Cloud computing provides transformational business agility but also introduces financial management complexity from pay-as-you-go pricing models. Organizations can end up overspending by over 30% on unused cloud resources according to Gartner. This is where FinOps comes in – bringing accountability to cloud spending through processes, best practices and tools.
In this extensive 2600+ word guide, we’ll cover everything you need to know about implementing FinOps including:
- What is FinOps and why is it essential today?
- How FinOps works: Inform-Optimize-Operate Framework
- Core capabilities FinOps provides
- Critical factors in managing cloud costs
- FinOps best practices for organizations
- Leading solutions to consider
Let’s get started.
What is FinOps and Why is it Crucial Today?
FinOps brings together IT and Finance teams to provide accountability for cloud spending. According to the FinOps Foundation:
FinOps is the operating model to bring financial accountability in the variable spend model of cloud, enabling distributed teams to make business trade-offs between speed, cost and quality.
In simpler terms, FinOps introduces financial governance for cloud usage and costs. Teams get visibility to make data-driven decisions on optimizing cloud spend.
This is becoming especially relevant as enterprise cloud adoption sees massive growth. Per Flexera‘s 2022 State of Cloud Report, 92% of organizations have a multi-cloud strategy with average cloud spend now at $2.38 million. However, TBM Council shares how enterprises often struggle with visibility into cloud costs and value.
FinOps emerged as a way to address this cloud financial management gap. Pioneered by AWS and Netflix based on lean management principles, FinOps brings accountability for every cloud decision ultimately driving efficiency and innovation.
With FinOps, organizations can effectively budget, plan and optimize cloud usage without surprises.
How FinOps Works: Inform-Optimize-Operate Cycle
FinOps involves a 3-step iterative framework to manage cloud costs:
Image Source: TMCNet.com
Let‘s explore each stage:
Inform
This initial phase focuses on gathering a unified view of cloud spend through metrics for:
- **Cost Visibility**: Granular breakdown by product, workload, team
- **Utilization Analytics**: Resource usage against operational benchmarks
- **BudgetForecasting**: Predictive modeling of planned spend
With real-time accurate data, teams can precisely track cloud expenses and make data-backed provisioning decisions.
Optimize
Leveraging usage insights from the Inform stage, teams can now rightsize cloud resources by:
- **Removing waste**: Terminate unused/idle resources not delivering value
- **Resizing capacity**: Scale up/down based on current need
- **Purchase optimizations**: Leverage reserved instance pricing and discounts
Continuous optimization is key for cost-efficient performance.
Operate
In this sustaining phase, teams continually monitor FinOps metrics to ensure cloud consumption aligns to business priorities over time. Any deviation triggers appropriate action – whether notifying stakeholders or adjusting resources via help from FinOps tools.
This closed feedback loop leads to accountable and balanced cloud usage.
Now that we’ve covered the methodology, let‘s discuss key capabilities provided by FinOps solutions.
Essential FinOps Capabilities
FinOps software and services deliver capabilities to gain control over cloud expenditure including:
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1. Granular Visibility into Costs
By consolidating billing data across cloud environments, FinOps solutions enable analysts to slice & dice spend by:
- Business unit, project, application
- Resource type (compute, storage, network)
- Pricing model (on-demand vs spot vs reservations)
This empowers accurate cost allocation and accountability across the organization.
2. Budgeting & Forecasting
By examining past spend patterns, FinOps analytics can forecast future capacity requirements and expected costs via statistical models. Teams can collaborate on budgets balancing business needs and financial guardrails.
3. Optimization Recommendations
Based on usage metrics and pricing analysis, FinOps dashboards highlight real-time optimization opportunities to rightsize cloud resources, including:
- Reserve underutilized instances for uptime SLAs
- Resize overprovisioned resources to meet current demand
- Identify and eliminate resources not driving value
This prevents paying for unused or idle cloud resources that unnecessarily inflate bills.
Critical Elements for Cloud Cost Management
Beyond FinOps software, organizations need to focus on these foundational areas:
Unified Cloud Visibility
As enterprises embrace multi-cloud, they can quickly lose track of resources and associated costs. Consolidated visibility through centralized reporting is key to governing cloud spend across heterogeneous environments.
Proactive Capacity Planning
By forecasting application workload demands and aligning cloud capacity ahead of time, organizations can reduce reliance on expensive on-demand provisioning.
Access Controls & Policy Enforcement
With distributed teams buying cloud services, it’s essential to implement guardrails on what can be deployed based on security guidelines and costs policies. This prevents unchecked cloud spend.
Optimized Cloud Procurement
Centralized procurement teams should consolidate vendor spending to maximize volume discounts while avoiding vendor lock-in. Company-wide cloud contracts allow better leverage in negotiations.
Now let‘s explore best practices to optimize cloud expenses.
FinOps Best Practices
Here are key organizational, technical and procurement best practices to manage cloud expenditure:
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Organizational Best Practices
- Empower central finance teams to govern cloud spend across business units
- Incentivize teams to reduce waste by making them accountable for their resource costs
- Train developers on optimizing architectures for cloud efficiency
Technical Best Practices
- Tag resources accurately to map services back to departments
- Continuously monitor usage analytics to rightsize overprovisioned assets
- Use auto-scaling to align capacity dynamically to demand
Procurement Best Practices
- Commit to 1-3 year reservations for steady-state base workloads to reduce costs
- Leverage elastic workloads and spot/preemptible instances to maximize savings
- Consolidate spending with 1-2 vendors using centralized contracts
Next let‘s explore leading FinOps solutions in the market.
Leading FinOps Solutions
Here is an overview of key vendors offering a range of FinOps capabilities:
One of the first dedicated FinOps solutions, Cloudability provides granular cost analytics, usage forecasting models and real-time optimization recommendations across multi-cloud. Their dashboards deliver transparency for managing expenses.
Part of Apptio, Cloudability offers sub-organizational cost visibility, right-sizing recommendations and what-if modeling for planning. Budget alerts ensure teams stay within guidelines guardrails.
CloudHealth delivers a unified view of hybrid/multi-cloud cost and utilization data combined with policy-based governance. Their SKU mappings provide granular visibility while automating optimizations.
Natively integrated with AWS billing data, Cost Explorer provides comprehensive visibility for planning via usage forecasts. Combined with RI recommendations and budget alerts, it‘s a powerful native tool.
A suite of capabilities for managing Azure spend including budgets, cost analysis and RI purchase recommendations. The Azure portal integration provides user-friendly visibility and control.
Let‘s compare how features stack up across solutions:
Cloud FinOps Solutions Comparison
| Platform | Granular Visibility | Forecasting | Optimization | Multi-Cloud |
|---|---|---|---|---|
| Cloudability | Full | Statistical Models | Recommendations | AWS, Azure, GCP |
| Apptio Cloudability | Full | What-if Scenarios | Automated | AWS, Azure, GCP |
| CloudHealth | Full | Machine Learning | Automated | AWS, Azure, GCP |
| AWS Cost Explorer | Full | Machine Learning | Recommendations | AWS-only |
| Azure Cost Management | Limited | Statistical Models | Recommendations | Azure-only |
While individual capabilities vary, top solutions enable building a FinOps-driven culture focused on cloud accountability.
Now let‘s dig deeper into some examples.
Real-World FinOps Success Stories
Leading cloud practitioners like AWS and Netflix have published extensive details of their FinOps journeys to optimize cloud costs:
AWS Shared How FinOps Saved them $2.3B
In a must-read re:Invent 2018 session, AWS outlines how they used FinOps to boost gross profit by $2.3B in 2018 alone. By right-sizing EC2 instances, consolidating accounts and eliminating unused resources, they reduced variable spend without compromising growth and agility.
Netflix Leverages FinOps for Informed Decisions
In their talk titled Adopting FinOps Brings AWS TCO down by 33%, Netflix explains how data-driven FinOps is key to match spending and capacity to usage. By establishing financial accountability across 150+ AWS accounts, they govern cloud costs while continuing rapid innovation.
8 Keys to FinOps Implementation Success
Drawing from client experiences and industry best practices, here are 8 essential milestones to execute FinOps effectively:
1. Build a FinOps Culture
Cultural transformation underpins successful adoption. Foster openness about cloud costs, train teams on optimizations, reward efficient usage, and align incentives between finance and engineering.
2. Standardize Architectures & Policies
Enforce policies on approved instance types, auto scaling parameters, and tagging standards. Also define multi-cloud architectures optimized for cost efficiency rather than just performance alone.
3. Instrument Cloud Billing & Usage Data
Implement tooling to export detailed line items from cloud billing into analytics platforms. Tag resources accurately for visibility into usage metrics across business dimensions.
4. Identify Quick Wins
The early phases should focus on some quick but high-impact optimizations like eliminating unused resources, consolidating cloud accounts, or reserving steady-state instances.
5. Forecast Future Demand
By applying historical usage analytics and statistical models, project capacity requirements and expected costs across the hybrid/multi-cloud environment.
6. Establish Cost Visibility Dashboards
Display granular visibility into cloud costs and utilization by department, application, and pricing model. Monitor dashboards to identify areas of waste, overprovisioning etc.
7. Automate optimizations
Configure policy-based automation to right-size resources, scale capacity based on utilization triggers, expire unattached resources etc without manual processes.
8. Share FinOps Metrics Visibility
Distribute self-service cloud cost analytics visibility to engineering leaders in the business units empowering them to govern their own spend.
Getting these steps right accelerates FinOps ROI. Now let‘s look at some typical benefits realized:
Key FinOps Benefits
Implementing FinOps practices – both cultural and technical – can result in dramatic cost optimization if executed effectively. Here are some representative numbers from client examples and research by Gartner:
-
30%+ cost reduction by eliminating unused cloud resources
-
20%+ savings through better utilization and right-sizing capacity
-
40% budget overruns prevented via improved planning
-
$13.5M value created over 3 years for a $5B tech giant
The magnitude does vary based on level of cloud spending maturity and optimization effort. However overall efficiency gains typically range from 20% to 40%+ freeing up budget for innovation!
Key Takeaways
Here are the top lessons for making FinOps a success:
Establish Visibility
Consolidate billing data across cloud environments for accurate views into usage and costs. Granular breakdowns by workload and pricing models accelerate insights.
Implement Policy Driven Governance
Standards on architectures, regions, and instance sizing guide efficient provisioning. Automation enforces controls continuously.
Incentivize Accountability
Align shared goals between finance and engineering facilitated by transparency from FinOps metrics. Reward outcomes not output alone.
Enable Data Driven Decisions
Combining accurate historical usage data and meaningful forecasts empowers teams to make precise trade-offs on cloud capacity.
Practice Continuous Improvement
Optimization is not a one-time initiative but rather an ongoing culture focused on eliminating waste.
Choose FinOps Software Thoughtfully
Requirements around breadth of cost visibility, forecasting methods, automation capabilities and ease of rollout guides tool selection.
Get Your Cloud FinOps Journey Started
As cloud usage continues accelerated growth in enterprises, getting a handle on variable spend is crucial for innovation and profitability. FinOps introduces financial accountability into cloud decisions enabling balanced and compliant usage that maximizes business impact.
To learn more or get started with FinOps, connect with our experts who can guide your cloud optimization journey with proven methodologies and tooling.