April 4, 2023

By: Antony Panteli, Head of CIO Advisory, LTIMindtree Consulting (EU & UK)

Cloud computing has become essential for businesses to drive agility, flexibility, and innovation. The pay-as-you-go model offered by cloud providers presents numerous opportunities to optimize costs and resources. However, it also introduces challenges related to cost management and financial accountability. Cloud FinOps is a framework designed to address these challenges by combining financial, operational, and technological practices. Recent studies by Flexora suggest that 72% organizations have dedicated FinOps teams. An ISG article suggests that in 2023 FinOps implementation is a priority for effective cloud management, particularly considering prevailing global economic circumstances. This blog aims to provide an overview of Cloud FinOps, its benefits, and its implementation for CIOs and CTOs.

What is Cloud FinOps and how it works?

Cloud FinOps is a set of principles, practices, and tools that help organizations optimize cloud costs and drive financial accountability. FinOps is differentiated from ‘cloud economics’ as a business function that imparts cloud financial discipline while delineating cultural change that helps engineering and business teams collaboratively optimize business value through best practices and data insights that drive cloud spending decisions.

The FinOps framework therefore implements an iterative three-phase approach to calculate fair cost bases for accountability, benchmarking these with industry peers to as a measure of organizational efficiency, towards the ultimate target of enabling real-time, fully loaded cost attribution.

Source: Finops.org

In the Inform phase, the FinOps activities enable visibility of cloud costs together with recommendations for optimization. Teams work to achieve these in optimization phases to promote more optimal resource usage and reduce wastage. The operations phase carries forward lessons learned into operational activities, standardizing services, and governances for cloud usage within the organization and providing accurate data to finance and procurement functions to support negotiation and service agreements with cloud providers towards achievement of improved rates and service levels. Continuous iteration through the phased approach increases the sophistication of the observability function and activities towards ever-improving cost accuracy, anomaly-detection and understanding of immediate and planned usage requirements.

What are the primary benefits?

• Cost Optimization: Organizations can reduce unnecessary cloud expenses by analyzing usage data and aligning resources with demand.
• Enhanced Visibility: Cloud FinOps provides a comprehensive view of cloud costs, enabling informed decision-making.
• Financial Accountability: By promoting cross-functional collaboration, Cloud FinOps ensures every team member is aware of their cloud spending and associated responsibilities (remembering that there are no cloud activities that do not carry a cost implication)
• Improved Forecasting: With better visibility and understanding of cloud costs, organizations can more accurately predict future expenditures, allowing for better budgeting and planning.
• Increased Innovation: By optimizing cloud costs, organizations can allocate more resources to innovation and new projects, accelerating digital transformation.

Prepare for a Cloud FinOps Implementation

Implementing Cloud FinOps requires a shift in organizational culture, processes, and tools and organizational support from business units, architecture, engineering and product teams, finance, and executive leadership. FinOps resides centrally and needs to be capable of identifying and recommending optimization opportunities, not just for cloud architecture, but also automation, education and communications, procurement and negotiations and support all these with accurate and meaningful data and insight.

Executive sponsorship is crucial to enable and empower these cross-functional domains to converge as a FinOps unit.

Challenges and Best Practices

Successfully implementing a Cloud FinOps framework involves addressing key challenges to ensure ongoing benefits for the organization. This section focuses on three main challenges –  data accuracy, change management, and balancing cost and performance. By employing best practices, such as automation and data validation techniques, effective communication and training, and regular reviews of cost-saving measures’ impact on performance metrics, CIOs and CTOs can pave the way for a smooth and effective Cloud FinOps adoption. Understanding and addressing these challenges is essential for achieving optimal cost optimization and driving innovation in a competitive digital landscape.

• Data Accuracy: Ensuring the accuracy of cost and usage data is critical for effective decision-making. Utilize automation and data validation techniques to minimize discrepancies.
• Change Management: Stakeholder engagement, through regular communication, training, and reinforcement of cost optimization benefits, is fundamental to establishing and maintaining a healthy FinOps culture.
• Balancing Cost and Performance: Strive to optimize cloud costs without compromising service quality or performance. Regularly review the impact of cost-saving measures on performance metrics to maintain an optimal balance, remembering that the best results are always achieved when FinOps enabled functions and teams are fully bought in.

Cloud FinOps offers a strategic framework for organizations to manage and optimize their cloud expenditures effectively. By embracing FinOps principles and practices, CIOs and CTOs can drive financial accountability, cost optimization, and increased innovation. Adopting Cloud FinOps requires commitment, collaboration, and continuous improvement. Still, the resulting benefits will significantly enhance an organization’s ability to live and thrive in the cloud as a modern digital enterprise.

Sources

https://www.finops.org/framework/

https://www.finops.org/framework/personas/

https://data.finops.org/

https://isg-one.com/articles/what-s-next-for-cloud-in-2023-three-top-trends

https://info.flexera.com/CM-REPORT-State-of-the-Cloud-2023-Thanks

Further Reading

Gartner. (2021). Top 10 Best Practices for Cloud Cost Optimization. Retrieved from https://www.gartner.com/en/documents/3992881/top-10-best-practices-for-cloud-cost-optimization

https://www.hitachivantara.com/en-us/pdf/analyst-content/hbr-balancing-cloud-costs-business-goals-with-finops.pdf?q=1&ecid=ps_apac_cl_en_sssem0324&utm_source