Cloud FinOps: What is it, and Why Does it Matter?

Along with the turning to cloud integration services, the optimization of business processes has begun. Over time, the range of tasks that they solve expands, and with it, the cost of the cloud grows. To understand what exactly is responsible for this growth and whether it can be reduced, Cloud FinOps practices were invented. Some of them will be discussed below.

Problems of Budgeting Cloud Services

Have you ever experienced a problem in which, at the end of the month, you received a bill for cloud resources several thousand or tens of thousands of dollars more than expected? Maybe the reason is the lifecycle policy for backups or outdated versions of used resources? In this case, which part of your IT infrastructure turned out to be responsible for this, and are there ways to somehow save money? Actually, FinOps specialists are engaged in finding this out.

So what is FinOps? In a nutshell, this is an enterprise cost management process for cloud services. The purpose of this management is to implement a combination of cloud services that would bring the company maximum benefits at the lowest possible cost. If we focus on world practice, we can say that FinOps saves 20–30% of all company expenses for cloud services.

On the other hand, FinOps should not be taken as a set of ready-made solutions or clear instructions. Rather, it’s the combination of economics with IT in the context of cloud services.

The foundation for implementing FinOps is the company’s up-to-date data on cloud costs. It can be both raw data from disparate sources and ready-made financial reports built using highly intelligent Business Intelligence solutions.

In addition to collaborating as a team to optimize cloud costs, FinOps typically includes, among other things, negotiating with your vendors, monitoring and updating free trials, studying licensing and usage, and forecasting costs.

The final task of Cloud FinOps is to perform forecasting, budgeting, and financial anomaly detection on an ongoing basis. Thus, companies manage to find a compromise between the speed, cost, and quality of consumed cloud services. In the following paragraphs, we will talk about how to gradually implement FinOps for companies that have not previously practiced it, and also find out what are the main principles of this approach.

How Can You Understand if You Need to Implement FinOps?

As an operating model for cloud solutions, Cloud FinOps combines best practices that enable organizations to better understand their cloud spending. In addition, FinOps solutions help to strengthen collaboration between management and executive departments of the company. For example, they will allow the IT team to grow into a service provider, which, through cloud technologies, will add even more value to the company’s services in the eyes of customers.

However, the starting point for the implementation of Cloud FinOps is often not the inspiring prospects for development and optimization, but problems with costs. In particular, organizations often face challenges when they lack financial transparency and do not have the necessary financial projections and controls in place before developing or migrating their infrastructure (or part of it) to the cloud. Some common challenges arise when organizations do not track IT spending in a way that additional budgets can be allocated to analyze and/or predict it.

It’s also critical for companies to have a clear understanding of the capabilities and performance of their workloads. Without this, designing a cloud infrastructure can be challenging. Thus, optimization is necessary to ensure the most efficient use of all cloud resources.

Basic FinOps Principles

In fact, there are many rules that you can use to implement Cloud FinOps. Below we’ll look at the basic ones.

Reducing the Time Required to Detect Anomalies

Large organizations quite often face the problem of calculating cloud budgets over long distances. The fact is that, with this approach, it’s very difficult to determine the factors affecting the unplanned expenses, and because of this, the costs begin to increase every month. That’s why even if you purchase a tariff from a cloud provider for a year, it’s better to pre-calculate at smaller time intervals (for example, a month).

Calculation of Cloud Resource Consumption on Weekdays and Weekends

You will need to identify the peak days for your cloud-based applications to understand when you might go over budget. This way, it will be easier for you to plan your cloud spending so that you will be able to avoid a significant overrun of the cloud budget at the end of the calendar month.

Cloud Spending Forecast Based on Previous Bills

Cloud bills often exceed their initial projections due to differences in usage and real workloads. Thus, you should always try to compare the difference between the forecast and your total bill and analyze the main factors influencing this. Tracking this KPI over time can also reveal seasonal trends affecting cloud usage and help you budget more effectively.

Average Price per Cloud Computing Hour

To understand the feasibility of your spending on cloud services, it makes sense for you to compare your costs per hour of computing. The fact is that sometimes very affordable tariffs turn out to be destructive to the budget of companies (especially those that resort to cloud computing only from time to time and not on an ongoing basis).

Idle Instance Accounting

The vast majority of cloud vendors charge for the use of their resources over time. This means that, regardless of whether you use a particular instance at all, or use it to the full extent, you will still pay a fixed amount for it. Along with this, during certain periods of time, the load may increase in instances with a pay-as-you-use pricing model. This situation provokes an increase in the actual budget for cloud services. This means that to reduce costs and avoid unexpected ones, you will need to analyze used and unused resources and promptly discard those that you do not use (or alternatively change a cloud provider that would offer you more flexible pricing).

Resource Tagging

Often, companies do not tag the cloud resources they pay for. Thus, some of them are not used for their intended purpose, while the bill for their use is regularly charged. That’s why it’s so important to implement your own cloud tagging script that covers every new connected service.

How to Prepare Your Company for FinOps Implementation

So what steps should business owners take to seamlessly implement Cloud FinOps? Let’s figure it out.

Analysis of the Current IT Infrastructure

The initial stage of implementation of Cloud FinOps is to analyze the existing IT infrastructure that is already functioning in the cloud or is planned for subsequent migration. In particular, you will need to determine the amount of resources being expended, assess the potential for their growth, define areas for improvement, and identify changes that should take place in the near future.

Thus, you can understand your upcoming costs for the necessary computing resources, both cloud and local. It’s fundamentally important to achieve an understanding for these two aspects, because in some cases it will be more economically advantageous to prefer the second option, remaining on-premise.

It also makes sense to calculate the total cost of ownership (TCO) of the cloud and its total business value to compare them with the goals and their potential financial benefit. Having this holistic view will help you better manage all aspects of your cloud resources and plan your approximate budget correctly.

Strategic Planning

Now that you have an approximate calculation of the funds needed to implement and maintain cloud services, you can start planning a strategy for optimizing them.

In particular, at this stage, you will need to build a list of some metrics to evaluate the effectiveness of your spending so that instead of abstract analytics, you have some hard numbers at hand. Moreover, it’s very advantageous to be able to record these metrics in real-time so as not to build analytics on outdated data. To do this, you can use various Business Intelligence solutions that can independently collect real-time data and get accurate analytics.

As for the choice of optimization paths, formally, there are only two of them: time optimization and resource consumption optimization. Thus, you can either focus your search on cloud providers that offer better pricing for long-term contracts or start working on areas that need improvement that were identified in the previous step.

Optimization

You should understand that cloud finance management is an ongoing process that never ends. It consists not only in regular analysis and optimization of the existing IT infrastructure but also in choosing the right and effective automation solutions that constantly monitor the efficiency of cloud resource consumption and identify opportunities to do it even more rationally.

Step-by-Step Implementation

Now, you can finally begin to gradually introduce new practices into your existing IT processes. To do this, it makes sense to start with the smallest acceptable instance that can support the application or service. Then, as users demand grows, you can scale that application or service horizontally by manually deploying new instances or autoscaling if possible. 

Since the cost of cloud services will increase exponentially with the size of the service, it will be cheaper and more affordable to start with small instances. That’s why when deploying services, it’s better to start with a new install rather than just move the application or service with all its years of updates and remakes.

Building a Scalable Cloud FinOps Structure

The most important goal with Cloud FinOps should be the ability for businesses to make money. It’s for this reason many businesses use multiple clouds from different providers. In general, using multi-cloud is an effective strategy that allows an organization to choose providers based on the optimization of specific applications. Enterprises also turn to multiple clouds for failover and disaster recovery or to avoid vendor lock-in.

On the other hand, multi-cloud infrastructure complicates IT management and governance, so budgets for these systems must be integrated into a single cloud budget that uses FinOps solutions to improve efficiency and accountability.

Unleashing the Potential of Cloud Providers

The potential of the cloud expands exponentially, which is due to the need for the company to further invest in specific services of cloud providers (Google Cloud, AWS, IBM Cloud, etc.). At the same time, cloud-native transformation helps companies cut costs by automating operations and gain empirical evidence of greater business value.

Thus, at this stage, for additional optimization, you can consider the prospects for introducing proprietary automation solutions, artificial intelligence, machine learning, etc.

Growth and Budget Optimization

IT products not only continue to penetrate deeper into all spheres of our life but also modify them and form new ones. Such a rapid expansion of IT became possible due to the development of tools that speed up and simplify the creation of software: academic degrees, large teams, and own servers are no longer required to launch an IT product. 

One of the key factors in the profitability of products is the efficiency of infrastructure use. And this is where FinOps comes to the fore, managing and making transparent an ever-growing expense on one hand, and providing the benefits of ready-made cloud solutions for developers on the other.

What Pitfalls May Arise When Implementing Cloud FinOps

Spreadsheets and financial software are often combined in the early stages of business development as a quick approach to financial management. However, the manual procedures required to complete these tasks result in financial records that are irregular or inaccurate.

This not only creates a false impression of the company’s financial position but also raises serious concerns among potential investors. That’s why an essential requirement for the implementation of Cloud FinOps is the use of smart automation and analytics solutions that will take responsibility for the constant calculation of the budget and help to find weaknesses in the IT infrastructure that lead to unexpected growth.

To be more precise, you can use two groups of tools. The first is specific cloud services for optimization and control. These are all kinds of budget alerts and restrictions, quota management and recommendations, as well as resource life cycle management. The second is tools and practices: for example, architectural consulting and a cost calculator. 

As for the second challenge, you may also have problems with the coordination of your departments in the direction of cost optimization. This is especially true for disparate teams that practically do not interact with each other in real life. In this case, you will need to ensure their mutual integration through the introduction of additional means of communication.

Final Thoughts

Cloud FinOps is a cost management practice in the cloud that helps minimize costs and maximize infrastructure value. Even if a company moves to the cloud with the help of a provider, it still often overlooks a deep understanding of the architecture, spending structure, and billing features.

Now you have a basic understanding of the implementation of Cloud FinOps solutions. Thus, in the future, with the correct introduction of this approach, you can not only significantly reduce your budget for the consumption of cloud resources but also optimize your existing IT infrastructure by making it more consistent, reliable, and scalable. If you are looking for specialists who would implement the best practices of FinOps on the example of your business, feel free to contact us.