Today, the world is grappling with rising inflation coupled with recession. And this has created a situation where businesses are looking to optimize spends, even cloud spend. As companies increasingly move their applications and infrastructure to the cloud, they struggle to manage and control the costs associated with their cloud workloads and other services. One of the key ways to realize cost optimization goals while also ensuring optimal business continuity is through the integration of FinOps. FinOps seeks to address this challenge by providing a framework for optimizing cloud spending. FinOps is closely associated with practices like cloud optimization, cloud cost optimization, and cloud financial management.
The biggest advantage of cloud has been variable pricing or on-demand pricing. In short, variable cloud spend models are pricing models for cloud services that can fluctuate based on usage, demand, and other factors. These models are designed to provide more flexibility and cost-effectiveness for customers, by allowing them to pay only for what they use, rather than committing to a fixed amount of resources.
However, while variable cloud spend models are designed to provide more flexibility and cost-effectiveness for customers, the same can also make it more challenging for organizations to manage cloud costs effectively. Organizations need to be able to track their usage and spending in real-time and to be able to adjust their spending and resource usage based on changing needs. That is where FinOps comes into play with a more inclusive, visible, and transformational framework.
So, what is FinOps, and what are FinOps on cloud services?
Before discussing what are FinOps services, let’s take a look at the concept of FinOps. FinOps (a portmanteau of Finance and Operations) involves collaboration between various teams (e.g. finance, engineering, and operations) to monitor, analyze, and optimize cloud spending, a key focal point of cloud financial management. This does not mean being sparing with cloud spend. Instead, it means being smart with it. How does FinOps achieve this? FinOps achieve this by following the principles of responsibility, financial accountability, efficiency, cost optimization, and transparency in the decision-making processes.
FinOps on cloud services remove the obstacles that stand in the way of cross-functional teams by enabling better financial visibility and decision-making for cloud spend. Cloud FinOps services entail creating a culture of cost awareness and responsibility within an organization and involve a range of activities, including cost allocation and attribution, cost optimization, cost governance, as well as cost reporting and analysis by implementing FinOps principles.
Typically, there are fluxes in the investments an organization makes. While cloud FinOps cannot make finances flow uniformly year-round, it gives teams the clarity they need on why a certain investment is being made at a certain time or the reasons behind cost overruns. Cloud financial management encourages teams to analyze cost data and variable cost models that are right for the organization and gain maximum business value.
With FinOps on cloud services bringing together finance, technology and business teams in the same room, the primary transformation that most businesses notice is the ability to drive financial accountability. They are able to address cloud costs more efficiently and manage cloud usage more effectively. FinOps culture allows cross-functional teams to work more cohesively to enhance control over the organization’s cloud spending and financial processes in order to optimize costs and maximize business value.
What Does Cloud FinOps Bring to the Table
There are five key transformations that designing FinOps on cloud enables users to:
Accelerate business to realize greater value and fast-track innovation
Drive financial accountability among business teams towards financial investments and enhanced visibility
Optimize cloud utilization across the organization to ensure greater cost-efficiency
Foster a greater sense of trust and collaboration among teams across the organization
Prevent excessive and unnecessary cloud spending
What is the Importance of Cloud FinOps in Cloud Financial Management?
Reduced cloud costs and greater cost-efficiency
Opportunity to focus on core business
Better operational resiliency
Better service quality
Improved cloud security posture
Decreased time to market
3 Phases of FinOps in Reducing Cloud Costs
Cloud FinOps services can be broken down into three phases that are recurrent, like a lifecycle. For an organization to be able to achieve its goal to optimize cost, lines of communication and collaboration have to be opened up among the different teams – business teams, finance teams, and IT teams primarily. And they have to be willing to align with the objectives set by a centralized team.
This can mean a big cultural shift within an organization. Once teams have realigned to communicate better, the bulk of the responsibility in ensuring the success of a cloud financial management model falls on engineers and solution/product owners. They have the mandate to consider cost like other efficiency metrics to ensure maximum business value.
Each business team could be at a different point in the lifecycle. For instance, the engineering teams maybe on phase 3 of the first lifecycle, while the technology teams may have already crossed that and entered phase 1 in the second lifecycle. This means that the organization itself could be in different phases of the lifecycle at the same time. Now, let’s take a look at the 3 phases of the FinOps lifecycle:
Phase 1: Inform
The first phase of designing FinOps on cloud is ‘inform.’ In this phase, stakeholders, including FinOps stakeholders, are provided with the information that they need to take valuable data-driven spending decisions about the cloud for the organization. For example, FinOps models provide IT teams with greater visibility.
This is visibility into the cloud resources that are currently in use within the organization and those that are yet to be deployed. With this information in hand, IT teams can accurately assess the resources being consumed by each business unit and earmark cloud spend accordingly.
Besides visibility, this phase also gives teams the platform for better allocation of cloud resources, benchmarking performances against others and forecasting figures. While one of the advantages of cloud is the flexibility it provides, it also means that it has a certain level of elasticity (in terms of functionality, pricing and discounts).
And teams need to be aware of this to ensure they have accurate and timely information to generate business value. This will help make the changes necessary to stay aligned with FinOps stakeholders’ objectives of ensuring strong RoI, staying within budget and predicting cloud spend.
Phase 2: Optimize
The main focus of the phase of optimizing is to find all possibilities to achieve cost savings. It looks into the opportunities available for the organization to use cloud resources more optimally. In this phase, IT teams also scout for discounts that will be most useful based on the organization’s usage of these resources. For instance, if a virtual machine is costing $1 per minute on a node, and there is an opportunity to move it to another node that costs just $.75 for the same duration, the IT teams can recommend this shift.
However, the real challenge in the second phase of designing FinOps on cloud lies in understanding whether a shift like this is going to be straight-forward and result in the savings that the team desires to deliver. At times, a transition can mean spending extra dollars on licensing, as the current one doesn’t apply on the new node. And sometimes, the new license can cost several times more than the existing one, costing the organization more than what it is spending.
Phase 3: Operate
In this final phase of designing FinOps on cloud, the organization has to carry out an assessment of whether their performance matches up to the objectives they had laid out initially. And if there is a discrepancy, engineering teams, finops teams, business teams, financial teams, technology teams and other teams will have to re-evaluate processes and investments to see how best to improve their performance within the cloud FinOps framework.
When an organization sets in motion their optimization initiatives, they can leverage automation to run policies that can systematically enable cloud utilization efficiently for improved cloud cost management that doesn’t require any compromise on performance. To achieve all these business objectives, organizations will need a center of excellence to monitor and manage cloud costs. This will have to be structured around financial, business, operational and FinOps stakeholders who can also set in place policies and models that will enable better and more effective organization-wide governance for better business value.
What are FinOps Tools? Achieve Your Goals with the Right Solutions
Organizations can benefit from using cloud financial operations tools that are designed to help them analyze cloud usage and related billing and invoicing processes. The tools can help stakeholders compare this information against the jobs on which they were utilized and the users who leveraged them. Finally, they generate detailed reports that allow the stakeholders to make data driven spending decisions. It also equips them to take decisions on optimizing cloud use and cloud costs.
Users can choose between native cloud FinOps tools and third-party options. Some of the widely used third-party tools are on Azure, the cloud computing platform by one of the most recognized cloud providers, Microsoft. This includes the Azure Pricing Calculator, Azure Advisor and TCO Calculator among many other tools for cloud financial operations.
Google Cloud too provides a variety of tools and services to help with FinOps, such as Cloud Billing, Cost Management suite, cost-saving recommendations, Preemptible VMs, sustained use discounts, commited use discounts, as well as cloud asset inventory. One of the primary reasons organizations use relevant third-party tools is because they offer cost optimization that is unparalleled when paired with the right provider of cloud services.
FinOps Services on Cloud with Cloud4C
Cloud is in great demand across industries and it will continue to be. Why? With the socio-economic, political and technological landscape always in a state of flux, industries need solutions that can support their needs through these changes. And the cloud is one such resource that is flexible and can undergo changes in features and capabilities to facilitate this and add business value. As a cultural cloud system, FinOps allows businesses to develop a stable model of cloud spending. And the three phases of cloud FinOps have been established considering the need for flexibility and stability to come together in a unique ecosystem within the organization.
Done right, designing FinOps on cloud can deliver on its promise of greater cost visibility for more accountability in spending through the smarter allocation of cloud assets. However, organizations have to prepare for the accompanying challenges like hiring cloud cost experts in-house and balancing governance and support with financial accountability.
This is where Cloud4C’s cloud FinOps as a Service helps organizations. Cloud4C FinOps as a Service frees organizations from the burden of building and implementing complex cost management roadmaps, training teams, or hiring in-house cloud cost experts by offering the right governance and support to bring financial accountability, efficient cost optimization, greater cost visibility and resiliency across the organization. Designed to provide a holistic framework and a proven roadmap, the FinOps as a Service enables organizations to leverage Cloud4C’s existing capabilities to understand and manage cloud costs and plan tradeoffs. Take a look at our FinOps as a Service to understand how we are positioned to serve you.