, April 15, 2024
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Have you ever received a huge power bill at the end of a really hot month, or a huge gas or electricity bill at the end of a really cold month? You heard the A/C unit running a lot, but you had no idea how much it would be. For some organizations, it’s the same way with cloud cost – it’s anyone’s guess how big the next bill will be. Although the cloud is touted by providers to potentially save money because of greater efficiencies and shared expenses, an abundance of cloud-based resources can also lead to cost runaways if not managed properly. That’s why FinOps and Cloud Cost Optimization are critical when it comes to controlling costs and minimizing surprises.

What is cloud FinOps?

Blending the terms finance and operations, FinOps is a business discipline and a set of best practices and technologies for optimizing enterprise cloud spend. FinOps is the practice of bringing a financial accountability cultural change to the variable spend model of cloud, enabling distributed engineering and business teams to make trade-offs between speed, cost, and quality in their cloud architecture and investment decisions. Sometimes a business will decide to tighten the belt; sometimes it’ll decide to invest more. But now teams know why they’re making those decisions.

Aside from bringing together the key people from engineering, finance, technology, and business teams who can help an organization gain better control of its cloud spending, FinOps can help reduce cloud waste-- which IDC estimates is between 10% to 30% for organizations today.

How FinOps maximizes cloud value

Adoption of cloud FinOps establishes a self-governing, cost-conscious culture and promotes both financial accountability and business agility in the cloud. And because FinOps facilitates improved collaboration and communication among groups around cloud use, organizations can reduce or eliminate redundant applications and cloud initiatives.

FinOps “is the management of cloud economics,” says Lydia Leong, distinguished vice president and analyst at Gartner. “Ideally, it should not merely be cloud financial operations, but a broader perspective that maximizes the value of cloud computing rather than minimizing the cost. Properly done, FinOps helps an organization contemplate the business value it is receiving — or not receiving — from its cloud use, so it can decide how best to optimize its investments,” continues Leong.

How to set up FinOps

There are seven key steps to setting up a cloud FinOps practice at your organization.

1. A culture of accountability and enablement

It is essential to build a culture of cost and value awareness to chart the course for both the process and cultural transformation journey in cloud FinOps. The primary goal is to help drive financial accountability and accelerate business value realization by streamlining IT financial processes and enabling frictionless cloud governance. Designating a FinOps practitioner is an essential first step. This person is the evangelist of FinOps for your organization and should have a solid understanding of IT and financial constructs. This individual will need sponsorship from a C-level executive, such as a CFO or CEO, to establish a cross-functional team and hold them accountable for meeting regularly and hitting metrics.

2. Enable data-driven decision making with cloud traceability

Foundational to any good process is accurate data and effective metrics, which starts with the notion of cloud cost visibility and traceability. This is driven by proper resource hierarchy and project structure standards and supported by a labeling and tagging data architecture behind your organization’s use of cloud resources.  

3. Cloud cost optimization

Cloud cost optimization is not just about cutting costs—it's about knowing where to spend your money to maximize the business value. It is an iterative and continuous process that provides a consistent methodology to visualize and manage cloud consumption in the most cost-effective way.

4. Planning and forecasting 

Financial planning is a foundational capability within finance organizations that will directly influence each company’s cloud computing forecast accuracy. Financial planning focuses on accurately forecasting financial metrics that are set on an annual basis to guide the company’s financial objectives.

5. Cloud FinOps tools and accelerators

Employing proper tools and accelerators are important to fully benefit from FinOps practices. In earlier stages, companies may have limited their ability to report detailed analysis of cloud spend. Selecting a tool and getting buy-in for using it as a single source of truth for all cloud spending and its recommendations is important. The FinOps teams should then set metrics and provide a transparent company-wide dashboard to facilitate control of cloud spending.

There are several good tools on the market today for FinOps, including Amazon Web Services Cost Explorer, initially released in response to customer demand. AWS users previously complained that AWS bills were difficult to understand. Today, Cost Explorer is a good starting point for cloud cost and usage analysis, rightsizing, cost anomaly alerting, and savings recommendations. 

6. Training

To adopt and deploy a successful FinOps strategy, enterprises should look to the FinOps community to learn through events, meetings, and other channels. FinOps practitioners will get farther, faster by sharing learnings and best practices. Also, to have a viable and thriving FinOps culture and practice, it’s important to invest in career development of practitioners through training and certification.

7. Continuous improvement

Like anything else, FinOps needs to be viewed as a tool for continuous improvement. The best way to improve is to learn from your mistakes and successes, then use that knowledge to continuously improve your financial processes. Organizations continuously evaluate business metrics, measure business alignment, define policies, and build processes and workflows to further optimize the value of cloud spend.

Cloud cost optimization vs. FinOps

Cloud cost optimization and FinOps are terms often used interchangeably, but there are some key differences between them. Cloud cost management and FinOps are two key approaches to cloud financial management. Cloud cost management is a good starting point for organizations new to cloud computing. However, FinOps is a more comprehensive approach that can help organizations optimize cloud spend in a way that aligns with their business goals.

Cloud cost management is the process of tracking, optimizing, and managing cloud computing costs. It involves identifying and eliminating unnecessary cloud resources, right-sizing resources and optimizing cloud use. Cloud cost optimization narrows its focus on reducing expenses. In contrast, FinOps casts a broader net, encompassing not only cost optimization but also financial management aspects like budgeting, forecasting, and insightful reporting. While starting with cost optimization is a prudent step, embracing FinOps offers a comprehensive and enduring approach.

Let’s look at the five key differences between cloud cost management and FinOps:  

1. Scope: technical vs holistic  

Cloud cost management primarily focuses on the technical elements of cloud expenditure, encompassing tasks like resource tagging for cost tracking and management, resource rightsizing, and identification and termination of unused resources. 

In contrast, FinOps adopts a more comprehensive approach to cloud financial management. It encompasses not only the technical aspects of cloud spend but the business and operational aspects as well. For instance, FinOps teams collaborate with business stakeholders to understand resource utilization and identify opportunities to optimize cloud expenditure while preserving business agility. It is also used to develop and implement policies and procedures for cloud cost optimization and automate cloud cost management, including monitoring, forecasting, and governance. Essentially, cloud cost management addresses the "how" of financial management, while FinOps focuses on the "why" and the "what."

2. Goals: saving money vs optimizing value

Cloud cost management is about reducing cloud spend, while FinOps is about optimizing cloud spend to align with business goals. Cloud cost management focuses on identifying and eliminating unnecessary cloud resources, while FinOps also considers how cloud resources can be used to improve business agility and reduce time to market. In short, cloud cost management is about saving money, while FinOps is about saving money and improving business performance.

3. Approach: reactive vs proactive

Cloud cost management is reactive, while FinOps is proactive. Cloud cost management teams react to cost issues after they occur, while FinOps teams prevent cost issues from occurring in the first place. For example, a cloud cost management team might investigate a sudden increase in a cloud bill, while a FinOps team might implement a cloud cost management tool to automatically alert the team when cloud spend is approaching a certain threshold.

4. Culture: siloed vs collaborative

Cloud cost management is typically a siloed approach, i.e., the responsibility for cloud cost management lies with a single team or department. For example, the IT department might be responsible for managing cloud costs, while the finance department approves cloud spending. This can lead to a situation where different teams are working at cross-purposes without a clear understanding of how cloud costs are impacting the organization as a whole. FinOps, on the other hand, is a collaborative approach, meaning all stakeholders in the organization are involved in cloud cost management. This includes teams like engineering, operations, and finance. Working together, these teams can identify and implement cost-saving measures aligned with the organization's business goals.

The key cultural difference: FinOps takes a collaborative approach making sure that everyone collectively owns cost management.

5. Metrics: strictly financial vs enterprise performance

Cloud cost management typically focuses on financial metrics such as total cloud spend and cost per unit of output. This is because the goal of cloud cost management is to reduce cloud spend. However, focusing solely on financial metrics can lead to organizations making decisions that negatively impact their business agility. FinOps, on the other hand, also considers non-financial metrics such as user satisfaction and business agility. This is because FinOps teams understand that cloud spend is not just about reducing costs but ensuring that cloud resources are used to support the organization's business goals. For example, a FinOps team might recommend that an organization invest in a more expensive cloud service that would improve the performance of their applications. This would increase cloud costs, but it would improve user satisfaction and business agility.

Cloud cost optimization tools

Like FinOps, there are cloud cost optimization tools that you can use to stay on top of cost. The previously mentioned AWS Cost Explorer is one such tool, as well as AWS CloudWatch, which pulls metrics and logs from over 70 AWS applications, services, and resources in near-real-time, providing in-depth AWS cost reporting. Like CloudWatch to AWS, Azure Cost Management + Billing is the cloud cost management tool native to Microsoft’s Azure Cloud Service. Ultimately, your cloud cost management tool should give you complete visibility into your cloud spend — letting you know where your cloud budget goes, how, and why — and empower you to make informed engineering, product, and business decisions with cost in mind.

How are you optimizing operations in the cloud?

Think about how your organization is currently operating in the cloud. Does your enterprise have a well-defined cloud operating model? Have you formalized a FinOps organization or Cloud Center of Excellence?

Cloud cost optimization and FinOps does not have to be complicated, but it does require a disciplined approach that establishes good rightsizing habits and continuously drives insights and actions through analytics to stay on top of your cloud bill.  

Find out more about how Alithya can help you with cloud adoption and optimization services or contact us to get the best of our recommendations.

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