Cloud Financial Management (FinOps)

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Rising costs of cloud usage - what to do?

Based on Gartner, global spending on public cloud services will rise from €270 billion in 2020 to €397 billion by 2022.

On the one hand, this massive growth means jubilation among cloud providers, but on the other hand, companies are spending more and more money on cloud services year after year, which sometimes leads to frustration. This frustration is not caused by the additional expenditure per se, but by the lack of transparency of this additional expenditure and inadequate control.

Cloud usage challenges:

New models

New subscription models for the procurement of software and services are changing traditional software asset management (license management), away from compliance and towards cost-optimized use.

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New cloud solutions, SaaS, PaaS, IaaS and others are coming onto the market almost daily. Often, the purchase of these solutions is completely bypassed by the company's purchasing department, and a so-called shadow IT is established.

Increasing complexity

Increased use of cloud services also raises complexity to a high level. Costs are broken down to the smallest details and time periods – almost impossible for the end user to understand.

High cost

The cost of cloud services is rising steadily and almost uncontrollably.

Lack of transparency

There is a lack of transparency regarding purchased software services, as some departments purchase software directly without involving IT.

Lack of networking

Networking between business and IT is inadequate and coordination between departments is lacking.

What is FinOps?

According to the FinOps Foundation, FinOps is a methodology for operational cloud cost management. It aims to overcome silos in companies to get maximum value from cloud costs incurred. FinOps combines the expertise of finance, tech and business experts. FinOps is now widely established as the operating model for the cloud.

FinOps thus addresses not only the hard facts such as "what does a VM in the cloud costs me and what benefits does it bring", but also soft facts such as corporate culture or employee collaboration.

FinOps is literally made up of "finance" and "DevOps". It is a term of art that primarily serves to distinguish it from other, but very similar, topics. Other, far more common terms could be "Cloud Cost Management" or "Cloud Cost Optimization".

FinOps Consulting

Why FinOps?

To understand why the need and demand for FinOps has arisen in the first place, you have to understand the technical developments and innovations related to cloud usage.

As the chart shows, a lot has changed with the movement towards the cloud, probably changes for many business areas are more comprehensive than they have been for decades. Completely new processes, reporting and, above all, a new understanding of the responsible employees for the changing world must be created.

Whereas in the "old world" the person in charge in the finance departments and/or controlling departments is the "gatekeepers" for expenditures, this responsibility has shifted to the technical departments simply by ordering cloud services at the push of a button. Thus, it is necessary that the employees from the finance departments learn to understand technical contexts and the employees from the IT departments must now also think about costs.

Simon PletschacherManager IT Performance StrategyTIMETOACT

The three phases of FinOps

The stages of the process are run repetitively and a company's goal should be to improve slightly with each run.

The approach is referred to as "crawl, walk, run." This allows companies to start small and grow steadily, eventually reaching maximum maturity.

Understand Fully Loaded Costs
- Map spending data to the business
- Set tag strategy and compliance
- Create showback and chargeback reporting
- Define budgets and forecasts
- Dynamically calculate custom rates and amortization metrics
Enable Real Time Decision Making
- Provide timely and consistent spend/usage data to all stakeholders
- Identify anomalies
- Find & remove underutilized services
Benchmark Performance
- Trending & variance analysis
- Create scorecards, metrics and KPIs
- Benchmark internally and against "industry" peers

Optimize Usage
- Rightsizing
- Workload management
- Automation
Optimize Rates
- Balance use of various rate types
- Select discounts that match your flexibility
- Pre-purchase capacity
- Custom and volume discounts/sustained usage
- Utilize marketplace
- Licensing Optimization

Align Plans to the Business
- Mini-business Cases
- Tracking and trending
- Communication strategy
- Ongoing reviews with stakeholders on optimization opportunities
- Develop a framework for decision making that aligns with the business drivers

FinOps Capabilities

The FinOps Capabilities describe the activities that occur when passing through the three phases.

Transparency and understanding of the costs involved:

Understanding full costs is always the first step in FinOps adoption and, accordingly, takes place in the "Inform Phase." If an organization does not understand what it is spending, cloud cost optimization cannot occur. In this step, costs are categorized and assigned to the responsible teams. Another important point deals with the tagging of resources.

Real-time decision making and benchmarking:

Also performed in the "Inform" phase and includes activities to monitor usage, measure usage and be able to detect anomalies.

Consumption optimization and rate optimization:

Takes place primarily in the "Optimize" phase. The goal of these two aspects is to help buy only the services that are really used and at the best possible price.

Coordination with the business

Executed in the "Operate" phase. This is primarily the implementation of the options developed in the "Optimize" phase. It may even involve some organizational changes.

The FinOps Team

As mentioned earlier, FinOps is a practice that needs to be applied across the company. Different departments use different cloud services, which is why the FinOps team is also made up of stakeholders from different departments. Members could be: Financial Analysts, Developers, Application Managers, Cloud Architects, etc.

Essential for the implementation of FinOps practices is a central FinOps team that receives support from top management. The central role of the FinOps team should be emphasized; this is necessary in order to be able to compile an overview of all cloud costs incurred in a central location. Organizationally, there is no strict requirement as to where the FinOps team can sit. It makes most sense for the FinOps team to take up its role between Finance and Engineering.

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Simon Pletschacher

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