, and to enable scale. In addition to a centralized approach at commitment purchases, the cloud financial management function augments existing business and technical processes to instill cost-awareness (such as, introducing cost into change management, incident management, and service operationalization/readiness processes), maintain direct relationships with technical, finance and business stakeholders to raise cross-organizational cost awareness (such as, through hackathons, all hands meetings, frugality awards), ensure cost transparency as it pertains to the business being supported by cloud (such as, KPI development, cost reporting), and drive cloud spend concerns to closure (such as budget variances, spend anomalies, root cause identification, and remediation).