As companies continue to prioritize digital transformations, cloud computing has become an increasingly popular solution for storing and accessing data. In fact, according to Gartner, by 2025, over half of enterprise IT spending will be on cloud computing. While the benefits of the cloud are numerous, it’s essential to remember that operational expenses related to the cloud can add up quickly. In some cases, the actual costs of cloud services may exceed what was initially anticipated. As organizations grow, overspending and improper allocation of resources can become a challenge. How can you avoid that?
There is a solution to ensure that businesses are getting the most value from their cloud investments. Cloud optimization, also known as FinOps, is the process of optimizing cloud spending to ensure that resources are allocated effectively. By applying FinOps principles, organizations can identify areas where they are overspending and make adjustments to reduce costs, without sacrificing performance, leading to significant cost savings, increased business agility and improved overall performance.
What is Cloud FinOps?
FinOps is an increasingly popular framework and practice gaining traction among businesses and organizations looking to optimize their cloud costs. It involves collaboration between various teams, including engineering, business, financial and product teams, to identify areas where cost management can be improved and streamlined. To successfully conduct cloud cost optimization, all the interested parties must contribute to such an effort. However, Cloud FinOps is not just about cost reduction. It also helps companies balance expenses with growth and reduce risks. It empowers teams to understand the cost implications of different design decisions and make trade-offs that maximize the value delivered by cloud investments. By working together and leveraging the right tools and strategies, businesses can effectively manage their cloud costs and maximize the value of their investments.
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The benefits of introducing a FinOps approach
Implementing a FinOps approach in your cloud solutions has numerous benefits. The most significant advantages are outlined below:
- Reducing monthly costs for a given system or implemented solution,
- Improving the efficiency of your cloud provider’s services,
- Developing a clear understanding of cloud usage and costs to create more accurate budgets and forecasts,
- Safeguarding against potential increases in future expenses by gaining knowledge of cost controls and market standards,
- Accelerating the delivery of products and services,
- Enhancing security and financial accountability in your organization.
FinOps Framework’s main concepts
A FinOps Framework provides an operating model for implementing the practice of FinOps. Applying the customized version of the framework enables optimization in the most suitable way and delivers substantial cost savings to every project. What are its main elements?
FinOps Principles – a north star KPI that guides the activities of every FinOps practice, crafted by the FinOps Foundation, consists of 6 main principles:
- Teams need to collaborate with each other,
- A centralized team drives FinOps endeavors,
- Everyone takes ownership of their cloud usage,
- Reports should be accessible to everyone and timely,
- The business value of the cloud should drive team’s decisions,
- Cloud computing’s variable cost models need to be utilized to succeed.
FinOps Personas – a representation of the people participating in the process and their position within the organization. The group includes a FinOps practitioner, executive, business owner or product owner, finance expert, engineer and procurement specialist.
FinOps Phases – the three iterative phases of the FinOps journey are known as:
- Inform: this phase improves visibility into cloud costs and usage. It involves setting up cost allocation tags, producing accurate chargeback reports and creating forecasts to understand future costs. It also aims to ensure that all stakeholders understand the cost implications of their decisions and actions.
- Optimize: in this phase, you identify opportunities to reduce waste and improve efficiency. This could mean rightsizing resources, eliminating unused assets and taking advantage of discounts available through reserved instances or savings plans.
- Operate: this final phase focuses on operational efficiency of a cloud environment. It includes implementing policies and governance structures to control costs, using automation to scale resources effectively and continuously monitoring and managing the environment to identify and respond to cost-related issues quickly.
FinOps Maturity Model – an outline of the advanced level of the ongoing FinOps process, described in three stages as crawl, walk and run.
FinOps Domains and Capabilities – a sphere of performed activities or applied knowledge. Every organization that adopts FinOps will perform activities in all FinOps domains. Each FinOps domain consists of FinOps capabilities, which outline functional activities that can be performed as part of that domain. Examples of domains are understanding cloud usage and cost, performance tracking and benchmarking. Examples of capabilities are budget management, cloud policy and governance.
There are two constituent elements contributing to the framework. The first is framework core content, which offers insights into what is required to set up a FinOps practice and a bird’s eye view of your FinOps journey. The second component is framework implementations, open-source resources (e.g., how-to guides, videos, articles) incorporated into the framework core content that you can use directly or adapt to meet the needs of your FinOps practice.
You can find more information about the cost optimization framework and its main concepts on the FinOps Foundation’s official website.
How to successfully implement FinOps in cloud computing?
Before implementing a FinOps process, you should audit the costs and efficiency of the services used with a cloud provider. A successful FinOps practice requires close collaboration between finance, technology and business teams. Establish a dedicated FinOps team that includes representatives from each of these areas to foster communication and ensure all stakeholders are aligned towards the same goal. Reports and recommendations from the audit should include information about improving the current environment by choosing another service provider and an estimate of projected savings from such a change. To reduce costs before the cloud environment deployment, a FinOps team could audit the entire environment, the deployed solution or the planned deployment itself.
To successfully implement FinOps, a comprehensive audit of the costs and efficiency of the services conducted by battle-proven cloud experts is crucial. This audit should provide detailed reports and recommendations for improving the current environment, which may include selecting a different service provider and estimating the potential savings you could achieve through such a change. Moreover, to minimize costs before deploying the cloud environment, experts may audit the overall cloud environment, the deployed solution or the planned deployment itself. These steps allow organizations to maximize their resources and make informed decisions about their cloud services.
The definition of clear goals and metrics is another critical aspect of successful FinOps implementation. Setting specific, measurable objectives provides a roadmap for your FinOps journey and offers a benchmark against which you can evaluate your progress. Selecting the right metrics is equally important – they should accurately reflect the company’s cloud usage and financial objectives, providing insight into the efficiency and effectiveness of cost optimization strategies. By clearly defining goals and metrics, an organization can ensure alignment across teams, promote accountability and drive strategic decision-making in the cloud financial management process. Lastly, these goals and metrics should be regularly reassessed and adjusted, when necessary, to reflect evolving business needs and market conditions.
Furthermore, it’s crucial to invest in comprehensive training and educational initiatives for your team within the context of FinOps. This includes examining cloud pricing models, mastering various cost optimization techniques and building a deep understanding of the strategic significance of effective cost management. Equipping your teams with this knowledge not only enhances their ability to make informed decisions but also fosters a culture of financial accountability, both of which are indispensable elements for successful cloud financial operations. Ensuring that your team is well-versed in these areas paves the way for more strategic use of cloud resources and more accurate forecasting and budgeting, which maximizes the value you get from your cloud investments.
Cloud FinOps will elevate your organization
McKinsey & Company states that companies that utilize FinOps can lower their cloud expenses by up to 20-30%, a substantial cost, especially during the current economic downturn. This change cannot be made without the right team. According to a survey run by McKinsey & Company, FinOps teams often lack crucial skill sets. Successful FinOps teams must possess a variety of predictive analytics skills. These skills enable them to anticipate future demand, estimate unit economics for cloud usage, optimize resource consumption and drive organizational behavior change.
When it comes to maximizing the business value of the cloud, there is no one-size-fits-all solution. Implementing FinOps practices is an iterative process that requires regular reevaluation based on the specific needs of your stakeholders and business operations. While it may seem overwhelming to navigate this process on your own, seeking the assistance of an experienced external advisor can be incredibly beneficial to ensure success. Proven consultants can provide valuable insights and guidance, helping you to identify potential roadblocks and make informed decisions that align with your overall business goals. Ultimately, as noted, by taking a proactive approach to cloud FinOps, you can improve the efficiency of your operations, reduce costs and enhance the overall value of your cloud investment.
Top companies rely on Software Mind because they are a partner with technical expertise and a successful history of cloud optimizations. Contact us by using this form to find out how our experts can help you turn your cloud challenges into strategic opportunities and start your optimization journey.
About the authorDaniel Pisarek
A Cloud Architect and Engineer specializing in Google Cloud Platform (GCP) and Microsoft Azure, Daniel has enhanced and optimized cloud environments for both start-ups and enterprise-level companies in a range of industries, including financial services, telecommunications, big data, travel and technology. His GCP and Microsoft Azure certification and cross-sector experience enable him to deeply understand clients’ unique challenges and tailor optimal solutions in terms of cloud governance, migration and infrastructure. A public cloud enthusiast, Daniel actively expands his skills in emerging technologies like AI to constantly drive innovation in the IT industry.