Posted on 10 February 2020, updated on 6 August 2021.
With the maturity of cloud services on the rise, with global spending on public cloud services expected to exceed $500 billion by 2023, optimizing Cloud costs is becoming an increasingly important issue.
This has resulted in the emergence of new practices, grouped under the term FinOps, at the intersection of finance, analytics, and operations.
What is FinOps?
The purpose of the FinOps culture is, first of all, to enable an organization to understand its cloud costs. This understanding will enable it to work on both optimizing and reducing these costs, as well as to help decisions that involve a trade-off between operations and finance.
In practice, it means establishing performance indicators on costs related to the cloud: by service, business unit, environment, etc., as well as a diagnosis of the company's consumption based on these indicators.
This diagnosis will serve as a starting point for the implementation of technical solutions that take into account the organization's functional and business imperatives.
Within a company, the implementation of a FinOps culture is an iterative and continuous process, and its success depends more on an understanding of the operational needs and tools of the cloud than on the strict application of predefined measures.
Implementing FinOps practices
The FinOps culture is based on an iteration in three areas: information, optimization, and operation.
Information: understanding and analyzing your costs
The information phase has five objectives: visibility, allocation, benchmarking, budgeting and forecasting.
The use of the cloud induces notions of flexibility, of payment on demand which complicates the use of "classic" financial tools: the FinOps culture tries to remedy this.
The control of resources and precise monitoring via a system of tags or division by services allows to have the closest view of operations and to give the highest level of visibility to the business and financial stakeholders.
Benchmarking between the different teams and departments enables the implementation of indicators and increases the performance of the entire organization. This allows you to include FinOps practices in the business logic of your organization.
Optimization: making informed decisions and managing your needs as closely as possible
Once the organization has enough information, it can set targets for reducing its cloud costs.
FinOps practices provide a better understanding of the use of the organization's cloud resources. It helps companies reducing costs by using reserved resources, rather than using more expensive on-demand resources.
Diagnosing consumption practices and benchmarking also helps identify areas where the impact of resizing the infrastructure may be greatest.
The operation: aligning finance, operations, and governance
The FinOps culture is based on cross-functional communication within an organization, supported by accurate factual information.
The launch of quantified optimization measures enables continuous evaluation of the established objectives, based on the indicators reported during the information phase.
This evaluation makes it possible to initiate discussions with financial, operational and governance players to integrate these issues into the structure of the organization, for example by creating a cross-functional organism dedicated to these issues (Cloud Cost Center of Excellence - CCoE).
The FinOps culture is then placed at the convergence of all these actors and allows them to align their objectives.
How to reduce costs linked to the cloud?
By mastering your tools:
Cloud tools have complex pricing structures, centered around the two variables of performance and resource availability time. To be able to reduce costs, you need to know these cost structures and cross-reference them with operational requirements (IaaS, PaaS).
The implementation of FinOps practices implies expertise on all the cloud services corresponding to the operational needs.
By implementing cloud governance:
Good practices decided at the enterprise level allow a first step in the FinOps culture without increasing risks. First of all, the rationalization of the use of resources (storage space, delay, and volume of backups, ...) allows obtaining first results.
Weighting the price differences between cloud providers with the operational needs and risks raised by the optimization of code for a particular cloud provider (cloud vendor lock-in) can also represent an optimization factor that can be implemented at the organizational level.
By setting up performance indicators
Information is at the center of FinOps culture. We're going to try to understand exactly who spends how much and on what service.
This information can be accessed through the systematic use of "tags" of resources used, and the monitoring of resource use by service, project, business unit, etc.
By dimensioning your infrastructures as close as possible to your needs
Unnecessary spending (cloud waste) is projected to reach $14 billion in 2019. These expenses can be greatly reduced in two ways, which are the core of the FinOps operational measures:
- First, ensure that the size of resources matches operational needs. A resource that is oversized costs twice as much.
- Second, by ensuring that all funded resources are effectively utilized. For example, resources that will only be used in production, but also provisioned on development and staging environments.
By assessing your needs in advance
Having visibility into your needs allows the use of dedicated resources, which can cost significantly less (up to four times less - in theory - for some cloud providers) than resources deployed on demand.
This part can be assisted by cloud cost management software, which can be offered by the cloud provider or by third party companies.
By developing applications intended for the cloud
The development of serverless applications requires special skills but has a significant impact on the final cost of the application.
Keeping in mind the stakes of the cloud during development also makes it possible to integrate resource allocation management functions (horizontal scaling).
+ A little greener
To add to the list of benefits of the FinOps culture, it is important to note that cost reduction also corresponds to a reduction in the energy consumption associated with the cloud (more than 2% of global consumption) and therefore to a reduction in your organization's carbon footprint.
FinOps practices are therefore also a point of convergence with a CSR policy! 🌿
To sum up, FinOps is a culture at the intersection of finance, operations, and governance, which relies on information and expertise of cloud tools to optimize operations costs.
The FinOps culture leads to lower cloud costs, more efficient use of cloud services, and smoother, more factual communication between operational and financial stakeholders.