The purpose of this article is to guide you through the world of FinOps, where cloud operations and financial goals align seamlessly. We will explore how FinOps combines innovation and financial acumen to optimize cloud costs, increase efficiency, and improve control. By the end of this journey, you will have a new understanding of the digital trajectory you are on.
What is FinOps?
The concept of FinOps goes beyond being just a methodology; it is a guiding philosophy that brings together the financial and operational aspects of cloud management. It serves as the bridge between the traditionally separate domains of finance and technology. Given the importance of optimizing cloud spend, FinOps provides organizations with a foundation to not only optimize cloud costs but also do so in line with DevOps principles.
FinOps is built on a set of principles aimed at promoting collaboration and efficiency. These principles form the foundation of the FinOps framework, which serves as a blueprint for businesses operating in the complex landscape of cloud and DevOps integration.
Introduction to the FinOps Framework
The FinOps Framework is a systematic approach that fosters collaboration between cloud and DevOps teams, breaking down silos and promoting shared responsibility. It consists of three pillars – Inform, Optimize, and Operate – which organizations can use to streamline their cloud management processes and enhance the efficiency of their digital operations.
It also includes a maturity model that enables organizations to assess their progress in adopting FinOps practices. This model guides them from ad-hoc cost management activities to sophisticated, automated cloud cost optimization strategies, serving as a roadmap for continuous improvement.
The 6 FinOps Principles
The 6 guiding principles of FinOps serve as a beacon to help navigate the complex world of cloud cost optimization. Developed by the FinOps Foundation and refined through practical experience, these principles were introduced in 2019 and have since evolved to accommodate changes in cloud services.
1. Collaborative synergy
At the heart of the FinOps ethos are teams. Finance, technology, product, and business units come together in near real-time collaboration, recognizing that the cloud operates on a per-resource, per-second basis. The emphasis is on continuous improvement, fostering a culture where teams collectively strive for efficiency and innovation.
2. Business-driven decision-making
In FinOps, decisions are not solely about cost; they are driven by the business value of the cloud. Unit economic and value-based metrics take precedence, providing a nuanced understanding of the business impact. Teams consciously make trade-off decisions, balancing cost, quality, and speed, with the cloud seen as a catalyst for innovation.
3. Ownership empowerment
The philosophy of FinOps encourages ownership at every level. Accountability for usage and cost is decentralized, with engineers empowered to manage costs from architecture design to ongoing operations. Feature and product teams take the reins, making informed decisions around cost-effective architecture and optimization, considering cost as a pivotal efficiency metric from the inception of the software development lifecycle.
4. Accessible and timely data
Transparency is essential in FinOps. Cost data is not just a historical artifact but a real-time asset. The practice encourages the rapid sharing of cost data, driving autonomous decision-making and efficient cloud utilization. Real-time financial forecasting and planning, coupled with trending and variance analysis, provide consistent visibility across all organizational levels.
5. Centralized leadership
While ownership is distributed, a central FinOps team plays a major role in evangelizing best practices. Operating on a shared accountability model, they ensure executive buy-in and oversees rate, commitment, and discount optimization. By centralizing certain aspects, it streamlines operations, freeing up engineering teams to focus on optimizing their own environments.
6. Embracing the variable cost model
The cloud's variable cost model should be seen as an opportunity for delivering more value, not as a risk. FinOps encourages just-in-time prediction, planning, and purchasing of capacity. Agile iterative planning takes precedence over static long-term plans, fostering proactive system design with continuous adjustments in cloud optimization.
The FinOps Domains act like a choreographed dance, each representing a crucial sphere of knowledge and activity for organizations on their cloud cost optimization journey. Let's explore how each Domain shapes the practice and contributes to the art of achieving cloud cost excellence.
Domain 1: Understanding cloud usage and cost
In this foundational Domain, organizations embark on a quest to gather, standardize, and share all relevant information about their cloud usage and cost. The goal is to achieve transparency, ensuring that this data becomes a valuable asset that freely circulates across other Domains.
Domain 2: Performance tracking and benchmarking
Here, organizations lay the groundwork for financial prowess by mapping usage and cost to budgets, using historical insights to forecast, and establishing KPIs and performance indicators. Benchmarking guides organizations toward optimal cloud financial management.
Domain 3: Real-time decision-making
This Domain focuses on empowering stakeholders by providing data in specific contexts relevant to them. The goal is to improve decision velocity and align organizational processes with the realities of the cloud. It's a dynamic space where real-time insights drive iterative improvements.
Domain 4: Cloud rate optimization
Within this strategic Domain, organizations set pricing model goals and leverage historical data to optimize pricing through commitment-based discounts. Here, organizations take control, managing the intricate pricing details of cloud services to maximize cost efficiency.
Domain 5: Cloud usage optimization
In this Domain, organizations align their running cloud resources with the actual demand of workloads. It involves predictive rightsizing, managing workloads for optimal scaling, and implementing strategies to conserve resources. This Domain focuses on the fine details of optimizing cloud usage for efficiency.
Domain 6: Organizational alignment
The final Domain focuses on orchestration. Organizations act and automate to manage cloud usage within the broader context of IT finance and operations. FinOps Capabilities seamlessly integrate with existing organizational processes, units, and technology, creating a harmonious alignment.
The FinOps Capabilities are the tools needed to effectively execute the corresponding FinOps Domains. Let's explore these capabilities, briefly explaining each one:
- Cost allocation: break down cloud costs to assign them accurately to specific teams or projects for accountability.
- Data analysis and showback: analyze data and effectively communicate it to stakeholders, promoting transparency.
- Managing anomalies: identify and address irregularities in cloud usage and cost.
- Managing shared cost: distribute and manage costs shared among multiple teams or projects.
- Forecasting: utilize historical data to predict future costs and trends.
- Budget management: set, monitor, and manage budgets in alignment with organizational goals.
- Workload management and automation: optimize and automate workload management for increased efficiency.
- Managing commitment-based discounts: leverage commitment-based discounts to optimize costs strategically.
- Resource utilization and efficiency: ensure optimal usage of cloud resources to maximize efficiency.
- Measuring unit costs: quantify costs at a detailed level to understand and optimize unit costs.
- Data ingestion and normalization: gather and standardize diverse data sources for accurate analysis.
- Chargeback and finance integration: implement chargeback mechanisms and integrate with financial processes.
- Onboarding workloads: smoothly integrate new workloads into the FinOps practice.
- Establishing a FinOps culture: promote a culture that embraces FinOps services, principles, and practices.
- FinOps and intersecting frameworks: align FinOps with other frameworks to create synergies.
- Cloud policy and governance: define and enforce policies to govern cloud usage across the entire organization.
- FinOps education and enablement: educate and empower teams to understand and practice FinOps.
- Establishing a FinOps decision and accountability structure: set up a structure for well-informed decision-making and accountability in FinOps.
FinOps Maturity Model
FinOps, by its nature, is iterative, with maturity evolving through repetition. Adopting a “Crawl, Walk, Run” approach allows organizations to start small, assess outcomes, and scale as the business value dictates.
Assessing a Capability's or Domain's maturity involves gauging whether it's in the “Crawl”, “Walk”, or “Run” stage. However, the goal is not a universal “Run” maturity for every Capability. Instead, the focus is on business value, aligning actions with the FinOps Principles.
A “Walk” stage in a Capability, meeting success metrics, does not necessarily require immediate progression to “Run”. FinOps practitioners should prioritize maturing Capabilities based on high business value, not a one-size-fits-all approach.
Each Capability can evolve independently, and a FinOps Framework Assessment aids in effectively communicating an organization's operational stage.
Embracing the FinOps Framework requires collaboration with the FinOps Personas in your organization. All stakeholders in FinOps benefit from understanding the Framework's operating model. Working within this framework involves building alliances, establishing a shared language, crafting enablement strategies, and fostering effective communication. FinOps is more than a tech solution or a checklist – it's a holistic practice that thrives on collaboration and understanding.
The Personas in question include:
- FinOps practitioners
- Business owners
- Product owners
- Engineering and Operations teams
- Finance teams
- Procurement teams
- ITAM leaders / practitioners
- Sustainability practitioners
FinOps unfolds in three iterative phases – Inform, Optimize, and Operate. At any given time, a company may find different units or teams situated in various phases.
The first phase, Inform, focuses on organizations gaining visibility, allocation accuracy, benchmarking insights, and budgetary control. Given the dynamic nature of the cloud, precise and timely visibility is crucial for making informed decisions. Allocation, chargeback, showback, and benchmarking form the foundation, guiding teams toward high-performance metrics.
In the Optimize phase, organizations shift their focus to optimizing their cloud footprint. They leverage the offerings of cloud providers and navigate levers such as on-demand capacity, reservations, and discounts. Key strategies to optimize cloud costs and resource usage efficiently include advanced reservation planning, commitment incentives, rightsizing, and automation.
Lastly, during the Operate phase, organizations continually evaluate business objectives, tracking metrics related to speed, quality, and cost. Success hinges on cultivating a FinOps culture, led by business, financial, and operational stakeholders. This culture defines governance policies, ensuring sustained alignment with business goals.
How to optimize your cloud cost with FinOps?
Optimizing your cloud costs is imperative, extending beyond just financial considerations and aligning with the principles of FinOps. To ensure your cloud-related expenditures are as efficient as possible, let's explore some actionable strategies.
1. Remove idle resources
Idle resources are silent culprits that drain your budget, and are among the top hidden costs in software development. FinOps encourages a vigilant approach, promptly identifying and eliminating any such resources. Whether it's instances running without purpose or dormant storage volumes, a meticulous resource cleanup is the first step towards cost optimization.
2. Rightsize your cloud resources
Rightsizing involves finding the perfect fit for your cloud resources, and FinOps fully embraces this strategy. Evaluate your instances, databases, and storage to ensure they align with actual workload demands. Avoid over-provisioning and under-provisioning, as both compromise on either cost or performance. Rightsizing strikes the balance, allowing you to pay for what you actually need.
3. Make the most of committed use discounts
Cloud providers offer committed use discounts as a lever for cost optimization. FinOps practitioners delve into these offerings, understanding the complexities of reserved instances or committed use discounts. By investing in specific usage volumes over a term, you unlock significant cost savings. FinOps guides you in strategically navigating these commitments.
4. Move to managed services
While the cloud offers a wide range of services (XaaS), managing them can be resource-intensive. FinOps advocates for a shift towards managed services. By offloading operational overhead to cloud management providers, you not only enhance efficiency but also tap into their expertise, allowing your teams to focus on innovation rather than infrastructure management.
5. Align cost and performance insights
In the context of FinOps, cost optimization doesn't mean compromising on performance. It's about making the two work together seamlessly. Leverage tools and practices that provide a holistic view of both spend and performance metrics. Understand the cost implications of performance decisions, ensuring that optimizations contribute to both financial prudence and operational excellence.
The best FinOps tools for AWS to consider in 2023
To wrap up our discussion on FinOps cloud cost optimization, we have compiled a list of tools specifically designed to support your AWS cost optimization tactics.
CloudZero's platform offers detailed visibility into cloud costs, without the usual challenges. It categorizes costs into metrics such as unit cost and provides visibility into COGS, even in cloud-native architectures. With its automated and intuitive nature, it promotes a culture of cost consciousness.
AWS Cost Explorer
AWS provides a range of solutions for cost management and optimization. It offers services and tools for organizing, tracking, enhancing control, enabling planning, and reducing costs through optimization and resource management.
CloudabilityMX empowers FinOps practitioners across major cloud providers. It ensures financial accountability in cloud spending through automated chargeback, AI-backed anomaly detection, dashboards, budgets, forecasts, and optimization recommendations – all within a single, multi-cloud interface.
Flexera One revolutionizes IT by providing complete visibility, right-sizing, spend reallocation, risk reduction, and a strategic path to the cloud. This SaaS-based solution complements ITSM and ITFM, offering game-changing IT decisions through a unified interface.
MyXalytics by HCLTech
HCLTech's FinOps framework focuses on cloud cost visibility, optimization, scheduling, tag management, governance, and security. It ensures real-time visibility, offers high-touch concierge service, and promotes FinOps best practices and compliance.
PyraCloud by SoftwareONE
PyraCloud aligns cloud spend with business objectives, providing tools and dashboards for continuous cost optimization. As a proprietary digital platform, it offers data-driven, actionable intelligence to manage and optimize cloud financials.
VMware Tanzu CloudHealth
Trusted by over 20,000 organizations, Tanzu CloudHealth aggregates data across multiple clouds, providing a single source of accurate information. It promotes collaboration, enforces accountability through chargeback, offers tailored recommendations, and automates cost control measures for ongoing alignment and optimization of cloud investments.
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