As businesses grow their spend in the public cloud to accelerate innovation and to build a competitive advantage, predicting cloud growth accurately short- to long-term becomes increasingly important for leadership. Finance and executives need to know available funds several years into the future to build their innovation roadmap.
In this course, you are going to learn about cloud forecasting and how to align forecasting models with the maturity of your FinOps / Cloud Financial Management practice. You will learn about the relevant terms and concepts as well as how to identify ownership and accountability. We will break down the challenge into addressable parts and walk you through solution approaches at each step.
- Understand what cloud forecasting is and why it's important
- Understand what challenges exist in cloud forecasting and how to address them
- Learn about the different ways you can forecast in the cloud
- Learn about what you can do to improve cloud forecasting
- Learn about the role forecasting plays in FinOps
- This course is for FinOps / Cloud Financial Management and Finance people looking to understand how to improve cloud forecasting and how to increase forecast accuracy.
A basic understanding of how the cloud works, including compute and storage services and their pricing models, as well as an understanding of the financial processes around forecasting, budgeting, procurement, and allocations.
A common language around FinOps is key to successful interactions. The meaning of the words, motivations, and views differ across leadership, finance, and engineers. I explain this in detail in my course titled "Cloud Financial Management — Beyond Just Optimization". In this section, we are going to describe some of the important terms around cloud forecasting.
Let's start with what is forecasting. Forecasting is the projection of financial trends that can change as new data becomes available. The goal is to help the business anticipate results and forecasts can also be used to create budgets.
This brings us to budgeting. Budgeting is an estimate of revenues and expenses a business plans to spend within a time period. This allows business owners to continuously track actual spend against their budgets.
Cost estimation is the process of quantifying resources that will be required to complete a project. This is useful for workloads that don't exist yet but are planned to be created in the future. Cost estimation can also be used to create budgets.
Cost of goods sold (COGS).
The Cost of goods sold or COGS measures expenses directly responsible for revenue in the month they occurred. It is important that these expenses have no future benefit. For a business using cloud, COGS usually are the monthly cloud bill and the cost of sales and support staff.
COGS can become capitalized assets.
COGS can be reclassified as capital expenses when the expenses are not directly responsible for revenue in the month they occurred. Cloud costs not contributing to revenue within a month can be capitalized as assets. When these assets contribute to revenue they must be accounted as COGS during the month of contribution.
Capitalized expense (CapEx) versus operational expense (OpEx).
Capitalized expense or CapEx for short versus operational expense or OpEx. When you capitalize something, it becomes an asset of the company. This is independent of the month when it is expensed. For example when you pay for something that has future benefits the expense can be capitalized. If the payment has no future benefit it is an operational expense.
What are Unblended rates? Some resources are charged in decreasing rates the more you use them. This means you are billed different rates for resources as you use more, or for a longer time during the month. By examining your bill, you can see that some resource costs are larger than others, even for the same type of resource or an identical resource. When the rates are presented this way, they are called unblended.
What are Amortized costs? Some cloud resources and reservations come with an upfront fee. The amortized cost of a resource takes this initial payment into account and distributes it out based on usage, attributing the prorated cost for each hour of billing.
Fully loaded costs.
What are Fully loaded costs? Fully loaded costs are amortized, reflect the actual discounted rates a company is paying for cloud resources, equitably factor in shared costs, and are mapped to the business’s organizational structure. In essence, they show the actual costs of your cloud and what is driving them.
What is Cost allocation? The process of splitting up a cloud bill and associating the costs to each cost center. It is important to have teams understand how costs are being allocated, and to have a centralized, controlled, and consistent cost allocation strategy.
To summarize Relevant Terms and Concepts, a forecast is a financial projection that can be assigned as a budget to a business owner. Cloud costs can be expressed in different contexts such as unblended, amortized, and fully loaded costs. And some cloud costs may be capitalized under specific conditions.
Dieter Matzion is a member of Intuit’s Technology Finance team supporting the AWS cost optimization program.
Most recently, Dieter was part of Netflix’s AWS capacity team, where he helped develop Netflix’s rhythm and active management of AWS including cluster management and moving workloads to different instance families.
Prior to Netflix, Dieter spent two years at Google working on the Google Cloud offering focused on capacity planning and resource provisioning. At Google he developed demand-planning models and automation tools for capacity management.
Prior to that, Dieter spent seven years at PayPal in different roles ranging from managing databases, network operations, and batch operations, supporting all systems and processes for the corporate functions at a daily volume of $1.2B.
A native of Germany, Dieter has an M.S. in computer science. When not at work, he prioritizes spending time with family and enjoying the outdoors: hiking, camping, horseback riding, and cave exploration.