FinOps

When your cloud bills arrive at month end, you might be shocked at the extent of the budget overruns. And team leads have to answer questions about where it all went wrong.

But what if organizations can ensure cost visibility and accountability during expenditure, thereby preventing cost overruns before they occur? That’s the goal of FinOps.

FinOps has emerged as an effective roadmap to cloud cost optimization—and it’s seeing rapid adoption because of its ability to drive cross-functional collaboration and accountability in cloud cost management.

Ready to embrace FinOps? This guide is a deep dive into FinOps, its history, the FinOps principles and phases, and best practices for implementing FinOps to get sterling outcomes.

What is FinOps?

Financial Operations (FinOps), or Cloud Financial Operations, is an operational framework that introduces end-user financial accountability into cloud operations. FinOps lets distributed teams—including DevOps, finance, and business teams—individually and collectively take ownership for maximizing the business value of cloud spend.

Why you need FinOps in the cloud: A quick history of FinOps

FinOps evolved in response to the cost control problems of public cloud usage. As enterprises increasingly jettisoned the traditional CapEx-based IT setup for the cloud’s OpEx-based model, unmanaged cloud spend became a top C-suite concern.

Unlike traditional settings where dedicated procurement teams largely kept IT spend within tight budgets, the cloud offered a pay-as-you-go model that resulted in unforeseen spend. Engineers could easily spin up resources with a few clicks, causing unmonitored costs and wasted resources.

Early cloud adopters soon discovered that as seductively minute as CapEx was in the cloud, budget overruns were gradually eating up revenue. And getting Finance to reactively rein in costs was worsening matters: Unchecked spending continued and arbitrary cost cuts disrupted innovation.

This made it crystal clear that meaningful cloud cost-optimization efforts require interdisciplinary collaboration, which many organizations were sorely lacking.

Enter FinOps. Formally codified by the FinOps Foundation, FinOps establishes a blueprint for solving the “bill shock problem” through cross-functional cooperation. FinOps demonstrates how bridging cost governance gaps between engineering and finance teams allows tradeoffs to be jointly made between controlled spend, agility, and innovation.

The importance of FinOps

The primary significance of FinOps is its focus on helping businesses gain control of their cloud costs. And this cost control isn’t just about operational hygiene—e.g., optimizing resource usage or attributing costs—it’s a strategic enabler, helping businesses make calculated investments, adapt to fast changing markets, and boost revenue.

Let’s take a closer look at the benefits FinOps provides.

Cost-aware engineering

FinOps fosters a culture of cost-consciousness. This helps engineers design cost-efficient architectures from day 1. Consider this real-world scenario:

With a FinOps mindset in place, a university offering virtual courses can leverage reserved instances for always-on services such as student login portals and savings plans for variable services such as video content.

Tying engineering decisions to their cost implications this way drives cost-savings and improves business outcomes by:

• Keeping spend within budgets: Smart architecture decisions (like the example above) when implemented from the go prevent budget overruns.
• Improving profit margins: Engineers can see how autoscaling, rightsizing, and similar measures reduce production costs and increase returns.
• Driving competitive advantage: Savings freed through cost-efficient design gets reinvested in innovation that keeps businesses ahead of the competition.

Accountability and fine-grained transparency

FinOps fosters resource tagging and granular cost visibility which promote accountability and spend hygiene helping businesses:

• Understand resource ownership and attribute costs: “Who deployed what and why?” Knowing that costs can easily be traced, teams are more likely to deploy resources wisely.
• Support cost allocation: “How much will this product, team, or environment cost based on historical data?”
• Pinpoint cost drivers and align spend with business outcomes: “Which product, service, or team is costing more money?” “Is the cost variance justified or is it a result of overprovisioned/underutilized resources?”
• Price products correctly: Businesses (e.g. the university in the example above) can drill down into unit economics, such as cost per product and cost per enrolled student, to determine ideal product pricing.

Controlled spend

Continuous spend monitoring and improved collaboration between teams ensures businesses detect and resolve cost anomalies before spend gets out of control.

Say an engineer accidentally runs a script that triggers hundreds of unintended API calls, spiking resource usage and cost unexpectedly. FinOps tools can detect/alert on the anomaly in real time and automatically trigger preconfigured spend guardrails.

Improved ROI

By fostering a shift from reactive firefighting to spend tracking, FinOps cuts waste and boosts ROI. And with the right FinOps tools, businesses can actually measure cloud ROI in real time, e.g., by tying cloud spend to key profitability metrics like revenue per environment or microservice.

For example, your business can boost ROI by deploying cost dashboards that clearly show developers the opportunity cost of the resources they spin up or the opportunity savings racked up from automating optimization.

Precise forecasting

Monitoring data collected over a period of time can be valuable for predicting costs accurately. Teams can make informed decisions based on metrics and analytics, rather than guesswork and wild estimations. The gain? Less bill shock, more predictable bills, and higher returns.

To illustrate, say an e-commerce business overprovisioned resources ahead of a sale, eroding revenue. To solve this, FinOps recommends:

1. Converting historical data, such as traffic metrics, into cost-aware provisioning,
2. Monitoring cost vs. revenue in real time, such as tracking live cart abandonment rates, and
3. Dynamically autoscaling in response.

Security

Unchecked spend often results from idle, unmonitored, or abandoned resources which can all be hijacked by cybercriminals. Live spend tracking helps identify such resources so they can be decommissioned before they’re exploited.

The principles of FinOps

The FinOps Foundation outlines six essential principles to serve as reference points for organizations implementing FinOps:

• Team collaboration and ownership: These two principles emphasize the need to get multidisciplinary teams to work together in real time while holding each accountable for managing their spend.
• Variable pricing models: Addresses the need to favor adaptive budgets over long-term ones, to get the optimum benefits from the cloud’s dynamic pricing and service offerings.
• Business value-driven decisions: Unit cost (e.g., cost per product, not aggregate spend) is a better pointer of the business impact of cloud spend and fosters decisions such as product pricing.
• Data visibility and centralized FinOps: Rather than leave each team to figure out how to optimize spend, a centralized FinOps team unites all stakeholders to design cloud cost governance policies that are automatically implemented at scale. Then, with real-time visibility, engineers directly forecast (in their dashboards) how per-feature spend will impact product pricing and profits in the long term and make concerted efforts to design cost-effective products.

The FinOps phases

According to the FinOps Foundation, FinOps should be implemented iteratively across three phases. Working on the phases cyclically ensures that businesses can measure the outcomes of and continuously refine their cost management strategies with real-time insights.

Phase 1: Inform

Every FinOps process, from allocating cost to optimizing spend and forecasting trends starts with fine-grained visibility into cloud spend. Getting live visibility requires using dashboards that link cost directly to resource procurement, teams, and usage metrics.

Phase 2: Optimize

The optimization phase involves using insights from phase 1 to power flexible budgeting, cut waste and improve spend (e.g., by rightsizing, using savings plans, turning non-production resources on/off as needed, etc.).

Phase 3: Operate

At this phase, businesses continuously measure KPIs, establish cost governance, rate teams, and refine processes to improve ROI on cloud investments (e.g., using cost management dashboards that show improvement in cost optimization across teams and epochs or visualize how cloud savings are boosting profitability).

FinOps stakeholders and tools

When tool sprawl creates blind spots and misaligned accountability makes it impossible to get anyone to own up to the outcome of spend, the value of platform-level unification and stakeholder alignment becomes clear.

This is why the FinOps Foundation emphasizes using tools that integrate well and getting various stakeholders to work collaboratively. Let’s briefly examine the FinOps persona and tools.

FinOps stakeholders

Key FinOps stakeholders and their roles are:

• FinOps expert: Applies multidisciplinary skills to bridge the gap between engineering, finance, and business, facilitating collaboration.
• Finance: Reconciles cloud bills with budgets, forecasts and chargeback to prevent runaway costs.
• Procurement: Negotiates discounts, compares CSP rates, and ensures engineers use the most cost effective instance types.
• DevOps engineer: Designs and runs cost-efficient architectures without sacrificing performance.
• Security: Flags insecure cost optimization efforts, decommissions abandoned resources constituting security risk, and maximizes ROI on cloud security spend.
• Executive: Champions FinOps, consolidates collaboration, provides oversight.
• Product owner: Aligns spend with product requirements to drive business value.

FinOps tools

There are a host of vendors offering tools that aid FinOps in one way or another. Below, we explore some tool-types and their pros/cons to help you navigate the maze.

Cloud-native tools

There are cost reporting portals provided by cloud service providers. While they generally integrate seamlessly with single-cloud environments, they lack the advanced features and multi-cloud support that third-party tools offer.

Third-party solutions

These vendor-agnostic solutions offer cross-vendor compatibility to support multi-cloud environments.

• EaaS solutions: Some Environment-as-a-Service platforms double as cost management tools, facilitating agile software development, automating cost governance, and simultaneously providing engineers with visibility to take ownership of their own spend. However, they are mostly ideal for engineering-led cost optimization efforts.
• Cost management platforms: These tools provide deep cost visibility and automate anomaly detection. But because they aren’t part of the engineer’s toolkit, they do not offer engineers the instant visibility needed to design cost-aware architecture or take full ownership of costs.

Implementing FinOps: Any challenges ahead?

Implementing a FinOps culture isn’t without its challenges. Here’s what may come up and a few possible solutions:

1. Misaligned stakeholder priorities. Finance is worried about keeping spend within budget limits, Engineering prioritizing performance, and Business focused on revenue. In this milieu, getting teams to collaborate without slowing down the SDLC is a challenge.
   • Solution: Choose tools that offer self-service portals for engineers plus cost visualization dashboards for everyone.
2. The cloud’s variable pricing. This price fluctuation can make it difficult to predict, reconcile, or control costs, resulting in inefficient resource allocation and bill shock.
   • Solution: Invest in advisor tools that explain pricing models and cost-optimization strategies. Employ dynamic data-driven budgeting.
3. Overwhelming data volumes. Filtering through huge data volumes to get granular visibility can be a showstopper. For example, you can normalize cloud costs with usage metrics to tell unnecessary costs from traffic spike-driven cost overruns.
   • Solution: Use dashboards with imaging and easy-to-understand cost breakdowns.
4. Cloud spend often fluctuates in real time due to usage spikes and changing pricing models. Balancing budget control with these real-time changes can be cumbersome.
   • Solution: Use live cost monitoring dashboards to make data-driven budget adjustments.
5. Multiple environments create complexity. Tracking, allocating and optimizing costs in hybrid and multi-cloud environments is difficult because data is fragmented.
   • Solution: Employ tools that correlate cost data across hybrid and multi-cloud environments. Enforce consistent tagging to standardize cost data.

Best practices for implementing FinOps

There are a number of best practices for effective FinOps implementations. Two of these—automation and consistent tagging—are core foundations of FinOps. Without them, FinOps would be near impossible to implement.

1. Automate FinOps practices, especially repetitive tasks
   • Live cost monitoring and dashboards can instantly detect cost anomalies, optimize spend, enforce cost limits for resource provisioning, alert you when spend reaches preset thresholds, and visualize spend patterns for accurate forecasts.
   • Resource optimization can streamline spending. Quali discovered that half of non-production environments are run 24/7 despite being needed only during business hours, amounting to millions of dollars in annual cloud waste.
   • Eliminate this waste by codifying infrastructure, environments, and cost governance policies: IaC via platforms like Terraform, EaC and PaC via platforms, such as Quali Torque.
   • Codifying all of these will help automate on-demand provisioning, scaling, and deprovisioning of resources/environments, solving the problems of idle, abandoned, and underutilized resources.
2. Tag resources
   • Define tagging policies, automate tagging, and enforce consistent tags across all environments. This will ease cost tracking, ensure no resources go unaccounted for, enrich spend data with critical context, enhance cost governance, and foster accountability.
3. Shift FinOps left.
   • Integrate cost management from the design phase to shift engineers’ mindset from “growth regardless of cost” to cost-efficient design.
4. Use tools that balance agile software development with real-time cost control.
   • Invest in EaaS tools offering built-in cost management dashboards. These tools support  agility with self-service portals for engineers and while also controlling spend via:
     • Cost governance policies that keep resource provisioning in check.
     • Lifecycle management to automatically eliminate idle resources, prevent over-provisioning, etc.
     • Real-time monitoring and alerting for tracking cloud costs.
5. Always prioritize granular visibility.
   • Adopt unit economics to map costs to business value, make data-driven decisions, and ensure teams account for unallocated spend.
6. Continuously finetune FinOps processes.
   • Bear in mind that the end-goal of FinOps is to unlock increasingly smarter spend for greater value. This means you must keep improving cost data quality and granularity, cloud cost optimization strategies, and cross-team collaboration as your FinOps maturity grows.

Conclusion

The public cloud is replete with opportunities for massive cost savings and business growth. But navigating cloud complexities to maximize these benefits is tricky, forcing many organizations to continuously overspend with suboptimal returns to show for it. FinOps offers a blueprint to help businesses reduce cloud costs and maximize value.