31st May, 2023
14 Min read
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Cloud spend’s drastic growth has reached a tipping point. Today, an unsettled economy and maturing approach to cloud resources have poured fuel on the fire of cloud FinOps interest.
The 2023 State of FinOps report shows how this interest has translated into increasingly rapid cost forecasting, as organizations scramble to define and refocus their monthly cloud costs. Fundamentally, the traditional approach to identifying cloud cost is breaking at the seams; FinOps is emerging as the new model of rapid, scalable, and relevant cloud management. Organizations are crawling toward the discovery of as-yet-unnoticed cloud overprovisioning thanks to projects such as shift-left.
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However, immature shift-left attempts have simply wedged these responsibilities into engineers’ development cycles with little thought to context and wider goals. Without widespread cultural and organizational change, organizations are doomed to continue wasting an average of 32% of all cloud spend. Other FinOps statistics help prove the dire need to take a deep dive into the innovations jumpstarting this year’s FinOps evolution.
FinOps’ meaning goes far beyond cost dashboards: this introduction to cloud FinOps highlights how a culture of cost responsibility can keep organizations iterative throughout 2023’s highs and lows.
Cloud FinOps: A Definition
While Financial DevOps is a simple enough concept, financial and engineering teams can often be left wondering ‘what is FinOps in the cloud?’. And no surprise – the rapidly-shifting landscape of cloud resources can hamstring oldschool financial management approaches.
Cloud FinOps, a combination of Finance and DevOps, is a management practice that places heavy emphasis on shared cloud responsibility. Instead of strict divisions between budget brokers and spenders, FinOps supports every team in taking ownership of their cloud computing usage and costs. This democratization of cloud responsibility creates a foundation to allow closer inter-collaboration across Engineering, Finance, and Product teams.
As a result, organizations are able to clearly see which cloud infrastructure is aligning with business objectives – and which are left silently accruing cost. However, the ramifications of FinOps go far beyond the financial: with a shared language of cloud spend and requirements, each team is better equipped to discuss and combat bottlenecks. These cross-functional conversations result in faster app and feature development, as organizations know where to invest and when. Friction across the product development life cycle is drastically reduced, and every team benefits from a higher degree of cloud predictability, thanks to the visibility and control FinOps provides.
What is The FinOps Foundation?
The FinOps Foundation is a community that champions and educates on FinOps practices. They recognize that, similar to previous shifts such as DevOps, once an individual practitioner is empowered, the entire ecosystem benefits. The FinOps Foundation supports cloud transformation one professional at a time by managing educational and networking events across the globe.
Their six FinOps principles provide a North Star for success – some of which may be recognizable from your own FinOps knowledge. The first is that FinOps data must be timely and accessible; with this in place, teams must then collaborate in near-real time. This view of cloud’s per-second pricing allows for another principle: to take advantage of its variable cost model. To support this agile, iterative approach, a centralized team must oversee best practices adhered to throughout. These decisions must also be driven by the business value of each cloud expenditure. Finally, every individual must take accountability and ownership of their own cloud usage. All six of these combine and coalesce into an adaptable and efficient business structure. These six principles don’t just suddenly happen one day – they require consistent hard work and re-evaluation.
To recognize this, the FinOps Foundation maps the FinOps journey in three major phases.
#1. Inform
The first phase sees organizations and teams enhance their cloud visibility, allocation, budgeting, and forecasting. Accurate and timely visibility is a cornerstone for dealing with the on-demand and elastic nature of cloud pricing. As such, this first stage is defined by in-depth mapping of cloud spend via tags and accounts. This then allows for more accurate allocation, and a greater understanding of the ROI that each spend is driving. Collaborative benchmarking further provides insights and goals into the cultural side of FinOps, as teams begin to visualize what high performance looks like.
#2. Optimize
From visibility into action, the second phase sees significant strides toward efficiency. Rightsizing and automated cloud resource provisioning can begin to actively cut cloud spend, as teams leverage their newfound visibility and collaboration. Re-evaluating which resources are in use sees a greater push toward optimization levers such as reserved instances.
#3. Operate
In the final phase, organizations are able to continuously evaluate the metrics they are tracking against their relevant business objectives. Business alignment is tracked over time, and measured across speed, cost, and quality. On an iterative foundation of collaborative teams, financial and operational stakeholders are able to maintain leanness and adaptability via governance policies.
The journey is rarely as simple as 1,2,3 – instead, many organizations will shift and morph between multiple phases, depending on the progress of each team or business unit.
How Cloud FinOps Works in Practice
When one giant eCommerce group embarked on a FinOps transformation, their journey closely followed that strategy of informing, optimizing and operating. The eCommerce client had been migrating its operations to the cloud with relatively little overarching methodology. As a result, their cloud bill was unpredictable and unproportionate. At ground level, this took the form of engineers that would utilize only 5% of paid-for CPUs – thanks to an undiscovered tendency to increase machine size when an application underperformed, rather than attempting to optimize performance and costs.
Presented with dozens of AWS accounts segmented across 16 different business units, the first step was clear. GlobalDots rapidly began mapping the primary drivers of cloud cost. This was achieved through excessive cloud monitoring, and interviewing a number of key officials throughout the company. With a wealth of new data informing the next stage, we could begin the optimization process.
A few architectural changes drove significant cost savings. For instance, we doubled the number of machines running on a reservation plan, and right-sized VMs in order to remove paid-for resources that weren’t being used. One of the most significant changes was cultural: as an established and mature organization, many employees were used to the processes already in place. Understandably, the prospect of external intervention ruffled some feathers initially. However – in a testament to everyone’s innate adaptability – GlobalDots was soon generating fruitful collaboration across different business units.
The final stage of operation required this, too: to continue scaling and fully establish a future-proof cloud strategy, the client needed to cohesively act off their newly-integrated dashboards. This allowed them to keep ahead of anomalies, database overuse, and inactive resources. They pulled it off, however, and throughout the project the client’s cloud bill dropped by 20% – while the company proceeded to grow by an explosive 30% thanks to increased site traffic and development.
However, this is only the beginning: their proposed annual savings amounted to $1.5 million USD, supported by GlobalDots’ monthly reports which highlight management and infrastructural progress. This macro view of their FinOps development – alongside our 24/7 support – supports the business’ dedication to genuine FinOps culture.
The Benefits of Cloud FinOps
The value provided by an established FinOps culture extends far beyond the financial. With cloud FinOps, your organization will be able to realize a deep-rooted array of advantages.
Reduce Cost, Drive Profit
Cloud vendors offer an almost-unlimited well of resources – for similarly deep prices. Overspend generates a significant portion of cloud vendors’ revenue, and battling this is FinOp’s core component: visibility. With a comprehensive and granular view of precisely which resources are truly necessary, even established organizations can start to unravel the tangled threads of resources that knot together into one sizable invoice.
When costs are reallocated to their relevant business units, the individuals within each team can begin to see the difference they make. Once formed, this accountability begins to define the choices and purchases of every team, cementing an understanding of wasteful vs profitable spending. From here, relevant allocation and automation tools allow organizational leanness to become truly actionable. While some industry leaders simply pay lip service to condone cost waste, FinOps redefines it as potential savings. Once underway, these savings are able to be reinvested into the business units with highest ROI. The knock-on effects see increased stakeholder satisfaction and faster development lifecycles, creating a positive chain reaction that filters down to higher customer satisfaction and retention.
Drive Decisions with Data
Without granular monitoring of cloud resource spend, business decisions are left running blind. As a result, your organization may be relying on negative or suboptimal business choices. FinOps defines smart spending against wasteful cost, lending business leaders deeper insight into the data beyond their decisions. A key metric for measuring how closely your organizations’ decisions are driven by data is Cloud Enablement %. This measures the number of business leaders that have been trained and certified in cloud digital leadership, and hence equipped to put the data provided by cloud technologies into sustainable business practice. With a defining goal of between 70 and 80%, a business can closely monitor how data-driven their broader decisions truly are.
Create and monitor a FinOps culture
Due to the varied and flexible progression of FinOps, robust resource monitoring is one of the most vital measures of success. A culture of responsible monitoring doesn’t have to be a shot in the dark, however. FinOps provides organizations with the tools to clearly visualize how advanced their culture around resource responsibility is. For example, labeling and tagging are how different teams take ownership of certain workloads and projects, allowing them to define their unique responsibilities.
Measuring the progression of your organization’s FinOps culture can be supported by a metric such as Cloud Tagging %. Here, the amount of tagged resources is compared with the total number of taggable resources consumed by business units. This provides a simple metric that supports employees in a tangible way, while also signposting your cloud workloads with newfound clarity. In the event of downtime, errors, or updates – it’s clear who needs to be called.
Automate Resources Usage
While visibility provides the first step toward manual right-sizing, FInOps technology has advanced far beyond such a laborious time sink. For instance, it’s now possible for pricier On-Demand instances to be replaced with discounted Reserved Instances. These commitments are automatically bought and sold according to real-time infrastructure needs, providing cost reductions of up to 60%. Alongside this, DevOps are freed from the constant demands of commitment reviews.
Run more workloads on less resources
Containerization options such as Kubernetes present another real thorn in the side of manual resource tuning attempts. The cost of employee hours as engineers chase dev teams to tweak provisioned resources can even outweigh their expected cost savings. To combat this, autonomous pod rightsizing and node optimization can fit Kubernetes resources to exact real-time demands. As a result, an app can retain the same availability while relying on fewer running nodes.
Track the financial impact of every feature
The financial impact of each FinOps choice can be tricky to accurately grasp: GlobalDots is adept at keeping up with cloud innovation, however, and recently uncovered a tool that lends deep insight into tool investment. By comparing the context and metadata of each service with its respective cost figures, engineering teams are granted a view of ROI from every angle. Correlating Cost of Goods Sold against actual utilization information unlocks brand-new insight into which customers and features are driving costs up – and why. According to the FinOps Foundation, an organization is at an advanced stage of reporting when greater than 90% of cloud spend is tagged and allocated accordingly.
Forecast with accuracy
Another benefit of FinOps comes after so much emphasis on real-time information. Extrapolate this data into accurate long-term forecasting by taking every element of your cloud bill into account. Forecasting models allow you to uncover the requirements of each workload. Trend-based models can closely monitor steady-state workloads, while driver-based models keep scaling applications under check. Together, a dynamic and reliable picture of upcoming cloud spend becomes visible – lending a team real-time insight into anomalies before the cost spirals out of control.
The Challenges of Implementing Cloud FinOps
FinOps’ complexity can pose a number of key challenges to the aspiring cost wrangler. From cultural components to juggling the priorities of different teams, it’s vital to be aware of these three primary challenges.
Unwillingness to claim responsibility
A major obstacle in FinOps development stems from a reluctance to take ownership. All too frequently, organizations step on their own FinOps team’s toes by artificially dividing budgets into buyers and spenders. The buyers, such as an IT development team, strive to maximize the number of features from any given budget. On the other hand, the business operations team writing the cheques are left in the dark. This disconnect fosters a culture where entire teams fail to take responsibility for their own spend.
Difficulty deciphering data
Even after engineers comprehend the significant financial role they play, another significant challenge persists: relevant and consumable data. While it is possible to claim that a particular action will generate savings, it is crucial to accurately and consistently track these changes. Consider the case of an engineer who dedicated time to optimize several instances of Managed Service for Kafka. They shut down unused resources, implemented caching strategies, and streamlined processes. However, they were left with a vital question: how do they know the true financial impact of these actions? Even worse, FinOps leaders occasionally make the mistake of assuming these important metrics will magically jump out from a sea of data. Consider how most engineers would react to marketing statistics. Completely irrelevant to their day-to-day responsibilities, the data would likely be swiftly disregarded. Allowing different teams to choose their own metrics – in alignment with the broader FinOps movement – allows each architect, engineer and designer to digest the details and start to see the financial impact of their own choices.
Time constraints
The final roadblock to FinOps maturity is simple prioritization. Many excuses leveraged against FinOps optimization attempts revolve around it taking “too much time”. Even when business leaders are aware of FinOps’ potential financial and cultural benefits, actioning this can appear demanding. Surprisingly, this excuse is already a form of FinOps judgment – if a business leader claims that the time requirements of a formal FinOps culture isn’t worth it, they’re evaluating assumed savings against the financial value of redirected employee hours. In an ironic twist, some have historically dismissed FinOps simply thanks to a lack of data on potential savings. It’s why a quick, low-risk assessment of cloud overspend – with a heavy focus on automation – can often provide the jumpstart your FinOps journey is waiting for.
The Advantages of a Third-Party FinOps Solution
With native cloud provider tools offering a springboard for cost optimization, it can be tempting to stay within the safe confines of AWS’ or Azure’s native dashboard. However, there’s an entire world of third-party solutions that offer new approaches to stubborn issues. With a broader range of functionalities that go beyond the basic offerings of native cloud tools, third-party options can unlock advanced cost management features, sophisticated reporting capabilities, and more extensive cloud service coverage.
Another significant benefit is the enhanced customization and flexibility that third-party FinOps tools provide. With customization predicated on the ability to integrate with other solutions, these tools are built with seamless connectivity, allowing them to streamline workflows even across multi-cloud setups. Designed to adapt to various business models and specific organizational needs, the more tailored solutions can provide higher ROI than the one-size-fits-all approach of native tools.
Moreover, third-party FinOps solutions often come with superior analytics and insights. These tools make use of their hybrid bases and are privy to advanced cross-platform algorithms. With greater data-charged machine learning, the ability to analyze spending trends, identify cost-saving opportunities, and provide predictive analytics, helps organizations make more informed financial decisions than ever before. This level of analysis is typically deeper and more nuanced than what native cloud tools can offer.
Last but not least, the support and expertise that is often included with third-party solutions is invaluable. These providers specialize in FinOps and are equipped with a team of experts who can offer guidance, best practices, and support tailored to your specific needs, which is often lacking in native cloud provider offerings.
For organizations seeking to maximize their cloud investment while maintaining control over their finances, a third-party FinOps solution is a strategic choice.
Choosing a FinOps Tool That’s Right for Your Business
The final decision hinges on several critical factors. After evaluating your specific business needs, and identifying the true scale of your cloud operations, it becomes possible to grasp the key features that you’ll need to effectively manage your cloud financials. Alongside this, focusing on long-term partnerships means it’s essential to consider the future scope of your cloud infrastructure, how much depth in cost reporting you may require in the future, and the degrees of automation and expertise needed for your team. With all of these datasets in place, it finally becomes possible to discover the best solution for your unique requirements.
For a comprehensive guide on choosing the best FinOps tools and software for your business, find out more about FinOps Tools here.
GlobalDots Supercharges FinOps Adoption
By strategically collaborating with solution providers that excel in swift deployment, obstacles hindering FinOps development are combatted with real-time optimization insights. To discover more cutting-edge tools that are empowering businesses with enhanced visibility and optimization, here’s the unique toolbox we provide for hundreds of industry leaders and disruptors.
FinOps FAQ
What is the role of FinOps?
FinOps is responsible for optimizing and managing the financial aspects of cloud usage. It focuses on cost optimization, transparency, collaboration, forecasting, budgeting, and cost allocation. By analyzing cloud costs, implementing controls, and promoting collaboration between teams, FinOps maximizes efficient cloud spending. Continuous iteration is key. FinOps provides organizations with the ability to adapt in search of long-term cost optimization and forecasting. Overall, FinOps bridges finance and operations, optimizing cloud costs and enhancing financial accountability.
What are the differences between FinOps and DevOps?
FinOps focuses on optimizing cloud costs and financial management, while DevOps is centered around streamlining software development and operations. FinOps deals with financial accountability, cost optimization, budgeting, and cost allocation, while DevOps emphasizes collaboration, automation, and continuous delivery of software. While both disciplines aim to enhance efficiency, FinOps specifically targets financial effectiveness.
What does the FinOps operating model enable?
The FinOps operating model provides a range of benefits. It empowers organizations to optimize their cloud costs, promoting efficiency and financial prudence. By providing clear visibility into cloud spending, it enables stakeholders to understand the impact of their actions and make informed decisions. Moreover, FinOps fosters collaboration across teams, facilitating effective communication and joint decision-making. This helps establish a sense of financial accountability and responsible cloud usage. With governance measures and controls in place, organizations can manage costs effectively and measure how close they are to their financial objectives. The FinOps operating model champions scalability, agility, and continuous improvement.
Can FinOps help track cloud spending costs?
Yes, FinOps can help track and manage cloud spending costs effectively. It provides organizations with the tools, processes, and insights needed to monitor and control their cloud expenditures. Through the implementation of FinOps practices, organizations can track usage patterns, analyze cost drivers, and identify areas of inefficiency or waste.
What is the end goal of FinOps?
There is no traditional ‘end state’ to FinOps. There are always further optimizations and changes to be made as an organization continues to scale. The ultimate ideal is to create a culture that claims full responsibility for cloud costs, while engaging with the rich innovative landscape that cloud computing still offers.