Cloud Financial Management: Your Guide to Cost Control

Cloud financial management (CFM) is the practice of maximizing the business value of cloud investments. With 90% of CFOs reporting increased cloud spending – and many estimating that 10-30% is wasted – demonstrating ROI with effective CFM is more important than ever.

As a managed public cloud provider, TierPoint helps businesses establish guardrails that keep costs in control. We’ll explain the cloud financial management pillars, strategies, and tools that can help you optimize and defend your cloud budget.

What is Cloud Financial Management?

Cloud financial management is a strategic approach to managing cloud spending that combines resource optimization, operational efficiency, and financial governance. It emphasizes cost visibility, as well as proactive planning and accountability.

Thinking holistically with cloud financial management can help organizations improve their long-term ROI, financial predictability, and business resilience. IT leaders can make more informed investment decisions by gaining more insight into their cloud environment.

What Is Cloud Financial Management vs. Cloud Cost Management?

Cloud financial management has a broader scope than cloud cost management. Cloud cost management is tactical, focusing on techniques that lower cloud spend, like rightsizing resources and taking advantage of cost-efficient pricing models. While this is an important part of cloud financial management, CFM is a more holistic and proactive discipline that also includes strategies like budgeting, forecasting, and governance.

What Is the Difference Between FinOps and Cloud Financial Management?

Cloud financial management and Financial Operations (FinOps) are often used interchangeably, but cloud FinOps places more emphasis on strengthening cross-functional collaboration.

FinOps is a modern operational framework that optimizes cloud investments through collaboration between finance, IT, and business teams. It includes standardized practices developed by the FinOps Foundation that help organizations execute cloud financial management, which often describes a broader discipline.

What Are Four Key Areas of Cloud Financial Management?

The four key areas of cloud financial management are cost visibility and reporting, cost optimization, budgeting and forecasting, and governance and oversight. Achieving these CFM pillars can help drive business value from the cloud.

Cost Visibility and Accountability

Effective cloud financial management drives a comprehensive understanding of your cloud expenses. This requires centralized, real-time visibility across cloud providers, resources, and subscriptions, including less-reviewed line items like Microsoft 365. Organizations should be able to quickly identify spending trends and uncover inefficiencies or runaway costs.

Cost visibility also fosters accountability. Detailed reporting can help individual teams track cloud usage against budgets and performance targets, as well as forecast future costs. Keep in mind that visibility alone doesn’t improve financial outcomes; organizations also need context to understand if cloud spending is aligned with business priorities.

Here’s how AWS expert Samir Karande, co-founder and CTO of zOpt.ai, describes the importance of cloud cost visibility:

Cost Optimization

Strong visibility paves the way for cloud cost optimization. Organizations can maximize the value of their cloud investments by aligning workloads with the right environments and adopting cost-effective purchasing strategies, like reserved instances, where appropriate. CFM also involves actively managing resource lifecycles to eliminate unnecessary spend.

The goal of this cloud financial management pillar isn’t simply to cut costs. Instead, cost optimization aims to maximize savings while still maintaining operational needs like performance, security, uptime, and resilience requirements. Teams can ultimately redirect their savings to create capacity for innovation.

Budgeting and Forecasting

Cloud financial management makes usage information actionable. Beyond tracking cloud expenditures, organizations use historical data to build realistic budget plans that anticipate future needs.

Forecasting is a key part of this. CFM involves looking at growth patterns, market conditions, and other data to predict usage and cost trends. Financial management tools with predictive analytics capabilities can also contribute to more accurate forecasting and better inform cost allocation strategies.

Better forecasting helps IT leaders walk into budget discussions with greater confidence and fewer surprises. When your cloud spend is predictable, you can focus on explaining the value of your investments instead of defending unexpected costs.

Governance and Oversight

A key component of cloud financial management is concerned with the governance practices implemented at an organizational level. Organizations must establish guardrails, including security and cost controls, designed to prevent unexpected expenses and disruptions.

When implementing cloud financial management, organizations may also designate a cross-functional team to provide oversight. In addition to driving the CFM strategy, this team may lead the development of a FinOps culture across the company and educate employees about financial best practices. This further drives financial control and predictability.

What Are Effective Cloud Financial Management Strategies?

Effective cloud financial management strategies can include tagging, rightsizing, autoscaling, incorporating AI/ML, and establishing clear governance policies. Keep the following best practices in mind to start building your CFM practice.

Establish Clear Governance Policies

Effective cloud financial management requires governance policies that establish clear expectations for how cloud resources are provisioned, managed, and monitored throughout their lifecycle. These policies can define standards for:

• Resource tagging
• Budget ownership
• Approval workflows
• Cost allocation
• Lifecycle management

Strong governance ensures every cloud resource can be tracked and accounted for. It also creates financial accountability across IT, finance, and business teams by ensuring cloud spending aligns with organizational priorities. Combined with ongoing monitoring and policy enforcement from a core CFM or FinOps team, governance can reduce resource sprawl and financial risk.

Governance policies may also dictate which individuals and groups can access certain security and financial controls, supporting both CFM and compliance.

Implement Cloud Tagging for Visibility

Unified cloud data is only valuable if your team can make sense of it. Cloud tagging is the process of assigning descriptive metadata or labels to resources, so you can analyze usage at a granular level.

With tagging implemented, teams can filter through costs associated with specific accounts and business units to see where spend is concentrated. This can help you adjust your investments based on overutilization or underutilization patterns.

Optimize Resource Allocation and Usage

Rightsizing, reserved instances, spot instances, and automated scaling can all help you optimize your resource allocation and usage. Regularly survey your cloud usage to decide the strategies that best fit your business needs and cost efficiency goals.

Rightsizing

Rightsizing ensures cloud resources align with actual usage patterns. It prevents both overprovisioning and underprovisioning, helping businesses avoid unused capacity and performance issues. Some cloud-native tools, like AWS Compute Optimizer, can provide custom rightsizing recommendations.

Autoscaling

Autoscaling can increase or decrease cloud resources as real-time demand changes. Once you understand your typical capacity range, autoscaling policies can help your business adjust resources based on preset thresholds. This helps maintain application performance during traffic spikes, then reduces costs by scaling down when demand subsides.

Reserved Instances and Spot Instances

Reserved instances offer resources at a steep discount for predictable workloads. Amazon EC2 and Microsoft Azure reserved instances offer discounts of up to 72% when compared with on-demand pricing.

For more savings, businesses can use spot instances for workloads that are more variable and can afford to be interrupted. These offer even greater discounts, up to 90%.

Incorporate Artificial Intelligence and Machine Learning

Artificial intelligence and machine learning (AI/ML) can enhance cloud financial management by turning cloud cost data into actionable insights. These tools continuously analyze usage patterns, forecast future spending, detect anomalies, and identify optimization opportunities. As a result, organizations can make faster, more informed financial decisions while improving cost efficiency.

AI-driven automation tools can also streamline routine cloud financial management tasks. For example, AI/ML can recommend automate resource scheduling, shut down idle instances, and enforce tagging policies. They can also help optimize the purchase or renewal of discounted pricing options such as reserved instances or savings plans.

Regularly Review and Analyze Cloud Spending

Most major cloud providers offer some cloud financial management tools that can help your organization review and analyze cloud spending. For example, AWS Cloud Financial Management and Microsoft Cost Management offer cost allocation tools and anomaly detection services. They can also help you understand when to purchase reserved instances. Businesses that have a multicloud or hybrid cloud environment can also use third-party CFM solutions for better integrations or necessary features.

The right financial tools help you better understand which factors most influence your cloud economics. From there, you can iterate on policies and processes and optimize your spend more wisely, keeping your budget defensible.

What Are The Best Cloud Financial Management Tools?

The best cloud financial management tools include cloud-native services, such AWS Cost Explorer and Azure Advisor, and third-party solutions that consolidate recommendations from across cloud platforms.

With 38% of IT decision-makers planning to adopt or invest in cloud cost optimization tools over the next five years, choosing the right mix of tools is critical to gaining a competitive advantage. Consider your business needs, current cloud environment (single cloud, multicloud, hybrid cloud, public/private, etc.), and expected integrations when making your selections.

Cloud-Native Tools

Each major cloud provider offers built-in tools to manage cloud spending. These tools help businesses manage their financial governance and cost analyses. While using these tools can simplify some processes, they still require dedicated experts with the skillset to monitor and continuously optimize spend.

AWS Cost Management Tools

Tools available to optimize costs in AWS include AWS Cost Explorer, AWS Budgets, and AWS Cost and Usage Reports.

AWS Cost Explorer can visualize AWS costs and help organizations understand their usage over time. The tool offers features that allow businesses to create custom reports, analyze current trends, and forecast future expenses. AWS Budgets can keep spending in line, with alerts for spending that reaches or exceeds set thresholds. AWS Cost and Usage Reports provide detailed cost data that can be used for more sophisticated analysis. This can be helpful when organizations are trying to pinpoint specific spending patterns within a larger footprint.

Microsoft Azure Cost Management Tools

Two of the most common cloud cost management tools in Azure include Microsoft Cost Management + Billing and Azure Advisor. The first tool centralizes monitoring for Azure spending, making analysis easier. Much like the AWS tools, this resource can help businesses with budgeting and alerts as well. Azure Advisor is a recommendation tool that helps businesses optimize their Azure resources.

Google Cloud Platform Cost Management Tools

Google Cloud Billing Reports, Google Cloud Pricing Calculator, and Google Cloud Recommender can help businesses report on their spending, identify trends, and improve resource utilization.

Google Cloud Billing Reports visualizes spending trends and spikes. It can also uncover the main cost drivers in an organization’s budget. Google Cloud Recommender works like Azure Advisor, recommending ways to reduce costs and optimize resources. Google Cloud Pricing Calculator allows businesses to see the potential costs of services before buying, making budgeting and planning easier. 

Third-Party Cloud Financial Management Solutions

For more tailored solutions, organizations often look to third-party tools. When businesses are managing multicloud or hybrid cloud environments, third-party solutions can provide a single pane of glass where they can view all of their resource utilization.

The best cloud optimization tools bridge the gap between on-premises and cloud cost data, while actively tracking the value cloud delivers to your business. For example, TierPoint can help you leverage Flexera Cloud Cost Optimization solutions to identify wasted spend across environments and teams, cutting down on manual processes. Paired with our human expertise, you’ll gain a full understanding of the actions that the third-party tool recommends.

What Are the Benefits of Cloud Financial Management?

When cloud financial management is properly implemented, organizations can benefit from:

• Greater confidence in budget planning: Gain a clearer understanding of cloud costs, enabling more accurate forecasting, stronger budget justification, and better long-term financial planning.
• More predictable cloud spending: Reduce cost variability through continuous monitoring and governance, preventing unexpected charges and improving financial stability.
• Better alignment between IT and Finance: Create a shared view of cloud investments, so technical and financial teams can make informed decisions based on business priorities, performance, and cost.
• Faster identification of optimization opportunities: Increase visibility into resource usage to quickly uncover underutilized assets, rightsizing opportunities, and other areas where cloud spending can be optimized.
• Increased capacity for future innovation: Free up budget by eliminating waste and improving resource efficiency, reinvesting savings into AI, modernization, security, and other strategic initiatives.

What Are the Challenges of Implementing Cloud Financial Management?

When implementing cloud financial management, organizations may face challenges such as:

• Integration complexity: Some environments may be more ready to integrate with cloud financial management tools than others. Legacy frameworks will require more configuration and may not fully integrate with cloud-first or cloud-native tools.
• Managing multicloud environments: Multicloud environments can introduce complexities that can make it harder to unify cloud cost management tools. Third-party resources and expertise are often essential to solve cost visibility issues.
• Maintaining continuous optimization: Cloud financial management is an ongoing operating discipline. As cloud environments and business priorities evolve, organizations need the capacity to maintain monitoring and optimization efforts. Teams that treat CFM as a one-time cost reduction project can lose cost control.
• Ensuring security and compliance: Larger cloud environments can introduce new security and compliance challenges. It’s important to understand which workloads may have regulatory requirements or sensitive data, factoring compliance needs into your CFM strategy.
• Accounting for non-IaaS costs: It’s easy to think about cloud finances in terms of infrastructure as a service (IaaS). However, there are many other costs associated with the cloud, including software as a service (SaaS), platform as a service (PaaS), and data storage fees.
• Eliminating cloud waste: Identifying and getting rid of cloud waste isn’t a one-time project. It needs to be part of a regular maintenance task to manage finances most effectively. Cloud sprawl is a major contributor to cloud waste and involves an uncontrolled usage of resources, services, and instances without helpful oversight. 
• Predicting variable costs: Without reliable forecasting tools, it can be difficult to predict variable costs. The more background data and access to AI/ML tools an organization has, the better it can prepare for anomalous spending. 
• In-house skill gaps: CFM can be complex. Businesses need to have someone on staff with experience in cloud cost management, financial management, and data analysis, or they may need to augment teams with external capabilities. Many organizations see CFM stall due to a lack of internal FinOps expertise. CFM leaders also need to educate and align teams on best financial practices in the cloud.

Key Takeaways

Prove the Value of Your Cloud Investments with Cloud Financial Management Support

Taking a strategic approach to cloud financial management starts with fostering a collaborative environment, involving the right teams to create a strong financial policy, and using the right tools to automate much of the cost optimization.

If your team needs support for proving ROI, TierPoint can help you make more informed decisions about your cloud investments. Our cloud consultants can help you optimize your infrastructure spend across hybrid and multicloud environments, even strengthening your M365 controls and preparing for AI adoption in alignment with your CFM strategy.

For more insights in the meantime, download our whitepaper to discover how to boost ROI by utilizing top cloud financial management strategies.

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