IT Budgeting and Purchasing Policy - Business Enablement

Budgeting is a process by which future revenues and expenses are decided to streamline the spending process. Budgeting is done to track expenses and income. It serves as a monitoring and control method for managing the finances of a business. It begins with deciding on the financial goals against which the budget will be set. Other important activities in the budgeting process include things like forecasting, tracking, controlling, and evaluating financial goals.

The budgeting process is very important for any business entity. Without a proper budget, a business can never know how much it has earned and spent. A budget is a great guide through which a business can track its revenue stream and identify potential pitfalls in advance. In addition, a budget serves as a valuable tool to control how a business spends. Budgeting ensures that all money is spent in the right direction and financial goals are achieved.

Cloud usage has expanded significantly over the past two years as organizations have retooled their operations to support a remote and hybrid workforce. According to a recent study, 88 percent of organizations are now using at least one cloud platform, up from 72 percent in 2019. With the cloud making up an ever-greater proportion of the IT environment, organizations should learn how to forecast cloud costs and develop a realistic cloud budget. However, estimating cloud expenses can be difficult, and many organizations discover that costs exceed their expectations.  According to the Flexera 2021 State of the Cloud Report, public cloud costs exceed budget by 24 percent on average, and customers estimate that up to 30 percent of the typical cloud spend is wasted. After working with organizations to identify cloud waste, Flexera determined that the average actual waste was 35% or more. Meanwhile, organizations are expected to increase their cloud spending by 39% within the next 12 months. That's why it's more important than ever to develop strategies and processes to predict and optimize cloud costs.

Traditional IT Budgeting:

This is the most common budgeting method and is used in most financial institutions. It is based on historical information and involves a phased approach. Simply put, managers take last year's numbers and adjust them for growth and/or inflation, plus or minus any significant changes in expected results. Most financial institutions have implemented some form of cost-cutting in the past 12 months. In most cases, cost reduction initiatives include a directive from the CEO or CFO that costs will be maintained at last year's levels (cost reductions in line with inflation). distributed) or will be reduced by a fixed percentage. Cost center managers who have seen these initiatives in the past will increase their budgets to ensure reductions can be achieved without damaging their service infrastructure. In this way,  traditional historical budgets are built on unnecessary items and encourage the vested interests of managers.

The Cloud Is Different:

Cloud cost management and optimization help businesses save on cloud bills by reducing waste, alerting users when demand declines, or automatically adjusting usage to optimal rates. By pricing the cloud, cloud cost management solutions provide reporting that identifies waste and duplication to increase utilization, reduce hidden costs, the lower total cost of ownership, and help businesses get to market faster.

Pay-As-You-Go :  

This is the most common model that organizations tend to charge the highest for. In this model, you pay for what you use. It can be a payment for storage or computing power. The great thing, of course, is that you only pay for what you use. If you don't use it, you don't pay for it. This is in contrast to the traditional hardware provisioning model where you provide resources and pay for what you use.

Flexible Pay-As-You-Go :

Spot Instances are heavily discounted compute resources that can be used to handle workloads that are not very time-sensitive. Access to these resources may be granted or revoked at any time based on overall demand. Flexible Spot Instances are ideal for daily batch processes or long-running processes that can be easily stopped and restarted.

Prepaid/Fixed Subscriptions :

In a subscription-based model, cloud customers typically pay upfront for services. The subscription price depends on the duration of the subscription you agree to. In the long run, a larger discounted price will result. This approach is only useful when you know your capacity is almost depleted. Even if you use less than provided, you will still have to pay for a subscription. Cloud Services customers with very high spending ($100,000 or more per month) may enter into private pricing agreements (“Enterprise Discount Programs” or similar programs) with cloud service providers. In general, the larger and longer the contract, the greater the discount. 

 We also recommend looking at Reserved Instances (RIs). 

 Great discounts for upfront payments and time. RI savings are up to 75%. Many cloud computing companies have this feature but don't use it. If you use cloud services a lot, you might want to take a look at them. 

 Reserved Instances are ideal for sustained workloads on systems that run for a long period (3 years is usually the most cost-effective). Some organizations may fall into the trap of using peak load when determining the number of Reserved Instances, wasting resources. Peaks in resource usage (such as the end-of-month time input system) should be treated as On-Demand Instances or Spot Instances.

Budget and forecast cloud computing costs

On the On-premises, everything from used to performing tasks is done internally. However, you must manage your backups, personal information, and updates internally. When the item is received, it is installed on the server. You must purchase software for additional workers, programming databases, and operating systems. You expect full ownership with no prior commitments.

With cloud computing, proper governance is much more complex and should be treated much differently than on-premise budgeting. It’s increasingly important to implement the proper governance to align IT costs and performance while enabling the technology team’s ability to move fast. 

Handling this complexity often means thinking about costs differently. For example, saying we spent $100,000 on the cloud this month doesn't provide much context or think about the flexibility of the cloud.