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We have already talked on multiple occasions about digital transformation, the challenges, advantages and benefits it brings for large enterprises, but how do SMBs cope with digital transformation; and even more importantly, how can Amarello & Google Cloud help to take financial advantage of the Public Cloud?
Read on to find out the answer; first let’s put the situation in context. According to World Bank figures, Mexico ranks 15th among the world’s largest economies, thanks to the volume of its gross domestic product (GDP).
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According to data published by DocuSignAccording to data published by DocuSign, SMEs are a vital pillar of the Mexican economy, since they represent 99% of the country’s private sector, contribute more than 50% of the nation’s income and generate 78% of formal jobs. However, every year close to 33% of SMEs close and only 35% survive after five years of operations.
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Some of the most common causes of this are: lack of market knowledge, technological disinvestment and poor financial management. En contraparte con estos datos nos encontramos con una luz de esperanza, ya que según reportes del IDC & Gartner, en los próximos 5 años the SMB segment has projected that most of its IT budget will be allocated to Cloud services.
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In addition to the technological benefits such as scalability, security, agility and availability, the cloud offers very attractive financial benefits, although it certainly requires adjustments as it is a change in technology acquisition models that is very different from the traditional model of licensing or purchasing equipment.
FinOps and its relationship with the Cloud
Migrating to the cloud brings with it a series of benefits and transformations that are not limited to the technological or operational; FinOps, short for financial operations, is an operational framework that represents a cultural change that adds technology, finance and the way of doing business, to strengthen financial accountability and increase business value by migrating to the cloud and reducing costs.
- Accelerates business value growth
- Accelerates innovation
- Improve visibility of core elements and key success metrics.
- It helps to better understand the complexity and challenges of financial and technology management.
- Promotes trust and collaboration between organizations.
- Avoid increased cloud costs.
The five fundamental pillars of Cloud FinOps
Liability and qualification
The main focus is to create centralized and efficient cross-functional teams, including engineering, architecture, finance, operations and application owners, to establish standardized management to control cloud cats.
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Measurement and realization
This idea focuses on developing key metrics for business value, and key performance indicators (KPIs) to measure the success of the transformation. It is common to start with a set of cost optimization metrics and eventually shift to economic or business value metrics, such as cost per transaction or cost per customer service.
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Cost optimization
This is a dynamic process, which will help us to produce a coherent methodology to manage cloud consumption in the most efficient way possible.
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There are 3 key areas of optimization
- Resources
- Prices
- Architecture
Planning and forecasting
In order to properly plan and efficiently forecast the use of resources in the cloud, it is necessary to better understand the factors that cause the cost to increase, as well as the efficiency of their comparatives and the expense budget.
Tools and accelerators
Finally, and connected to all of the above, using the right tools and accelerators is important to efficiently manage and monitor cloud expenses. Three fundamental pillars for this are:
- Deploy cost management tools to analyze cost and billing data in real time.
- Develop a reporting dashboard to manage expenses in the cloud and track value.
- Implement automation scripts to set up account restrictions and budget alerts.
How does the public cloud help with this, and what can Amarello offer you?
OPEX model instead of CAPEX
The public cloud, such as Google Cloud, being an on-demand and pay-per-use model as a service provided on a monthly basis with no forced term, so the cost is deducted in full, without incurring in cases of asset depreciation. In addition, it allows an optimization in cash flow by not having to pay for the service in advance, which changes the way in which it is budgeted from CAPEX to OPEX.
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Withholding taxes
Public cloud providers generally bill their customers from the US and payments abroad require special tax treatment according to current Mexican legislation, as well as legislation in other Latin American countries.
The rule is that monthly tax withholdings must be applied to each payment made for public cloud. Tax consultants such as EY and KPMG agree on this criterion, in order to avoid non-compliance and the risk that the tax authority may require the payment of withholdings that were not applied in a timely manner.
The precedent comes from October 2018 in the amendment to miscellaneous rule 2.1.37, which expands all the concepts of payment for software abroad.
Fortunately, one of Amarello’s added values for its customers is to mitigate this administrative burden, through local billing in local currency of the Google Cloud service, as well as providing a broad portfolio of professional services and specialized support.
Exchange rate optimization
Public cloud costs are mainly dollarized, which represents a challenge due to the exchange rate difference between the monthly cutoff day, billing and payday.
Another advantage of invoicing in local currency, offered by Amarello, is that the GCP service maintains a fixed exchange rate each month, mitigating the impact of sudden market movements, allowing our clients to have greater control in their financial planning.
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The exchange rate used is based on a monthly average of financial institutions, resulting in a fair market value for our customers.
Short and medium-term savings
When certain solutions have a projected life cycle of several years, there is the possibility of obtaining savings through 1 or 3 year commitments, whose discounts will be reflected from the first month of use, without waiting any longer. It is advisable to make a quarterly in-depth monetary sizing of these savings to maximize the benefit.
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Administratively, once the discounts are activated, they are applied directly to the monthly billing and are very easy to operate.
Included in the annual policy service is Amarello’s FinOps solution with specialized reporting that is updated daily for administrative and IT areas.
Cost control
Sometimes it is seen as a double-edged sword, the agility with which we can deploy new solutions to the business in seconds, on the one hand, the benefits in time to market with public cloud are indisputable, on the other hand, the costs begin to run in the first second it is used. The solution is in good practices of technology governance for Google Cloud, which among them is the budget control, and establish cost centers through granular labeling in GCP allowing visibility and financial control by areas or business units, or even administratively separate billing by legal entity in the case of a business group.
How does this help SMEs?
Although the scope and benefits of Cloud FinOps are not limited to SMEs, its impact is undoubtedly greater with this sector by allowing access to advanced IT resources to improve overall business efficiency, involving setting clear objectives, analyzing current costs and defining an effective ongoing management model with a well-established process and appropriate tools.
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This not only helps improve budget planning and increase operational performance, it also allows you to increase business value in an accelerated way. Significantly reducing costs by paying only for what you use with the flexibility to scale flexibly, as well as providing a solution to the main causes of SME closures.
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But you still have doubts, remember that you can contact our experts, at Amarello we will be happy to become your strategic partner in IT solutions, accompanying you on your way to the cloud so that you can exploit all its advantages and benefits to the fullest.
