François Denis explains how embracing FinOps will help your organization optimize the value you see from your cloud spend.

Over the next few years, the amount of money that businesses will spend on public cloud looks set to increase dramatically. According to IDC, global cloud spend looks set to reach  $500 bn by 2023.

Despite this rise in spending, many enterprises are daunted by managing their cloud costs with 38% identifying optimizing cloud costs post-migration as one of their top challenges (State of the Cloud 2020, Flexera).  With respondents in the same survey estimating that 30% of their cloud spend is wasted, the need to gain a greater understanding of the complex world of cloud economics is becoming increasingly important.

In this post, I will provide a brief overview of cloud economics and suggest how embracing FinOps as a cultural practice within your organization will help you optimize the value you see from your cloud spend.

Cloud economics – understand your cloud spend

Until recent years, the IT world revolved around data centers.  IT costs were fixed in a CapEx weighted spend and framed within three to five-year hardware renewal cycles. Spare capacity was built into the data center (and often left idle until needed) and there was very little cost control reporting. Rigid procurement processes would be in place, where the purchase of new resources involved back and forth conversations between engineering, finance and procurement teams. This provided more certainty over costs – but the process was slow and the lack of flexibility left less tolerance for errors and failure.

However, the introduction and steady increase in cloud adoption has shifted IT costs to an OpEx weighted model. The pay-as-you-use, consumption-based nature of public cloud is creating an environment where costs are variable, depending on use, and resources can be purchased by engineers at the click of a button or a line of code.

From an efficiency perspective, this is great as there is no upfront hardware to pre-buy, small units of resource can be consumed and you only get charged for the resources you use.

But this sword has two edges. The rise of cloud alongside the adoption of agile and DevOps organizational models has broken traditional procurement processes. The focus on enablement and decentralization, where engineers can instantly spend company money without intervention from the finance/procurement team, can very quickly lead to overspending and wasted resources.

Without adapting to this new paradigm and establishing robust cloud financial governance, your dream scenario of cost-efficient cloud infrastructure can turn into a nightmare.

cloud economics

What is FinOps?

So how do you stay in control of your cloud costs?

The first thing to understand is that when you move to the cloud, your traditional finance and procurement processes are not going to help you take advantage of the benefits available to you. You will need a new way of managing IT infrastructure spending

This is why you need FinOps.

FinOps is a cultural practice that helps to bring financial accountability to the specific spend model of the cloud. It enables teams to make better decisions in terms of speed, cost, and quality.

Engineering teams, developers, and project managers – anyone who builds, maintains, or interacts with your cloud – need to be held financially accountable. This is achieved by creating a frictionless, business-oriented discussion between these functions and finance. When executed effectively, engineers and developers are enabled to make real-time, data-led decisions, without being slowed down by lengthy procurement processes.

The 6 key principles of Finops

If managing cloud costs is a concern for your organization, then adopting FinOps is an excellent way to introduce the necessary governance and accountability into your teams. Adopting FinOps requires patience and it will take time to figure out how it works within your specific organization. The best place to start is by familiarizing yourself with the 6 principles of FinOps:

  1.  Collaboration – A culture of collaboration is essential when it comes to FinOps. Real-time communication between finance and engineering has to be encouraged so a continual process of improvement effort is in place from both sides.
  2.  Business Value Decision – Unit economics and value-based metrics are more important than raw spend. Focus on your key objectives and the value that is being provided so trade-off decisions can be consciously taken.
  3.  Ownership – With resource usage and optimization of resources being decentralized, accountability is pushed to technical teams. Feature and product teams must be able to manage their own usage and budget. Cost should be considered as an efficiency metric
  4.  Reporting – Essential to ownership and decision-making is data and regular reporting. Reports should be visible across all levels of the organization. Cloud costs are shown as soon as they are available so fast feedback loops are essential allowing trends and forecasts to be analyzed and used.
  5. Centralized FinOps – FinOps teams should support centralized automation to reduce duplicated efforts. They should also have a deep understanding of the discounts and saving plans available from CSPs. Ultimately, it is the job of the FinOps team to drive best practices through education and standardization and evangelization.

If you are looking for more guidance on optimizing your cloud costs read our white paper on the topic. Alternatively, listen to this episode of the Cloudbusting podcast where I go into more detail about the principles of FinOps.

If you need help managing cloud costs and embracing FinOps in your organization reach out to our expert team. We have helped some of the world’s largest and complex enterprises understand and control their cloud spend. Let’s talk!