What is FinOps and how can it help your cloud cost management?

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Organizations waste an incredible 32 percent of their cloud spend. No wonder optimizing costs is the top cloud priority for all organizations in 2022 and beyond. With executives on the hunt for new cost-saving strategies, there’s no better time to explore FinOps.

Every major industry practices FinOps. It’s not just a technical discipline or solely about your finance teams. It’s a cultural shift that brings together finance, engineering, product, and management. The result? Optimized cloud spend and better forecasting for the future.

And there’s more FinOps can do besides. So, let’s take a closer look at this emerging concept and see how it can benefit your organization.

What is FinOps?

“FinOps is the practice of bringing financial accountability to the variable spend model of cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.” - J.R. Storment, Executive Director, FinOps Foundation

Simply put, Financial Operations (or ‘FinOps’) takes the concept of DevOps and augments it with financial principles. It equips you with financial best practices to make the most of the cloud platforms you use to house your company’s data. The end goal is to bring people, finance, and technology together in an effort to cut cloud costs and better prepare for the future.

FinOps gives you maximum business value from the cloud through these core practices:

  • Analyze. FinOps encourages you to thoroughly audit all of your cloud expenses and create effective budgets for your teams. It can be difficult to nail down exactly how much your cloud usage is costing you, but FinOps helps you understand your costs, forecasts, and any potential wastage.
  • Negotiate. Consolidating your cloud purchases is key in the FinOps methodology. Work with your cloud service providers to align your allocations with your long-term business strategy.
  • Optimize. Regardless of the cloud provider you’re using, there will be ways for you to optimize your costs. It might involve using cost management tools such as Azure’s Pricing Calculator or following best practices like shutting down virtual machines when they’re not needed.
  • Collaborate. At its core, FinOps is about culture. To enable cloud value, there needs to be organizational alignment. Everyone’s involved—from finance to engineers, from stakeholders to operations.

So, those are the principles, but how do they bring value to your company? Let’s look at the benefits of using FinOps.

5 benefits of FinOps for your organization

1. Improves decision making

“When we understand what we are spending, and understand how we are performing relative to expectations and standards, we can then use that information to make real-time decisions as we receive new information.” - FinOps Foundation

Incorporating your finance teams into the cloud development lifecycle aids you in creating accurate forecasts to prepare for the future.

FinOps teams believe that the business value the cloud provides should be the driving force behind your business decisions. By analyzing the variance in your spend, FinOps improves your decision-making by giving you accurate, actionable insights into your cloud usage.

2. Streamlines cloud spend

Cloud wastage is a serious issue and becomes increasingly important as cloud costs rise.

FinOps facilitates cost optimization by driving awareness of cloud wastage traps, such as:

  • Not breaking down components by cost. Cloud solutions are composed of many different components—such as file hosting, virtual computing and monitoring tools. It’s important to review the costs of each component and assess whether it's needed. You also might be overlooking hidden costs and seeing them as cheap overall. For example, you might be looking at price per GB/TB of storage, while neglecting transfer costs.
  • Leaving virtual machines running when they’re not in use. Idle resources are still billed at full price. Using monitoring tools and stop/start schedules streamlines your usage and reduces the risk of paying for resources you don’t need.
  • Not using autoscaling functions. Your usage is likely to go up and down. Your cloud needs to adapt to them. Using autoscaling helps you allocate resources based on your performance requirements.
  • Using oversized resources. Some of your workloads might only need a small amount of processing power, so why would you pay for more? Right-sizing your resources ensures you’re only paying for the computing power you need to get the job done, and nothing more.
  • Lacking foresight. Failing to look ahead can result in higher cloud costs. This is because you miss the opportunity to invest in reserved instances. If you’ve accurately forecasted that your usage will spike in the future, you can reserve instances at a lower rate than pay-as-you-go costs.
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3. Enforces accountability

FinOps is sometimes known as ‘Cloud financial accountability’. This is because it stops cloud wastage from going under the radar and keeps all spending aligned with business initiatives.

FinOps provides strategies for building financial accountability in your organization, such as:

  • Showback and chargeback. Showback means reporting to teams on the budget and resources they’ve used. This involves invoicing teams to show their spend. Once you establish this, you can then implement chargeback. This is where you charge teams for their usage. This forces them to be responsible for the funds they’re using and adapt their behavior to manage consumption.
  • Visibility. Visibility strategies aim to create transparency (and a little competition) around budget usage. For example, making everyone aware which teams are optimizing effectively (any by default which aren't).
  • Gamification. Gamifying optimization targets encourages teams to be more engaged in spending decisions. Effective ways to implement this involve using dashboards that track cloud spend. You can even run contests to see who’s best at streamlining their budget usage.

4. Creates cultural shift

FinOps creates a shift in your organization and throws out siloed mentalities. The goal being that everyone understands the relationship between your cloud infrastructure, the finances that fund it, and the business’s goals.

According to the FinOps foundation, this cultural shift is about:

  • Finding allies in the face of opposition
  • Winning over detractors during times of change
  • Defining a common language
  • Creating metrics to prove value
  • Building enablement strategies to elevate stakeholder teams

The result is a mature organization with teams that feel empowered to make decisions.

5. Helps predict future consumption

Your finance teams are experts at forecasting and budgeting. Having them work alongside your developers and their monitoring tools creates a powerful combination for predicting future consumption.

Accurate forecasts help you identify times when reserving or downsizing resources could save you money. Understanding your peaks and troughs keeps your costs down while maintaining the areas of the cloud that bring value.

Gain value, reduce costs

Did you know 51 percent of IT budgets are set to go on cloud computing by 2025? With that amount of spend, it’s time to take cost optimization seriously.

Getting a solid grasp on your cloud spending is critical to successfully harnessing the power of the cloud. FinOps helps you do just that by providing you with the blueprints you need to maximize business value. Not only can it help you lower costs, but it can improve your decision-making and set you up for the future with accurate forecasts.

If cloud overspending is wearing you down, it might be time to incorporate FinOps in your organization.

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Posted on November 15, 2022
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