Transforming Cloud Economics: The Evolution of FinOps Management
By Omshree, Nishita / Jan 05,2023
“If it looks like FinOps is about saving money, Reconsider. FinOps is about generating Revenue.”
FinOps brings financial accountability to fluctuating cloud-spend with a perspective model of actions, best practices, and a culture that empowers distributed product team, finance team, and business teams to make decisions that drive business value.
This practice emphasized collaboration and transparent information sharing based on common understanding. Additionally, it holds individuals accountable for optimizing their firm’s Cloud & Cost Utilization.
The difficulties posed by Cloud Computing:
Cloud Service Provides (CSPs) offer complex billing structures and cost models, which can make it difficult to accurately estimate the cost of running a workload based on the actual cloud resource utilization. Overprovisioning resources is another common challenge faced by IT departments when planning workloads months in advance and running them round-the-clock. Employees may circumvent IT protocols to gain instant access to new applications, which can result in data exposure.
FinOps emerged in 2019 as a solution to address the challenges caused by the cloud,
FinOps is a portmanteau of “Finance” and “DevOps”, stressing the communications and collaboration between business and engineering teams.
Today, FinOps is a standard practice in the cloud industry, whereas initially, it was viewed secondary responsibility. Let’s delve into the fundamental principles of Cloud FinOps.
- FinOps prioritizes team collaboration and can aid your organization in building a strong framework and culture for cloud financial management procedures.
- It enables decision-making to enhance the business value of cloud consumption.
- Cost reports need to be accessible promptly to help teams forecast & track cloud utilization accurately. Moreover, anomaly detection also needs to be in place to ensure a quick feedback loop.
- The FinOps team should manage cloud strategy, set cost-efficiency expectations, create cost-control guardrails, create budgets, and optimize organizational costs.
- Cloud costs can be reduced by monitoring resource expenditure and implementing measures such as resource rightsizing, purchasing reserved instances, and terminating unused resources, etc.
- FinOps tracks group-level expenses and has visibility into spending to optimize costs.
Inform, Optimize, and Operate, the three iterative phases of FinOps set baselines, optimize rates & usage patterns, and move operations towards the ideal balance of cost-effectiveness & business value.
- FinOps practitioners enable data-driven decisions to enhance cloud usage and improve business value.
- Executives are concerned with accountability, transparency, performance, and expenditure.
- Business/ Product Owners expedite product growth year over year by delivering productive and cost-efficient solutions.
- Finance team members work with FinOps practitioners to comprehend historical billing data to develop precise models for planning and budgeting. These models are used for financial accounting, show back allocation, and forecasting.
- Engineering and Operations team members are responsible for developing & supporting the organization's services, using cost as a metric to track and monitor performance. They also take into account rightsizing, container costs, locating unutilized storage & compute, and recognizing expenditure anomalies.
- The procurement team collaborates with FinOps to ensure that prices and terms are fulfilled and standardized procurement procedures.
Considering FinOps is an iterative process, any given process, functional activity, capability, or domain will mature over time. The most successful enterprises adopt a crawl–walk–run strategy and improve slightly with each iteration.
If you are new to FinOps practice, first start with a crawl approach in each phase, don’t try to do everything at once. Involve as many people as possible early in the process so they can learn alongside you. Once you have established a solid foundation, it's time to progress to a 'grow up' approach, where you can learn from the process and search for opportunities to refine it while moving forward. After you have gained more experience and become more proficient, you can transition to a run approach.
Not every company needs to be completely mature in the FinOps practice. As an organization, you should prioritize the capabilities with the most value and focus on maturing those. There is no problem in having a crawl level of maturity if it has the capability of serving your company well. The most critical aspect is to provide your teams with granular visibility into the spending.
To begin with, it is essential to fully load and elevate various aspects such as cost factoring, custom rates, filling allocation gaps, distributed shared costs, and remapping expenses to fit your organizational structure. Although this might seem like a daunting task, starting with small incremental wins can help keep the momentum going for your team as you progress and mature.
- The domain of understanding cloud usage and cost pertains to the allocation of costs and usage within the organization. This allows for the generation of data to facilitate performance tracking and benchmarking.
- In the Performance Tracking & Benchmarking domain, organizations use historical information to forecast, create budget, and measure KPIs and performance indicators to achieve organizational goals.
- The real-time decision-making domain enhances stakeholder enablement by curating data in stakeholder-specific contexts, continuously enhancing decision velocity, and aligning organizational processes with cloud realities.
- The Rate Optimization domain offers specific capabilities to simplify cloud service purchasing and assures that pricing models, purchase options, and committed use are in alignment with the objectives.
- The Usage Optimization domain aims to align the actual demand of workloads operating at any given time to the running cloud resources. This includes predictive resource rightsizing, workload management to match workloads with the correct number of scaling resources, turning resources off when not in use, and other approaches.
- The Organizational alignment domain is responsible for managing cloud usage and integrating FinOps capabilities with existing management procedures, organizational units, and technology.
Software is essential for FinOps organizations to comprehend cloud costs, translate complex billings, maintain reports & alerts, and make decisions that can optimize cloud costs. Third-party vendors offer various FinOps tools, in addition to those native to specific cloud providers. These tools are designed for cross-disciplinary FinOps team members, including finance, analysis, reporting, and engineering.
FinOps tools provide a range of features such as granular tags, reporting, budgeting, detailed views of cloud usage, performance metrics, cost exploration, and much more.
The most popular FinOps tools are as follows:
Organizations can enhance their visibility into cloud spending and maximize the benefits of cloud computing while minimizing costs by adopting Cloud FinOps best practices. The Cloud FinOps practices such as monitoring, nalysis, and optimization should be an ongoing process with regular reviews and adjustments to ensure cost efficiency and value for money. Establishing a culture of cost-awareness, collaboration, and accountability across all teams involved in cloud operations is key to successful Cloud FinOps. In summary, Cloud FinOps is a critical component of any successful cloud strategy, and organizations that prioritize it are likely to see significant benefits in terms of cost savings, performance, and agility.