What Is FinOps and How It Changes Approach to the Cloud Financial Management?

What Is FinOps and How It Changes Approach to the Cloud Financial Management?

As organizations adopt a multi-cloud strategy, they are finding it hard to manage the cost and value of their cloud spending. With FinOps cloud optimization, they can now achieve better control and manage their cloud spending.

According to proponents of the cloud financial management practice, FinOps is focused on providing organizations with the necessary tools and resources to manage their cloud spending. This philosophy also ensures that their developers have the necessary access to the cloud.

What is FinOps?

The process of centralized cloud purchasing is currently taking place in the public cloud adoption phase. This is typically led by a finance specialist who negotiates with the providers of cloud services on behalf of the company. The other part of the process is establishing a corporate cloud governance framework. 

FinOps is a cloud management discipline that combines the business, technology, and finance teams to develop an operating model for the efficient use of cloud resources. It enables users to plan and manage their cloud resources, meet their goals, and improve their financial performance.

With the help of FinOps approach and cloud management platforms, organizations can now achieve financial accountability for their variable spending on the cloud. This practice is carried out through a collaboration between the finance, distributed IT, and business teams. They can fine-tune the deployment of their cloud solutions to meet their business objectives.

According to a report released by Flexera, the number of executives who are using the cloud is higher than they expected this year. They also noted that 32% of the organizations' cloud spend is wasted. By implementing the FinOps framework, organizations can improve their agility and increase innovation. One of the most important factors they can consider when it comes to improving their cloud spend is transparency and forecast.

FinOps vs. DevOps: What's the difference?

When it comes to DevOps, automation is the key. It delivers agile and repeatable processes to get the best final product. In contrast, CloudOps is a way of doing DevOps - it's just that instead of using any on-site network server assets, it takes complete leverage of powerful cloud computing tools like AWS, GCP, and Azure.

So it is easy to say DevOps is the process of developing and fielding software. It involves the various operations involved in the production and fielding of software. While FinOps focuses on the efficiency of cloud usage, it also handles the cost and performance of running a software product in the cloud.

Cloud FinOps benefits

Cloud FinOps benefits

According to a study conducted by the Boston Consulting Group, over 70% of the digital transformations that are carried out today fall short of their goals. This is why it is important that cloud spending is regularly monitored and analyzed. The rise of cloud computing has brought about various benefits, such as agility, demand-based consumption, and decentralized control. However, with the increasing number of hybrid and multi-cloud offerings, organizations are struggling to manage their spending. A cloud cost center of excellence can help the organization understand the various aspects of its cloud strategy. 

FinOps is a framework that aims to help engineering teams manage their spending while still empowering them with agility and speed. It also requires them to consider the cost and quality of their work. Although it can be challenging to change the culture of an organization, it is still important to consider the benefits of this approach.

It can also help them develop effective and transparent financial management policies. It can additionally build trust and collaboration across the various departments and teams.

Through the use of a carefully analyzed trade-off between speed and quality, cloud cost management can help break down the functional barriers between the various teams.

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What are FinOps phases?

FinOps teams typically describe their practice as a three-step cycle.

The Inform phase provides visibility into the allocation of resources and the creation of shared accountability. It allows teams to see how their money is being used.

Through the next phase, known as Optimize, teams can make real-time decisions and improve their purchasing and planning capacity. This allows them to take the necessary actions to improve their RI coverage.

And last but not least, Operate phase involves building a framework for managing the cloud environment. This allows the organization to achieve its goals related to financial, technological, and business operations.

FinOps phases

What are FinOps Principles 

The six core principles of the FinOps Foundation are designed to guide the activities of the organization's finance and technology teams. As teams start to use cloud services, these principles are regularly updated and adjusted. These principles aim to help teams make informed decisions and maximize the value of their data.

The following are:

1. IT-Wide, Cross-Function Support

The collaboration of teams is essential in order to achieve efficiency. In FinOps, the goal is to make sure that all of the teams are working together seamlessly to improve the efficiency of the organization. One of the most critical factors that can be considered when it comes to improving the efficiency of the organization is the establishment of effective controls and governance for the use of cloud optimization services.

2. Business Value Drives Cloud Decisions

The cloud provides many advantages to developers, as it allows them to enhance their business features and reduce their time to market. It also allows them to quickly provision resources and manages their operations. However, it's not just about tracking the costs of the cloud. With FinOps, you can make decisions that will increase the value of the cloud.

3. Everyone Takes Ownership Of Their Cloud Usage

Each team within an organization should be responsible for its own cloud costs. Having in-depth visibility into these expenses will allow you to identify areas where you can improve your efficiency. Developers and other team members who are involved in the creation of resources should also be held accountable for their spending. They should be able to perform rightsizing exercises and decommission unused resources.

4. Form a Centralized FinOps Team

A centralized FinOps team that is responsible for developing and implementing a cloud strategy should be able to set cost-efficiency expectations and provide engineering teams with the necessary cloud cost optimization tools and resources to improve their efficiency. This group should also help them develop cost-effective practices and manage their budgets.

5. Create Easily Accessible FinOps Reports

Having in-depth visibility into these expenses should allow you to identify areas where you can improve your efficiency. One of the most important factors that you should consider is having a cost report and cloud optimization services  that is available to all of your engineering teams in real-time. This will allow them to monitor their cloud usage and make informed decisions. Another important aspect of this has an anomaly detection system that will allow you to notify them when something goes wrong immediately.

6. Take Advantage Of The Variable Cost Model of The Cloud

With the availability of new resources, it is easy to provision them in the cloud. However, it is important to be aware of the costs associated with this technology and ensure that you are using the resources efficiently. One of the most effective ways to minimize these expenses is by continuously monitoring the usage of your current resources. This will allow you to align your budget with the costs of your cloud. Another important factor you should consider is implementing cost-efficient practices such as rightsizing resources and purchasing reserved instances.

FinOps

What are the capabilities of FinOps?

The capabilities of a FinOps organization are defined as areas of activity designed to support its business's various functions. These activities are typically performed in support of the FinOps domain's maturity improvement and education. In addition to meeting their customer's needs, these activities also help them develop effective and efficient knowledge-sharing and business objectives.

The first FinOps capability is "Understanding Fully Loaded Costs". Before we can accurately allocate cloud costs to the engineering teams, the billing data needs to be mapped to the organizational hierarchy, such as the cost centers, business units, applications, and environments. Accounts, projects, and tagging often do not fully align with how leadership and Finance think of cloud spending. Also, untaggable cloud resources like data transfer costs need to be apportioned to provide a complete view of cloud costs.

The second FinOps capability is "Enable Real-Time Decision Making". The FinOps team needs to build timely and consistent reports that provide spending data to stakeholders. These reports must be customized to whoever is viewing them, ideally automatically. Spend anomalies like cost spikes and cloud waste or potential savings opportunities like underutilized services need to be clearly communicated to the right people promptly.

The third FinOps capability is "Benchmark Performance". The FinOps team needs to incorporate trending and variance analysis in their reports. Looking at spending data at a point in time is not as useful as looking at a progression over time. Leadership and engineers will need custom reports to show business metrics and KPIs like cost per active customer cost per widget sold, or cost per streaming hour. The FinOps team also needs to reach out to other companies to evaluate their capabilities against current practices in the industry.

The fourth and fifth FinOps capabilities are "Rate Reduction and Cost Avoidance". Rate Reduction refers to anything that reduces cost from public or list pricing like, for example, Enterprise Agreements, Private Pricing Agreements, Reservations, and Savings Plans. Cost Avoidance refers to any effort that reduces usage, like right-sizing, cloud parking, auto-scaling, and re-architecting workloads to be more cloud-native to take advantage of containers or serverless.

In the early stages, without IaC practices, companies can easily forget about their services and VMs until the bill arrives. On the other hand, in the mature stages, companies have to face expenses that are not only related to one issue but also require a long-term strategy to improve their infrastructure. One of the most prominent examples is our case — Veeqo, an inventory and shipping platform for e-commerce. You can read a comprehensive case study here:

And the sixth FinOps capability is "Align Plans to the Business". The FinOps team needs to have ongoing reviews with stakeholders about optimization opportunities to drive Cost Avoidance. In addition, the FinOps team needs to develop a framework for decision-making that aligns with the business drivers. This moves cloud cost to the forefront of everyone's thinking.

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What is the FinOps Team Structure?

The diagram below shows the various functions of a cloud cost center of excellence, a cross-functional team responsible for managing the various aspects of the organization's cloud strategy. This team is also able to help the rest of the organization adopt the best practices for managing the cloud.

FinOps Team Structure

Core Stakeholders of Cloud Financial Management

Before an organization can adopt a FinOps function, it must first establish a set of personas that the executive team will use to gain approval and participation. This will help the team members identify the goals and implement the necessary changes.

The executive team personas are designed to represent the various goals and concerns of the organization's executive team. They can also be used to communicate key messages and implement the necessary changes.

Table of personas

ROLES PERSONAS PRIMARY GOAL OBJECTIVES
Cloud Spend FinOps Practioner/
Cloud FinOps Analyst
Implement best practices through education and standardization. - Create cloud cost management practices;
- Provide transparency to cloud cost;
- Inform, build confidence and create cloud budget and forecasts;
- Align accountability to cloud users;
- Improve communication in company and clients;
- Build cloud cost management in single cloud or multi-cloud environment.
Executives CEO/CTO/CIO Provide assurance that cloud investments are aligned with business objectives.
Use exactly those technologies that provide market and competitive advantages.
- Manage risks;
- Organize investments;
- Define market-leading, cost-effective solutions;
- Connect engineering decisions with business profit.
- Help engineering organizations gain more control over their cloud technology and deliver faster solutions.
Engineers and Operations Engineering Lead,
DevOps,
Architects
Deliver high-quality and fast services to maintain business operations. - Improve efficiency and reduce risk of failure by identifying and implementing best practices;
- Work with the engineering team to identify and implement cost-effective practices;
- Guide the team;
- Increase visibility to cloud costs.
Finance and Procurement IT Finance manager
Financial Business Advisor
Budget, forecast and report cloud cost.
Negotiating the most profitable contracts with cloud vendors.
- Report actual costs and trends;
- Budget maintenance;
- Prepare forecast and identify allocated spends;
- Manage relationships with cloud platform providers;
- Provide visibility and enable understanding of cost per - technology license and contracts;
- Provide best cloud cost rates;
- Translate billing data to activity.

If you are having a hard time choosing the right technologies or roles for your project, then fill out the form below to get in touch with us. We will then arrange a free consultation to discuss the project's goals and ideas.

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FinOps Challenges and Solutions

1. Incurring unnecessary cloud costs

One of the most common factors that can trigger cloud waste is the over-provisioning of resources. The lack of visibility can cause this issue in the overall spending and the use of reserved instances. To avoid costly errors and minimize the impact of these activities, it is important that the cloud governance tools are equipped with the necessary tools to monitor and report on the status of cloud spending.

2. Establishing an ideal FinOps model

Getting to know which teams are most involved in the move to the cloud or the overall structure of the organization can be very challenging. Creating a cross-functional team that can effectively manage the various aspects of the cloud can help improve the efficiency of the financial operations of an organization.

3. Optimizing cloud costs for complete visibility

Many organizations fail to realize that cost optimization is a vital part of their operations when they are focused on increasing their market share and improving their user experiences. Unfortunately, most cloud bills contain random data that doesn't provide a clear picture of the various costs associated with the move to the cloud.

Getting the right cloud FinOps tools and resources to manage the various aspects of the public cloud can be very challenging for an organization. Since the cost of moving to the cloud is variable, it's important that the organization chooses the right tool to provide comprehensive visibility into the multiple aspects of the cloud. One of the most important factors that an organization should consider when it comes to cloud cost management is the ability to visualize the multiple costs associated with the move. A good foundation for FinOps can help organizations make informed decisions regarding the cloud. It can help them standardize the details of their vendor relationships and provide a clear picture of the various costs associated with the move to the cloud.

4. Empowering teams and driving accountability

It can be challenging to bring together the various teams that are involved in the development and implementation of FinOps, including the finance, operations, and cloud experts. To ensure that they have the necessary insight and recommendations, it is important that they are able to work together seamlessly.

To effectively implement and manage the various aspects of FinOps, including cost management, it is important that the teams can raise awareness about the importance of cost management. They should also build effective practices and implement cloud cost management solutions that can provide them with reports and dashboards that their own team can access.

In addition to having the necessary tools and resources to manage their various tasks, such as cost management, FinOps teams should also be able to access the latest data and analytics to make informed decisions.

5. Resource tagging

In order to ensure that the correct cost allocation is carried out, it is important that the teams are able to implement a comprehensive strategy to ensure that the resources are properly labeled. This can help them improve their accuracy and reduce manual efforts. One of the most common factors affecting the accuracy of cost management is the lack of data related to untagged resources. Having the necessary tools and resources can help them gather and manage the relevant data.

6. Cloud cost forecasting

Unfortunately, many FinOps teams cannot identify and prevent costly waste in the cloud due to the lack of accurate cost data. To improve the accuracy of their cost management, the teams should implement best practices and cloud optimization solutions that can help them analyze their data and make informed decisions. One of the most common factors affecting the accuracy of cost management is the lack of data related to untagged resources. Having the necessary data can help them make informed decisions and improve the efficiency of their operations.

7. Think more than IaaS

In addition to infrastructure as a service, cloud financial management also needs to consider other spend categories such as software as a service and on-prem costs. Through the use of FinOps practices, financial management can now get a deeper understanding of the multiple costs associated with the cloud ecosystem. With the help of intelligent cost tools, financial management can be further enhanced by planning and optimizing cloud investments. These tools can help determine the optimal amount of money that the organization should spend on infrastructure, software services, and platforms.

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What are FinOps best practices for managing cloud spending?

The goal of FinOps is to create a culture of accountability within an organization, and this can take time and patience. Before you start implementing a strategy, it's important that you identify opportunities, goals, priorities of the project and develop KPIs that will help everyone take ownership of their cloud spending. This will allow you to make informed decisions and improve the efficiency of your organization.

Although implementing a FinOps strategy can be easy, it is not always easy to achieve success. There are many factors that can affect a FinOps initiative's success, and implementing the right practices can help organizations overcome these challenges. Here they are:

  1. The success of FinOps depends on the team's commitment to the project and its cross-disciplinary approach. This is why it's important that all members are committed to the initiative. Besides being able to work together seamlessly, the team members also need to maintain a strong culture of commitment.
  2. One of the most important factors that you should consider when it comes to implementing a cloud cost management strategy is the availability of a single tool that can provide the team with the necessary information to make informed decisions. This tool can be used in a variety of cloud platforms
  3. Establish a comprehensive cost-allocation framework. This can be done through the use of various tools, such as cloud resource tagging.
  4. Consider the cost-per-transaction or cost-per-customer metric. For instance, if the cost of cloud services increases by 12% after the implementation of an important workload, but the increase in transactions and customers can be offset by the workload enhancements, then the overall cost of the solution might be lower.
  5. Don’t forget about continuous monitoring of the utilization of cloud services. This will allow you to identify areas where you can reduce waste.
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To sum up

The complexity of the cloud can be a serious cost management challenge for businesses. There are various pricing models and varying levels of resources that can be used for each service. In addition, the lack of control over the usage of resources can lead to a spiral out of control.

To effectively utilize and pay for cloud services, businesses need to establish a disciplined and collaborative approach. The FinOps framework is a set of practices designed to help organizations manage their cloud costs.

To summarize:

  • Everyone has a part to play and should become cost-aware.
  • The core principles of FinOps should be the foundation of all processes around cloud financial management.
  • Real-time reporting gauges your current spending and optimizations.
  • Data-driven processes are key to an organization becoming cost-efficient.
  • Business decisions can accelerate and match the rate of cloud resource decisions.
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