The Top 3 Reasons for Embracing FinOps

FinOps and the Importance of Cloud Cost Optimisation

Cloud deployment is pervasive – the growth in cloud adoption has soared over the last decade and is set to continue according to Gartner.

More recently, the impact of the pandemic has contributed to this growth (and will continue to) – the Gartner press release (November 2020) stated that ‘The pandemic validated cloud’s value proposition’ where businesses needed to continue operations, protect their colleagues and optimise their costs.

So where does FinOps come into all of this?  FinOps is short for ‘Cloud Financial Management’ which according to the FinOps Foundation means ‘… the practice of bringing financial accountability to the variable spend model of cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.’

The practice of FinOps is maturing as large enterprises with substantial cloud consumption need processes and procedures across the business to manage, monitor, allocate and forecast cloud spend. This post will go into more detail as to what that means and why it’s important to consider this discipline within your business.

1. Cloud Cost Optimisation

One of the most important reasons for embracing cloud financial management is cloud cost optimisation.  What do we mean by this?  In this cloudy world, deploying cloud resources is at our fingertips and consequently, cloud costs can spiral out of control if no management is in place.  Cloud cost optimisation is an ongoing practice whereby costs are continually examined and managed up or down.

In reality, some engineers, platform architects and DevOps may not necessarily have ‘cost’ as a priority when it comes to provisioning cloud resources (understandably).  They may be reacting to an urgent requirement due to a business change or a ‘go-to market’ project with a short timeline.  As a result, an organisation may have a plethora of underused, over-specified and expensive cloud resources that could go unnoticed until the bill arrives!

A cross-functional team including finance and technical roles will have the tools, skills and authority to examine their ongoing cloud costs and question any underused resources.  As a result, unnecessary ongoing costs could be reduced or removed completely.

On a proactive basis, by introducing FinOps practices, organisations will have the insights into resources available or reserved at a more competitive price ready for immediate deployment. This will promote appropriate procurement of cloud resources and avoid unnecessary spend in the first place.

FinOps Foundation State of FinOps Report 2021 Found:

43.5%

Of organisations surveyed* rate themselves as getting the FinOps ‘basics in place.’

15%

Of organisations surveyed* rate themselves as having a ‘mature & evolving’ FinOps practice.

75%

FinOps team sizes grew 75% in the last 12 months & expect a 50% growth in the next year*.

2. Cost Allocation

Of key concern to medium and large businesses with cloud deployments is how to cross charge and/or allocate cloud costs to the appropriate business unit or division.  The ease of cloud deployment and lack of control over procurement can make this exercise extremely tricky.

The ability to ‘tag’ resources across AWS, Azure and Google does offer some clarity however the only way this is completely effective is if a company-wide tagging policy is in place and adhered to.

Implementing a tagging policy will require input from various stakeholders within your business to fully satisfy this requirement and when properly administered, will allow for accurate cost allocation or cost-sharing.

The creation of a FinOps team including finance and technical roles should be able to manage this policy creation, distribution and management as part of their business practice.

3. Accurate Forecasting

Having the ability to accurately forecast cloud consumption where there is no control over procurement and deployment, is close to impossible.  Lack of data and insight into current spend, ongoing deployment activity and future requirements only exacerbates the problem. How can you forecast cloud consumption if you have no idea what your current consumption is?

To a certain degree, tools will be able to provide insights into ongoing consumption cost, understand trends, peaks and troughs in activity (such as seasonal holidays for retailers; Easter, Valentine’s Day, Christmas etc) and therefore allow for the availability of reserved resources ready for urgent deployment.

However, accurate forecasting depends on an effective data collection tool in conjunction with the right personnel to interpret the output and react accordingly. A cross-functional FinOps team will be able to decipher what the data is telling them and therefore what controls need to be put into place to monitor proactively.  Automation is the key here with alerts for budget warning or overspend a necessity.

Understanding your business’s peaks and troughs in activity will allow you to reserve resources at competitive rates that can be deployed to accommodate the anticipated increase in activity and then turned off once no longer required.

Experts in License and Cloud Consumption Optimisation

As we begin to envisage our new normal ‘post-pandemic’ business world, we see that embracing the cloud, maintaining safe working models for our colleagues and managing costs will remain high on the agenda of any organisation’s Board.  A FinOps practice within your business will contribute towards your overall cost optimisation strategies, allowing your business to fully benefit from the technical and financial benefits of cloud deployments. Ignoring this discipline only serves to potentially nullify any cost-benefit expected from moving to the cloud.

Regardless of whether your business has a FinOps practice that requires validation or refinement, or you are struggling to get started with this discipline, the Version 1 SAM team can help.  Our experts specialise in the ongoing optimisation of enterprise licensing and cloud consumption, and can help you optimise your cloud consumption costs on an ongoing basis. Go to our website page for more information or contact us if you have a question.

*Fact Source FinOps Foundation State of FinOps Report 2021

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