What Do Companies Do With Multi-Million Dollar Cloud Budgets?

by Nicolette Emmino

At the Cloud Economic Summit, in San Francisco, Cloudability announced the results of a 451 Research survey that assesses how enterprises with at least $100k/month in cloud spend fare when it comes to cloud procurement maturity.

The report, titled “Cost management in the cloud age: Enterprise readiness threatens innovation,” concluded that cloud budgets have quickly become a material part of IT spend, and outside of the largest cloud spenders who budget $1M+/month on cloud most enterprises are unprepared to manage this variable spend resource.  The survey captures responses from 300 Finance and IT leaders in the US and UK. 

Here’s what we learned:

Poor Cloud Financial Management Has a Negative Impact on the Business

Despite the benefits of cloud, more than half (57 percent) worry about costs daily, and have experienced a negative impact to the business due to poor cloud financial management:

  • Slower cloud adoption (53 percent) – without a process for managing how cloud resources are consumed and budgeted, enterprise adoption slows or comes to a halt.
  • Negative impact on innovation (25 percent) – the promise of cloud and freedom to innovate is at risk for organizations who are unable to properly manage escalating cloud spend.
  • Lower quality of service (38 percent) – poor utilization of cloud puts a strain on service levels.
  • Sprawl/under-utilization of resources (40 percent) – visibility is critical to prevent over or under-provisioning of resources.
  • Higher cost (22 percent) – lack of awareness into current spend levels leads to rampant overspending.

Still, many do nothing because they believe they will hinder innovation (45 percent) or think the amount of overspend is too small and not worth resolving (50 percent). Additionally, the reluctance to admit to wasted spend factors into the millions in lost savings and deepening levels of inefficiency.

Disconnect Between IT and Finance

The cultural transformation required to manage cloud was one of the biggest challenges facing IT and Finance, with 72 percent of respondents acknowledging they have no formal reporting capacity between departments.  Additional data suggests the IT department is completely unaware of the burden cloud budgeting has on finance.

  • 51 percent of finance respondents admit to occasionally overspending; whereas, only 37 percent of IT believe they are operating in the red
  • 68 percent of finance respondents state they are alerted to overspend only after it’s too late; whereas, 80 percent of IT think they are alerted before overspend takes place.
  • 82 percent of respondents rely on cloud vendors, spreadsheets and manual tracking or have no visibility into cloud costs.

Other highlights include:

  • 73 percent in the US and 81% in the UK still treat cloud as a fixed (CapEx) cost rather than a variable (OpEx) expense
  • 65 percent aren’t doing chargeback/showback despite being worried about cost management
  • 65 percent say an economic downturn won’t impact their cloud investment, with 30 percent planning to invest even more in 2019.

“Our findings tell us that cloud cost management is about more than saving money, it’s about making a cultural shift internally and enabling the business to move faster with fiscal discipline,” said Owen Rogers, Cloud Economist at 451 Research.  “As we inevitably go through the next stage in the current economic cycle and experience a downturn, IT and Finance leaders will begin looking for smarter ways of operating in the cloud since they have no plans to stop investing. The challenge, as always, will be to prevent overspend before it occurs without getting in the way of innovation.”

“The 451 data validates a movement already afoot in our customer base over the last eight years that focuses on education, and helping both IT with Finance understand how to manage costs in a cloud economy,” said J.R. Storment, Cofounder of Cloudability. “The research shows it’s time for a new operating model to emerge that puts best practices into place now, and creates the discipline organizations need to remain competitive as cloud continues increasingly to represent more of IT spending.  Those who have deployed FinOps have been able to balance cost efficiency while also maintaining velocity, reinvesting cost savings into further innovation.”

A full copy of the report can be downloaded here.

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