The Cloud’s benefits are undeniable. Many enterprises have moved to the Cloud to accelerate innovation, agility, and growth. The Cloud’s on-demand consumption model promises cost savings—letting you pay only for what you need. But the reality is much different. When organizations move to the Cloud, they find costs spiraling out of control. This circumstance is what we call the cloud cost paradox.
Challenges of Cloud Cost Management
Cloud pricing can be challenging to understand, with tens of thousands of stock-keeping units (SKUs), variable pricing, constant changes in pricing models, and a lack of standardization in cloud billing—making it difficult for organizations to budget and forecast needs and consumption. As a result, wasted resources can add up to tens of thousands—or even millions—of dollars every year. With no enterprise visibility or predictability of utilization, it is easy to overspend on cloud services. This challenge amplifies when you have multi-cloud environments to manage (Simplify Multi-Cloud Management: Strategies for Overcoming Complexity).
What is FinOps, and how do you solve the Cloud cost Paradox?
A cloud cost management approach based on financial operations (FinOps) principles combines financial, technical, and business functions to create a cost-conscious culture for cloud cost optimization. FinOps is the recognition and acceptance that traditional infrastructure management is ineffective when working within the Cloud.
It is as much a cultural practice as a financial one; it establishes best practices for cloud usage and then relies on everyone involved to take personal ownership. Instead of individual, separate procurement teams working in silos to identify and approve costs, FinOps unites cross-functional business, finance, and technology teams to better manage cloud vendors, rates, and discounts in a multi-cloud OR single-cloud environment.
It is a practice that encourages a cross-functional approach to deliver greater financial accountability for increased cost savings, reduced business risks, and improved cloud quality.
One should remember that “FinOps is not a once-a-year planning exercise in which engineers decide what to purchase next.” Instead, IT teams must “proactively design software and build systems with costs in mind and be able to tie these costs to business objectives.”
Core Principles of FinOps
FinOps relies heavily on personal ownership and commitment and on self-governing behavior to promote accountability and business agility. Therefore, FinOps is built on several core principles:
- Business-value based decisions
Rather than depending on aggregate spending, businesses should focus on value-based metrics and unit economics.
- Capacity and resource planning
Businesses must be keenly aware of their available resources and make a concerted effort to allocate them effectively.
- Centralized management
While buy-in must be organization-wide, FinOps should be driven by a centralized team that works with cloud providers to govern cloud finances. This allows other teams to focus on usage and optimization rather than rates.
- Collaboration
The real-time accessibility provided by the Cloud demands ongoing collaboration and continuous improvement and innovation between finance and technology teams.
- Governance & Policy
Businesses incorporating FinOps must establish usage policies for all cloud resources—defining who is authorized to use which cloud properties and when to improve forecasting. Defining (LoB) Line of business-based cloud consumption budgets is another mechanism to control spending.
- Security
Although nearly all cloud vendors provide some level of security, FinOps organizations must likewise take responsibility for security-related functions. This may include key management, duty segregation, risk management, etc.
- Shared ownership of cloud usage
Resource usage and optimization are decentralized, putting the responsibility for managing cloud usage against established budgets in the hands of individual feature and product teams.
- Timely and accessible reporting
The FinOps team must be capable of processing cost data as soon as it becomes available, improving visibility and driving faster feedback loops. Data and insights should be visible throughout every level of the organization, and performance should be assessed using industry peer-level benchmarking.
- Variable cost models
Cloud-based technologies rely on variable costs, making agile, iterative cost planning much more effective than long-term forecasting. FinOps views this as an advantage, allowing organizations to optimize cloud costs by making ongoing adjustments and course corrections.
FinOps Best practices
Ensure FinOps success by following best practices that can be implemented across levels, teams, and departments:
- Determine where money is being spent
- Eliminate unnecessary costs
- Use reserved instances
- Leverage autoscaling
- Avoid being locked into a single cloud vendor
- Seek out and take advantage of discounts
Offering IT-As-A-Service (ITaaS)
Leveraging FinOps, Organizations can take advantage by implementing robust cloud governance & policies to chargeback (LoB’s) lines of business for consumption of IT by offering IT-As-A-Service. Automating this process is best by integrating your Cloud spend with your backend ERP systems.
Conclusion
As cloud consumption models become more complex and data-rich, the opportunities for FinOps to enhance the quality of cloud consumption and overall business performance only multiply. At base, FinOps allows organizations “to build into applications a way to manage, measure, and control cloud expenses.”
But, the future of FinOps extends beyond cost considerations. For those that focus on garnering grassroots support, establishing data management strategies, and mobilizing skilled talent, FinOps promises to provide a more granular view of the exact costs of cloud usage and the business value these investments generate.
“The Holy Grail of FinOps is a better understanding of unit economics, for example, cost per feature and transaction.” From here, “you can start to make some interesting decisions” from the features the business should target to how best to strengthen the business by reallocating technology spending in today’s fast-paced digital world.
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