Jim Meadows, co-founder and managing partner of Culhane Meadows, was recently interviewed by CFO Magazine for an article on managing cloud-based services spending.
Here are some excerpts from Jim’s interview:
The COVID-19 pandemic has been an accelerator of cloud services adoption. According to a report by International Data Corp., total worldwide spending on cloud computing, including hardware, software, and supporting services, will surpass $1 trillion in 2024, sustaining a compound annual growth rate of 16%.
Of course, most of those dollars are being sucked out of the budgets of small and large enterprises at a sometimes astonishing pace. After all, the cloud delivery model for all kinds of IT resources is one of the pillars of the digital transformation underway at many organizations. More significantly, in many companies, new cloud service purchases aren’t closely tracked.
Finance executives, previously more familiar with budgeting for server hardware and software licenses, have a new IT-related challenge: How to get a handle on and best manage the costs of burgeoning cloud services.
One area in which CFOs can make a valuable contribution is in fleshing out the real costs of available cloud options, says James Meadows, managing partner and CFO of law firm Culhane Meadows. Often, the cloud offers a temporary benefit in the form of lower ‘per transaction’ costs,” Meadows says. The CFO, rightly, will expand the discussion to include the full lifecycle of the cloud service, including the initial conversion, operations, and end-of-term implications, along with a consideration of the operational risks.
Besides CFO involvement, critical to any cloud optimization strategy is governance. Governance is important because analysis of cloud services should not end with evaluating and selecting a cloud provider.
“Business needs and strategies evolve — organically and in reaction to ‘emergencies’ — and the cloud solution needs to evolve with those needs and strategies,” Meadows points out. As workloads in the cloud are scaled and become increasingly complex, proper governance policies for the use of public, private, and hybrid clouds are essential.
Governance should happen on two levels. At the organizational level, it is used to manage the overall cloud optimization strategy. At the solution level, it is used to manage each cloud service and each service provider relationship. Solution-level governance enlists a sourcing or procurement department to oversee all cloud contracts and consolidate the cloud payment process.
“The sourcing process maintains visibility, especially financial, across the organization’s solutions, and will provide that information up to the top governance level,” Meadows says.
The sourcing process also provides a contract management function, serving as an interface or clearinghouse of input from constituencies throughout the company, including the risk management, IT, and legal departments.
Any worthwhile cloud cost-management program requires diving into the nitty-gritty of contracts. For already deployed applications or new ones, cloud managers should monitor performance, availability, and compliance to maximize cloud spending and ensure that service-level agreements (SLAs) are met. Woo says the performance metrics should be reported back to the business to guide the next phase of cloud development.
SLAs require particular attention upfront. Organizations should aim to negotiate customer-specific SLAs and reach an agreement on price protection and termination language, Meadows says. “Contractual protections are critical, in part to ensure that remedies are available if needed,” he says. But even more important, they ensure that service providers pay an appropriate level of attention to the company.
Termination language tends to be the most overlooked area of the contract, Meadows says, and poses some of the greatest risks. At the end of term, when a vendor is losing the organization’s business, simple cooperation language is rarely enough, he says. Specific obligations and associated cost protections are required to ensure that this does not become, at best, the vendor’s last opportunity to make a profit, or at worst, a nightmare for the customer trying to leave the relationship.
The complete article can be found here.
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