FinOps: The Why, What and How

One of the most important lessons learned in recent years is that to survive, businesses must adapt quickly to changing consumer habits. And we are all aware that adopting the cloud is becoming critical for every business today to get digitally transformed and accelerate new business models.

However, there is a catch. An increase in cloud adoption adds new challenges, and every business computation model is different and dynamic. A recent survey conducted by Flexera stated that cost optimization will be the top initiative, 59% across all organizations. Cloud costs continue to grow and applying traditional IT approaches to cloud cost management makes the process even more complex.

So, if you are wondering what will be the solution to address these complexities, streamlining financial operations (FinOps) is the answer. And this article explores why, what and how FinOps helps with cost optimization and business value realization.

Cloud Comes with a Cost

Implementing cloud architecture comes with operating costs, and anything we do on cloud directly impacts cost and, therefore, the business.

In the cloud, you are moving from traditional CapEx to an on-demand OpEx expenditure model, where cost management and budget are no longer one-time activities. So, the business must craft its cost optimization and governance strategy for reducing its overall cloud spending by identifying mismanaged resources, eliminating waste, reserving capacity for higher discounts and right-sizing the services at scale.

But doing so needs a framework to execute strategies and minimize the impact of cloud costs on business, which is why FinOps is becoming so important today.

What Is FinOps?

FinOps is an evolving practice for cloud financial management, but what is FinOps? Is it a technology or philosophy? It would be more appropriate to define FinOps as a methodology similar to DevOps. Just like DevOps, FinOps is a collection of best practices and tooling.

This is the definition from the FinOps Foundation: “FinOps is an evolving cloud financial management discipline and cultural practice that enables organizations to obtain maximum business value by helping engineering, finance, technology, and business teams to collaborate on data-driven spending decisions.”

According to The State of FinOps 2022 report, FinOps is at a very early stage, with a growth rate at around 75% last year. It is expected to grow 50% in the coming year.

Like DevOps, putting FinOps into an organization’s culture and practice will require profound changes. In that sense, the cultural differences of a FinOps framework can be divided into principles, phases, personas, domains and maturity phases (crawl, walk, run).

FinOps brings technology, finance, and business together to drive financial accountability, accelerate business value and help make the right economic decisions.

It revolves around cross-functional teamwork, cost visibility, careful performance monitoring and benchmarking, and an emphasis on resource optimization. Another way to view FinOps is as a discipline that seeks to understand spending, optimize spending and continuously assess the performance of cloud services aligning with business objectives.

How to Leverage a FinOps Framework

In the previous section, we discussed the what and why of FinOps. Now let us focus on how to identify your FinOps maturity to make the right business decisions.

FinOps journey starts by assessing the following:

• What is your FinOps maturity level — crawl, walk or run?
• What are the problem areas for your business when managing costs?
• Do you have a periodic cost and budget forecast for your spending?
• How do you link cloud spending to your business value?
• How is your business leveraging cost data to inform further funding decisions?
• Are there policies, processes and tools in place to track your cloud spending?
• Do you have the KPIs and metrics to evaluate your spending?

Based on the assessment data, here are some best practices:

• Make cost management everyone’s responsibility by providing training. It should be the core of your culture by bridging people, processes and tools.
• Ensure that tools and dashboards are in place to visualize the costs at multiple levels to give different stakeholders the ability to gain insight on spending and its details.
• Keep a close track of your spending history and leverage the forecast features provided by the cloud-service providers.
• Find the spending pattern and optimize the usages by autoscaling or right-sizing the resources.
• Take advantage of discounts from your cloud providers and consider leveraging a commitment approach like reserved/spot instances and storing data in different suitable tiers to maximize your utilization and cost benefits.
• Most importantly, modernize and optimize suitable workloads to take full advantage of cloud native services.
• Enable developers’ cost visibility and spending governance by shifting left.
• Apply guardrails by setting a budget limit for individual billing accounts specific to project teams with a threshold and use automated notifications.
• Set resource quotas and these need pre-planned capacity requests that would negate the need for last-minute quota requests.

With that said, here are my top three recommendations for your FinOps journey:

• Make FinOps operating model part of your cloud strategy. Plan strategically with FinOps in mind from the start. Implementing FinOps may be overwhelming; however, you can harvest real benefits when you start from scratch and plan for future cost optimization in areas like scaling, licensing, contracting conditions and more.
• Favor value over savings. A common mistake is considering FinOps as a framework and focusing only on costs. FinOps focuses on optimizing resources without neglecting value generation. The customer experience remains the number one priority. To that end, you can think of FinOps optimization as another way of contributing to customers by providing quality services at a reasonable cost model.
• Think of FinOps as a journey, not a destination. Among engineers, executives and FinOps practitioners, it is common to think of FinOps as a destination when it is an ongoing practice. The optimization and collaboration process promoted by FinOps provide long-term business benefits when considered as a journey.

Final Thoughts

We have explored FinOps disciplines and how to leverage FinOps to alleviate the complexity of managing cloud spending. However, FinOps as a discipline requires culture and practices in place to achieve a successful FinOps operating model.

And with rising inflation and global economic dynamics today, cost management, along with good governance and optimization, are becoming the need of every business!