How FinOps helps cloud users beat sky-high costs

To stay com­pet­i­tive in a dig­i­tal world, busi­ness­es invest huge sums in cloud ser­vices. How can they ensure they spend their mon­ey wise­ly? 

It’s a grow­ing ques­tion for busi­ness lead­ers, for obvi­ous rea­sons. Accord­ing to mar­ket intel­li­gence firm IDC, spend­ing on pub­lic cloud ser­vices in Europe alone will hit $148bn (about £122bn) in 2023, reach­ing a stag­ger­ing $258bn by 2026. As this spend­ing ris­es, so do con­cerns over its effec­tive­ness. 

To address such con­cerns, many busi­ness lead­ers are turn­ing to FinOps. This man­age­ment prac­tice encour­ages col­lab­o­ra­tion between finance, tech­nol­o­gy and busi­ness oper­a­tions to man­age an organisation’s cloud-com­put­ing infra­struc­ture and costs.

It could be the key to opti­mis­ing cloud expen­di­ture, accord­ing to IDC. If the firm’s num­bers are any­thing to go by, 2023 may be a piv­otal year for FinOps, as increas­ing macro­eco­nom­ic pres­sures and the push towards cost-effec­tive­ness dri­ve invest­ments in the cloud. 

As it stands, well over 60% of busi­ness­es glob­al­ly have already adopt­ed a FinOps approach. About 15% of these adopters are mature in their FinOps adop­tion. 

The FinOps roadmap

Flexera’s 2022 State of the Cloud Report found that organ­i­sa­tions on aver­age wast­ed more than 30% of their cloud spend. This waste could stem from under­utilised resources like low CPU usage, unused or for­got­ten resources like inac­tive projects or fail­ure to shut resources prop­er­ly, fail­ure to delete unnec­es­sary machines or over-pro­vi­sion­ing resources, among oth­er fac­tors. 

FinOps looks like a promis­ing solu­tion.

For a start, it pro­vides tools for users to mon­i­tor such fac­tors, an easy way to save mon­ey. “But FinOps is more than that,” says Edwin-Alexan­der Kuss, direc­tor of glob­al sales at Hys­tax, a provider of FinOps and mul­ti-cloud cost man­age­ment soft­ware.

Organ­i­sa­tions that get FinOps right look beyond cost-cut­ting, focus­ing instead on real­is­ing the full val­ue of cloud ser­vices. “This mind­set is what is cru­cial to an effec­tive FinOps strat­e­gy and crit­i­cal to its suc­cess,” says Archana Venka­tra­man, research direc­tor, CloudOps, at IDC Europe.

Take Gram­marly, an AI-pow­ered writ­ing assis­tant that sug­gests improve­ments for writ­ten com­mu­ni­ca­tion. The com­pa­ny expe­ri­enced rapid growth from 2021 to 2022, but also saw its cloud spend increas­ing at a sim­i­lar pace. It turned to FinOps. “The adop­tion of FinOps was not sole­ly about cost reduc­tion; it was also about real­is­ing the val­ue the cloud offers and mak­ing every­one more account­able,” says Scott Mey­er, staff engi­neer at Gram­marly.

To get com­pa­nies start­ed, indus­try body The FinOps Foun­da­tion has devised a roadmap that lays out three phas­es of adop­tion: inform, opti­mise and oper­ate. 

The first phase, inform, gives engi­neers greater vis­i­bil­i­ty over an organisation’s cloud oper­a­tions, pro­vid­ing them with a fuller pic­ture of where waste is occur­ring. In the opti­mise phase, teams use that infor­ma­tion to make informed deci­sions about cost opti­mi­sa­tion – they can see what’s essen­tial and what’s not and can pro­vide finance with fore­casts and bud­gets. 

For instance, engi­neers will be able to demon­strate reduc­tion in the month­ly spend achieved by mak­ing mod­i­fi­ca­tions to their code, retir­ing old ser­vices, or recom­mis­sion­ing oth­er ser­vices. These wins not only improve the company’s finan­cial per­for­mance, but also ele­vate the recog­ni­tion giv­en to engi­neers. 

Final­ly, firms are left with more effi­cient, cost-effec­tive cloud oper­a­tions, where waste can be quick­ly spot­ted and elim­i­nat­ed.

“Fol­low­ing this roadmap, we have made sig­nif­i­cant progress in our FinOps jour­ney since start­ing in 2022. We are now start­ing to have con­ver­sa­tions around the oppor­tu­ni­ty costs, which is a big step for us,” says Mey­er.

Building a FinOps strategy 

Adopt­ing the FinOps approach does not require a com­plete over­haul of the exist­ing IT set­up. Com­pa­nies can either set up their own FinOps team or col­lab­o­rate with a ven­dor. 

The first phase, which enables greater vis­i­bil­i­ty, is almost entire­ly inter­nal. It is only at the opti­mise and oper­ate stages where tools for observ­abil­i­ty, visu­al­i­sa­tion and AI and ML are need­ed to pro­vide insights into how cloud is being used. 

No mat­ter the approach, busi­ness­es must bear in mind that all large cloud ser­vice providers have mul­ti­ple tools for cost opti­mi­sa­tion, which may add com­plex­i­ty to the process. It’s prefer­able to have a strat­e­gy that uses a sin­gle, cus­tomised tool, pro­vid­ing observ­abil­i­ty across the entire cloud envi­ron­ment. “This is a long-term process that will take time to achieve,” cau­tions Venka­tra­man.

Gram­marly is between the opti­mise and oper­ate phase and has already start­ed to see the ben­e­fits from FinOps. The com­pa­ny has noticed an improve­ment in its unit eco­nom­ics with a decrease in cost-per-user and economies of scale. It has gained bet­ter con­trol over its bud­get and fore­cast, along with bet­ter plan­ning to deter­mine the best option for its needs.

This allowed Gram­marly to nego­ti­ate more effec­tive­ly with cloud ven­dors as it reviewed its enter­prise dis­count pro­gramme (EDP), which pro­vides dis­count­ed ser­vices based on vol­ume or con­sump­tion com­mit­ment. “The cloud costs are vari­able per hour, per sec­ond. If we can reduce that by a lit­tle and still demon­strate user growth, it will be reflect­ed in an improve­ment of gross mar­gins,” says Mey­er.

Two major challenges 

Adopt­ing FinOps can pose chal­lenges.

For exam­ple, to realise the full val­ue, it is imper­a­tive that opti­mi­sa­tion occurs at a large scale and is not focused on one busi­ness resource. This gives busi­ness­es the poten­tial to yield sav­ings of 30% to 40%.

The focus is cur­rent­ly lim­it­ed to opti­mis­ing the infra­struc­ture or com­mod­i­ty aspect of the cloud: stor­age and com­pute instances, for exam­ple. But Venka­tra­man notes that “com­mod­i­ty resources are just the start­ing point. It does play a big part but com­pa­nies should not stop there. In order to enjoy the full ben­e­fit of FinOps com­pa­nies would need to take a holis­tic view of this approach which should include Soft­ware as a ser­vice (SaaS).”

Mind­set is the oth­er big chal­lenge for FinOps adop­tion. His­tor­i­cal­ly, engi­neers haven’t been involved in deci­sion-mak­ing over costs, so face a cul­tur­al shift to under­stand the costs asso­ci­at­ed with their work, includ­ing the impact of changes on the cloud per user. 

How­ev­er, as engi­neers become more involved in cost opti­mi­sa­tion, they can make informed trade-off deci­sions them­selves. “To get the engi­neers to pri­ori­tise these new opti­mi­sa­tion efforts could take three to six months,” says Mey­er.

Busi­ness­es need prop­er col­lab­o­ra­tion and plan­ning to be suc­cess­ful in the cloud. It is a frag­ile asset and if it isn’t used prop­er­ly, the val­ue will not be realised. Imple­ment­ing FinOps allows com­pa­nies to adopt cloud solu­tions in a secure and trans­par­ent way, bring­ing about a cost-effec­tive cloud expe­ri­ence. 

“There is far more aware­ness of FinOps now, and it is eas­i­er to have con­ver­sa­tions with cus­tomers, which was dif­fi­cult a cou­ple of years back,” notes Kuss.  

Start small, but start somewhere

Kuss and Venka­tra­man believe the key to FinOps suc­cess is not the size of a com­pa­ny, indus­try or bud­gets spent on cloud ser­vices. Basic imple­men­ta­tion of FinOps prin­ci­ples like vis­i­bil­i­ty, con­trol, col­lab­o­ra­tion and cost opti­mi­sa­tion will help make the most of spend­ing and improve gov­er­nance. 

This dis­ci­plined and effi­cient use of resources also encour­ages inno­va­tions with­in com­pa­nies. IDC pre­dicts that by 2023, 40% of organ­i­sa­tions in Europe are expect­ed to estab­lish a ded­i­cat­ed FinOps prac­tice that enhances the trans­paren­cy and effi­cien­cy of their IT bud­gets. “This will free up 15% of their cloud spend, allow­ing them to rein­vest that back in the new­er capa­bil­i­ties in the cloud, thus fuelling inno­va­tion,” says Venka­tra­man.

Indus­try experts sug­gest start­ing small. To begin, busi­ness­es should form a ded­i­cat­ed FinOps team con­sist­ing of mem­bers from IT, finance and oth­er exec­u­tives. This will include estab­lish­ing a FinOps process that defines the respon­si­bil­i­ties of each team mem­ber. 

An effec­tive strat­e­gy will out­line clear goals to under­stand poten­tial cost sav­ings, both in the short and long term. At a lat­er stage, busi­ness­es might con­sid­er FinOps cer­ti­fi­ca­tions and upskilling whole cloud teams. 

Experts rec­om­mend that busi­ness­es start by util­is­ing the avail­able tools in the mar­ket, which can help iden­ti­fy cost-opti­mi­sa­tion oppor­tu­ni­ties and pro­vide trans­paren­cy. Engag­ing the engi­neer­ing teams also helps reduce fric­tion and ulti­mate­ly improves cost opti­mi­sa­tion.

Rather than wait­ing for the shock of a steep cloud bill, FinOps is a proac­tive approach to opti­mis­ing cloud spend­ing. It’s a way to address spik­ing cloud costs, but it also helps organ­i­sa­tions realise the full poten­tial of their cloud strat­e­gy, sav­ing time and mon­ey and max­imis­ing resource util­i­sa­tion.