FinOps 101

Cloud, FinOps, Guest Post  |     |  

The rise of cloud technology has changed how businesses operate. With many benefits it provides, such as automatic synching, easy backups, and more, there is no doubt that many companies invest in this kind of technology. Unfortunately, approximately one-third of all cloud spending is going to waste. And while cloud vendors offer some ways to cut cloud costs, your savings will only materialize if you fully grasp the public cloud’s variable spend model and put appropriate measures in place. Thankfully, there’s FinOps to help keep your cloud spending under control.

In this blog, we’ll take a deep dive into knowing everything about FinOps. From how it can help you achieve financial and operational alignment to learning the best practices. Let’s get started by getting a clear overview of what FinOps is really about and how it works.

Understanding FinOps

FinOps (a portmanteau of Finance and DevOps) is also known as cloud cost management, cloud financial optimization, or cloud financial engineering. FinOps Foundation defines it as an evolving cloud financial management discipline and cultural practice that allows organizations to maximize their business value through data-driven spending decisions. FinOps promotes shared responsibility and financial accountability for variable cloud service costs across cross-functional teams. To better grasp its concept, let’s understand how it works.

You can implement the FinOps framework in three phases — Inform, Optimize, and Operate.

Inform

This is about ensuring all stakeholders have the information they need for cost allocation and management. Of course, they can only do that properly if they have accurate and timely information. It may include business mappings and resource tags to help you identify and keep track of each cloud customer. Benchmarking, budgeting, and forecasting with such information are crucial for calculating ROI and other business benefits.

Optimize

It’s a phase that focuses on reducing the variable cost of cloud spending. Sometimes, it may rely on cost-cutting measures, such as committed use discounts or reserved instances—these save for long-term instance use. In other situations, optimization may require reducing or deactivating ineffective or unnecessary resources. Still, you have to know that other optimizations may focus on workload performance, like scaling up some vital resources to ensure optimal workload performance in response to rising or fluctuating demand.

Operate

This step involves the continuous use of FinOps metrics to evaluate the cost, performance, and quality advantages of workloads in the cloud. It’s also the phase when cross-functional teams collaborate with other stakeholders for governance and workload activity.

These three phases of the FinOps lifecycle can help organizations cut unnecessary cloud expenses and get the most out of their cloud investments.

The Benefits of FinOps

By implementing a successful FinOps approach to indirect spending, your company can:

  • Optimize budget and improve profitability. The best advantage of adopting FinOps is it enhances your financial performance. The visibility of real-time data insights can help you make smarter spending decisions, saving you a lot of money and fueling your company’s growth.
  • Lower the risks. FinOps helps you lower the risks associated with questionable third-party suppliers, such as undesirable outcomes from weak service-level agreements (SLAs) or data security incidents. By thoroughly vetting vendors and evaluating contracts, you’ll be able to build better terms for both parties and foster relationships.
  • Boost transparency and accountability. By monitoring and understanding your cloud spending in real-time, you give better visibility on your organization’s expense management. As a result, you increase accountability and transparency, which can help facilitate fruitful discussions across teams and lead to profitable outcomes.

Top Challenges

While FinOps offers numerous benefits, it also faces obstacles you should look out for. Here are a few:

  • Price changes. The pricing and features of various software are highly variable, and it’s typical for your service level and pricing to change throughout the course of a contract. That makes it more challenging to perform benchmarking, control your cloud spending, and estimate future costs.
  • Disorganized supplier management. Without cross-functional teams, various departments may purchase supplies and software independently, resulting in separate contracts for the same tools. And that disarray creates orphaned apps and licenses that cost a lot. Not to mention the unchecked auto-renew contracts for SaaS subscriptions and other products, contributing to uncontrolled expenses.
  • Incomplete and inaccurate data. Having decentralized data because of using the same data silos frequently produce incorrect and incomplete spending statistics and saps budgetary potential. Another thing that affects this is manual tracking and reconciliation, which we all know are error-prone.

Best Practices

To ensure success in your FinOps initiative, here are a few best practices that you can do right away.

  • Bring together a diverse team representing all stakeholders to set the direction for FinOps
  • Invite some external experts to increase your team’s expertise at any phase of the FinOps lifecycle
  • CFO and legal, IT, security, and finance teams should communicate to understand each other’s priorities and align on the prerequisites for any supplier contract
  • Develop strategic sourcing within your procurement process to leverage
  • Perform tagging for all your resources to streamline the process of tracking and monitoring your expenses
  • Centralize all of your data in a dynamic platform for easy processing

The Bottom Line

Identifying all your spending is one of the top priorities for your business. When it comes to your cloud investments, adopting FinOps is just the right thing to do to maximize your business value and avoid a deep hole in your pocket. By learning what it is, how it works, its benefits, challenges, and best practices, you know how crucial it is now more than ever. So, start adopting FinOps as early as now to reap all the rewards that come with it.