FinOps: These Practices Are Gaining Momentum

The mass migration to the cloud is in full swing. There is hardly a company that does not yet rely on SaaS and operates cloud instances. For CIOs, business aspects are increasingly coming to the fore. FinOps – the cloud financial management – should help to reduce costs and get real ROI from the cloud.

As cloud demands grow, cloud financial management practices are increasingly on the agenda of CIOs and CFOs. However, most companies are still at the beginning of their FinOps journey. Flexera ‘s State of the Cloud Report 2022 shows how urgently the cloud needs to be managed. The global survey paints a complex picture of the current cloud infrastructure: 80 percent of companies use both public and private clouds (hybrid cloud). Even 89 percent pursue a multi-cloud strategy and use more than one provider for cloud computing.

The Cost Curve Points Up

Cloud costs, in particular, are a headache. More than half of all companies spend more than $2.4 million per year on the public cloud. It is usual for costs to increase as cloud usage and adoption increase. What is disturbing is that the company pays more in terms of cloud in many cases and achieves no ROI. According to IT managers, almost a third (32 percent) of all cloud spending is unnecessary and fizzles out in the cloudy sky with no effect.

Operating Model For The Cloud – FinOps

No wonder Cloud Cost Optimization (CCO) is the Flexera report’s top IT initiative for the sixth consecutive year. But where do you start with cost optimization? A silo approach falls short in the hybrid and highly dynamic IT world. Anyone who wants to reduce their cloud expenses in the long term and align them with the business requirements of management relies on FinOps.

FinOps (or Cloud Financial Management) is the operating model for the cloud. It encompasses management tools and systems, processes, best practices and governance guidelines, and a culture shift towards the cloud. The goal is to make cloud usage transparent. This not only makes it easier to plan and control expenses. Once the technologies have been acquired, they can also be used goal- and profit-oriented. The prerequisite is close coordination between different business areas – from IT and procurement through development to finance and upper management level.

The focus is on the principle of personal responsibility: Every team and every department must be able to assess the cost-benefit ratio of the cloud for their business success and make investment decisions based on this. The cloud cost factor is no longer just a matter of IT. At the same time, the cloud is geared more towards added value for the company.

Three Phases Of FinOps

As cloud demands grow, cloud financial management practices are increasingly on the agenda of CIOs and CFOs. However, most companies are still at the beginning of their FinOps journey. The operating model can be implemented in three phases:

• Inform: First, it is about gaining insight into the cloud costs as a whole and the business areas and cost centres assigned to the charges. Clean and consistent cloud tagging is critical to this information discovery phase. The metadata is added to the cloud resources and reveals, e.g., B. which cloud service is used by which department. An important KPI in this context is cloud resources with missing or incorrect tags, such as incorrect spelling. The automation of tagging can be an enormous relief here. Currently, however, only a third of the companies can do this at all. The Unit Economics model is recommended for tracking and comparing KPIs over a more extended period.
• Optimization: Once cost transparency is guaranteed, the actual optimization can begin. How this turns out in detail depends on the respective cloud maturity level. Organisations just starting their cloud journey are interested in rapid migration. For others, it means curbing the costs of workloads that have already been migrated. Therefore, it is essential to define goals and priorities precisely and identify savings potential. There are two optimization options: companies reduce their expenses through cloud use or the price (e.g., through discounts from cloud providers). The latter is still difficult for companies because the respective price structures are challenging to understand.
• Automate: In this phase, FinOps shows itself in practice and the form of tangible results: the savings potential. KPIs, guidelines, and processes should be monitored and fine-tuned to define and automate repeatable best practices. This includes, for example, shutting down workloads after hours and rightsizing underutilised instances.