Optimize your cloud spend with FinOps

With the growth of cloud operations, companies must ensure they are making decisions that will allow them to maximize business value in these environments. But cloud operations can be complex, meaning no department has a complete view of the implications of any business decision. A collaborative approach ensures that organizations use their resources as wisely as possible to optimize spending and meet important business objectives.

The practice of having IT, finance, and business teams work together to make these decisions is known as FinOps, which combines “finance” and “operations.” FinOps emphasizes the need for data-driven decisions to help companies manage the tradeoffs between speed, cost and performance. The following video describes more about the need for FinOps:

In the sections below, we explore how FinOps works, why it's growing, some of the challenges involved, how to get started, and most importantly, how it can help you optimize your cloud spend. But first, let's take a look at how FinOps came to be.

History of FinOps

In the past, companies followed processes to make good investments in technology for their businesses, including centralizing purchases, purchasing in volume and negotiating with suppliers to obtain the best price. When the digital age emerged, organizations used these same methods to ensure optimized spending on computing equipment such as hardware and software.

However, as cloud computing has become more ubiquitous, spending strategies have not kept up. According to TechTarget , “The loss of centralized purchasing, gaps in financial accountability, and complex cloud pricing structures have quickly led to financial waste in excessive, redundant, or unnecessary use of cloud computing.” The concept of cloud cost management emerged and organizations began implementing practices – such as monitoring usage and optimizing resource allocation – to monitor and control their cloud spending.

FinOps takes these practices to the next level by providing a more holistic approach to paying for computing power. Early FinOps professionals identified the need for a collaborative approach that brings together all interested departments – finance, operations and engineering – to optimize cloud costs and drive business value.

As the FinOps concept gained traction, the FinOps Foundation was formed in 2019 to help promote FinOps principles and practices. The foundation provides a platform for FinOps professionals to collaborate, share knowledge and develop best practices.

Since then, FinOps has continued to gain respect as organizations have come to rely on its principles to optimize costs and cloud utilization, thereby realizing the many benefits of this approach, including greater efficiency, faster time to market, and increased revenue. . The FinOps ecosystem has grown around greater adoption, with more tools, platforms and services being developed. Cloud providers are also responding by embedding these tools directly into their platforms.

How FinOps works

The main objectives of FinOps teams include assessing workload needs, determining effective cloud architectures, negotiating the best price for cloud services, creating a common pool of cloud resources to be accessed by multiple teams, and using the best practices for maintaining and paying for cloud services. FinOps works according to a life cycle consisting of three stages: inform, optimize and operate.

• At this stage , FinOps team members are tasked with ensuring that all stakeholders have the information they need, as well as the understanding to make informed decisions about cloud usage based on that information. According to a recent IBM article, “This includes understanding how applications are using cloud resources. For example, of your $10,000 monthly cloud bill, what portion is allocated to… the financial applications versus the external website applications?”
• The optimize stage involves activities that allow you to discover cost reduction opportunities. They include analyzing where the company can adjust resources to obtain discounts. The IBM article provides an example, stating: “If you are running a virtual machine (VM) on a specific node and it is costing you $1 per minute, you could save money by moving that VM to another node that only costs $0. 08 per minute?”
• At this stage , the company examines cloud performance to ensure its use meets business objectives. Otherwise, the company may further adjust cloud usage and cost. Once a solid practice is established, the company can automate this three-step process to ensure resources continue to be deployed effectively.

The basic principles listed here underlie FinOps processes:

• Collaboration. By definition, FinOps teams are made up of members from different departments within the company. These participants must collaborate to reach the most beneficial decisions for the organization as a whole. Furthermore, they must work together to improve the FinOps process itself, learning from each action and its results.
• Property. FinOps teams make decisions that benefit the entire organization, but each department within the company must take steps to ensure that their actions contribute to these benefits. Department representatives must ensure that the allocated resources go as far as possible, taking responsibility for their part and the costs of using the cloud.
• Centralization. While multiple departments can be involved in FinOps, the process works best when companies have a centralized team that does the direct work of comparing cloud services, taking advantage of discounts, handling fee negotiations, and allocating costs to various departments. These teams also communicate across the enterprise to ensure buy-in and a culture of FinOps sensitivity.
• Communicating. Reporting is a critical component of FinOps because it enables better decision-making. Reports can show when resources are over- or under-provisioned and where automation can generate additional value. According to the IBM article, “The essential components of FinOps reporting are cost visibility across the entire environment, including billing data and detailed usage information, cost allocation across multiple dimensions such as cost centers and teams, budget and forecasting, and chargeback and showback capabilities.”
• Value. A common misconception is that the goal of FinOps is to achieve the lowest cost in cloud computing services. But FinOps decisions are driven more by value than cost. This means that companies may be willing to pay more for greater performance, quality or security. Higher spending on resources that can generate more revenue later may also be acceptable.
• Cost. While value is more important than cost, cost is still a consideration for FinOps teams. Fees paid to cloud computing providers should be considered alongside other company expenses, especially other technology investments.

A variety of stakeholders typically collaborate in FinOps teams:

• Executives , such as CIOs or CTOs, focus on factors such as team efficiency, accountability, budget management, and transparency. They can serve as supporters of FinOps efforts or demonstrate collaboration by working with other executives to share information about the role of the cloud in the organization.
• Product owners are department heads or project leaders responsible for managing cloud workloads. They contribute insights into how their teams realistically use cloud services.
• Engineers —including software engineers, systems engineers, cloud architects, and engineering managers—understand and use cloud technology most directly. They cover important subjects involving the technical aspects of using the cloud.
• Finance professionals negotiate with cloud providers and help establish budgets, manage accounting, and implement cloud forecasts.
• Practitioners who specialize in FinOps lead others through the collaborative process.

Why FinOps is growing

The acceleration of cloud adoption and associated costs have raised concerns across businesses and industries about unnecessary spending. At the highest level, FinOps helps companies avoid overspending and ensure that what they spend on cloud services delivers the best ROI. Other benefits include the following:

• Greater revenue. FinOps helps companies manage their budgets more strategically, which can free up funds to invest in revenue-generating activities such as research and product creation, marketing and business development.
• Greater efficiency. FinOps helps companies monitor and optimize resource usage, allowing them to eliminate unnecessary expenses, leverage cost-effective alternatives, and streamline processes.
• Better product quality. FinOps helps organizations allocate resources more effectively, resulting in better testing environments, greater automation, and better product quality.
• Greater flexibility. FinOps monitoring includes watching customer patterns for increases or decreases in usage. Either way, companies can scale accordingly, ensuring the best use of the cloud and financial resources.
• Decreased time to market. FinOps automates much of the process of ensuring efficiency in cloud spending and use, leaving more time available for product development, testing and deployment. This accelerated development cycle ensures faster time to market for new products, features and updates.
• Reduced dependence on local equipment. FinOps helps organizations optimize the use of cloud resources, resulting in reduced reliance on traditional on-premises data centers and reduced costs associated with hardware maintenance, upgrades, and energy usage.

Challenges in FinOps

While FinOps can be highly beneficial to businesses, as noted above, those who practice it face challenges. The following areas represent some of the most common obstacles for FinOps professionals:

• Promote organizational adoption. A successful FinOps operation requires company-wide buy-in and ensuring that multiple departments – including finance, operations, engineering, and leadership – are willing to adopt FinOps principles and practices. This alignment may require education, communication, and demonstrating the value of FinOps through tangible results.
• Coming to unitary economics. Discerning the unit economics of cloud resources means determining the cost and value associated with cloud services and products. It is essential for effective cost management. However, the process can be complex, requiring detailed financial analysis.
• Training engineers. A FinOps culture requires engineers to take on responsibilities they may not have had in the past. Organizations may need to provide them with tools, training, and cost data to ensure they can reliably and consistently take actions that will contribute to successful FinOps efforts.
• Reducing waste. The two main objectives of FinOps are the elimination of unnecessary expenses and the optimization of resource utilization. But identifying areas for improvement can be challenging, especially in complex cloud environments. Activities require continuous monitoring, data analysis and proactive optimization of resources.
• Implement governance and policy. Developing and implementing governance policies for FinOps is essential to ensure consistency, compliance and accountability. However, defining and applying such policies across different teams and projects can be complicated.
• Predict accurately. Forecasting future cloud spending is essential for budgeting and resource planning. However, accurately predicting cloud spending can be difficult given the many factors that impact it, such as fluctuating demand, evolving infrastructure requirements, and changing pricing models.
• Enabling automation. To achieve efficiency and scalability, companies must automate cost optimization and resource management processes. However, integrating FinOps practices with existing automation frameworks and tools can be difficult as it requires specialized skills such as identifying automation opportunities, integrating cost management into CI/CD pipelines, and leveraging APIs and automation tools. of cloud providers.
• Container cost report. Containers have become a popular cloud deployment strategy, but they can change frequently, making accurate cost allocation difficult. To understand the cost impact of containerized applications, organizations must develop reliable methods for cost monitoring and reporting.

Introduction to FinOps

Organizations that want to take advantage of what FinOps can do for them should start their journey with a cloud audit. This exercise should identify which cloud services are currently being used, what they are used for, and how much they cost. As a follow-up, gather information from each department about the state of their current cloud usage, how it could be improved, and how other departments affect that usage.

A good next step is to create a cloud center of excellence (CoE) to coordinate the company's FinOps plan. It should be cross-functional and include features for reporting, analysis, sourcing, and financial planning. The CoE can create the core strategy and parameters for how the organization spends on cloud services based on the company's goals.

Because FinOps must be a cultural practice, the CoE must devise ways to spread its approach throughout the organization. According to a CIO article, “Assigning a FinOps professional is an essential first step. This individual will need sponsorship from a C-level executive to establish a cross-functional team and hold them accountable for regular meetings and meeting metrics.”

Next, the organization should select a tool, such as AWS Cost Explorer, to support FinOps actions and take steps to use it as a single source of truth for cloud spending. The FinOps team must create a dashboard to track and display agreed metrics and make it available to all stakeholders.

The company must then prepare for the adoption of the FinOps initiative. FinOps team members must train and prepare each department for its critical role. The FinOps program rollout should be done in phases, using smaller projects as proof of concept to enable more complex efforts.

Finally, companies should strive to learn as much as possible about FinOps. One source is the FinOps Foundation which, according to the CIO article, is “a Linux Foundation program dedicated to advancing people practicing the discipline of cloud financial management through best practices, education, and standards.”

The future of FinOps

The future of FinOps has great potential as companies continue to adopt cloud computing innovations and look for effective cost management for them. This strategy will continue to evolve in several ways.

As organizations adopt multi-cloud or hybrid cloud strategies, analytics tools and solutions will evolve to include the complex considerations involved in these implementations. FinOps will involve managing costs and optimizing resource allocation across these diverse cloud environments.

Cloud providers themselves will also play a role in more effective FinOps by integrating FinOps principles directly into their platforms, enhancing their native cost management tools and offerings. These solutions will allow greater visibility into cloud spending and help streamline cost management processes.

Progress in AI technologies will also improve FinOps implementations with algorithms that can be used to analyze cost and utilization data, identify cost reduction opportunities, and provide accurate utilization forecasts. These tools will also improve the recommendation of resource allocation efforts.

Automation will play a vital role as cloud environments become more complex. Organizations will continue to be able to efficiently manage costs and optimize resource allocation with greater automation platforms. These tools will evolve to provide smarter, more predictive capabilities, helping organizations achieve greater efficiency and cost optimization.

Furthermore, FinOps practices will increasingly focus on sustainability and environmental impact, incorporating considerations related to energy consumption, carbon footprint and green initiatives. Organizations will look to optimize the use of cloud resources not only from a cost perspective, but also with a focus on minimizing environmental impact.

As FinOps gains greater adoption, industry standards and certifications related to cost management in the cloud will emerge. They will provide guidelines and best practices for organizations to follow, ensuring consistency, transparency and accountability in their FinOps implementations.

Overall, FinOps is poised to evolve with other technologies and considerations, providing businesses with the most accurate and effective ways to reduce waste in cloud usage and spending. As a result, organizations can expect to achieve greater cost optimization, resource efficiency, and bottom line in their cloud operations.