FinOps 101: Why enterprises should embrace FinOps

“We must cut our IT budget,” said the CEO.

But as a CIO, only you know how difficult it is to lower the costs while still meeting expectations! You must ensure that all IT services are available round-the-clock without disruption. While at the same time, you need to see that innovation is at the forefront of your organization and that you are not lagging. This is especially tricky when most organizations have had to move their workloads from on-premise to the cloud after the pandemic accelerated digital transformation.

Some enterprises adopted cloud in a planned, optimal manner, but others had to follow the classic lift & shift approach with the budget being a secondary consideration.

While the cloud offers several benefits such as agility, scalability, and flexibility, it collides with the business-as-usual operating model. It pushes IT, finance, and business teams to control and optimize cloud costs. Organizations find it difficult to track cost drivers and measure and mitigate the rising costs of cloud computing. Furthermore, hyper-scalers' multiple billing and pricing structures add to the complexity of managing cloud costs.

"The dirty little secret of cloud spend is that the bill never really goes down,"  says J.R. Storment, Executive Director of the FinOps Foundation.

You need to stop overpaying for cloud services and focus on innovation & digitization initiatives. We have listed below a few questions to help you evaluate the current state and take the requisite steps to optimize cloud costs:

1. What is the scale of your company’s cloud spend with respect to total revenue?
2. Where do you stand in the cloud adoption journey – recently migrated, in the migration process, or not yet started?
3. How much are you spending on cloud currently (monthly, weekly, daily, etc.)?
4. How much cloud spend do you forecast for the next quarter/fiscal year?
5. How close is the estimated cost vs. actual spend?
6. How does cloud spend distribution look for different entities (if multi-cloud)? (Your business units, departments, teams, products/projects, etc.)
7. Which factors (such as storage, compute, database(s), containers, IaaS/PaaS, etc.) drive your cloud spend the most?
8. How do you know if you are faring well in the cloud or properly optimizing cloud cost?

Once you have answers to these questions, the next step would be to get started with FinOps.

So, what is FinOps?

According to FinOps.org, "FinOps is an evolving cloud financial management discipline and cultural practice that enables organizations to get maximum business value by helping engineering, finance, technology and business teams to collaborate on data-driven spending decisions."

It is a way for teams to manage the variable spend model of the cloud and enable them to make trade-offs between speed, cost, and quality in their cloud architecture and investment decisions.

Why do enterprises need FinOps?

Over the last 6-7 years, most organizations heavily relied on on-premises data centers funded primarily through Capital Expenditure (CapEx). This model resulted in limited optimization options, long cycle times, and siloed or hierarchical purchasing power. Spending, tracking, and forecasting – everything was fixed and controlled, with no or limited flexibility.

Now, we are living in the era of the cloud. Businesses across all industry verticals, including banking and financial services, healthcare, automotive, insurance, and several others, are migrating to the cloud thanks to the benefits it offers, including reduced costs, variable spending, increased flexibility, and on-demand scalability (to name a few). There is an evident increase in investment in Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), cloud storage, computing, as well as other cloud-based services like security, process monitoring, data processing, etc. However, without proper tracking, monitoring, and governance in place, the result is often an unexpected cost, resulting in several innovative IT projects being delayed or stopped.

According to an article by Apptio on the effects of poor cloud cost management,  80% of businesses claimed that poor cloud financial management had hurt their business. 57% also said that cloud cost management was a daily worry.

As a CIO, you would not want to overspend or make a wrong decision because of any incorrect understanding of costs.

You would instead want to gain control of your cloud spend, just like one of our leading clients from the home automation industry. As they started a transformation journey to offer next-gen services through a cloud-first strategy, they wanted to ensure that their cloud bills do not put a hole in their pockets as workload increases in the cloud. Hence, they:

1. Implemented a tagging strategy to allocate cloud costs fully,
2. deployed reporting tool for accountability across teams and business initiatives
3. set up collaborative meetings to discuss these reports at regular intervals.

Now, let us explore how? How can you adopt FinOps and meet your objectives, accelerate company growth, gain strategic competitive advantage, drive faster time-to-market, and deliver innovative, market-leading solutions cost-effectively while reducing the cloud bill?

FinOps – A new operating model for the cloud

If your company relies on the cloud, you need FinOps to manage your cloud spending better. And to adopt it, one of the most critical steps is to develop a culture of cross-team collaboration between IT, finance, engineering, and business stakeholders. This collaborative approach helps enterprises operate at high velocity while improving the unit economics of the cloud, making trade-offs between speed, cost, and quality.

With a more fluid and agile approach to managing and forecasting spending, these teams must have the relationships, processes, and structures to work together and make informed decisions. This drives continuous optimization and supports innovation at the same time.

Whether it be purchasing more cloud resources at discounted rates, avoiding unnecessary costs, reducing/removing waste, or better foresight on instances that are due to expire, it is only through collaboration that organizations can ensure they are getting the most from their cloud investments.

What are the key steps involved in kick-starting your FinOps journey

Key steps for enterprises to start FinOps journey:

1. Plan: You must start by identifying the person or a team who will drive FinOps adoption and identifies key stakeholders and pain points. Accordingly, resourcing, initial KPIs, research tools, and a plan of action are drawn to optimize cloud usage and costs. Some examples of initial KPIs could be:
   1. Allocate at least 50% of resources
   2. Committed Use Discount coverage is 60%
   3. Forecast Spend v/s Actual Spend variance is 20%
2. Socialize: You need to then create a stakeholder community and drive their agreement on the operating model and create KPIs roadmap. Identify accounts/projects/product teams who would be ideal candidates for early adopters of FinOps in your organization.
3. Prepare: Following best practices, you must set up a cloud governance framework that underlines policies, tools, and processes to run applications across cloud providers. Also, you need to ensure alignment between all cross-functional teams so they can efficiently leverage the cloud while meeting their business objectives. For seamless change management at the organization level, follow the right approach, train the resources and make each application team responsible for their cloud usage & budget. Document these wins with the early adopters to validate the working model.
4. Launch FinOps with the right tools: Whether using a single cloud service provider like AWS (Amazon Web Services) or Azure or running in a multi-cloud/hybrid cloud environment, managing cloud costs manually is not easy. There are cloud cost management tools available that can help avoid surprises. They are well-equipped to speed up the adoption of FinOps as they:
   • Provide quick visibility into cloud usage and costs across all cloud accounts
   • Help in anomaly detection, budgeting, as well as forecasting for your cloud spend
   • Provide savings recommendations across workloads. Some can even execute actions for you in the cloud from within the tool
   • Automate the operations by easily connecting with your process management

This step also entails executing a communications plan, change management, and driving financial accountability.

5. Run: Continue the FinOps journey by evolving tools, tracking progress on the KPIs defined initially, and iterating over the FinOps cycle of Inform, Optimize, & Operate again & again.

How Nagarro can help

Today, cloud adoption is no longer a matter of if but of what, when, and how. And while you continue to invest in cloud storage, compute power, data processing, and other cloud-based services, we at Nagarro can help you optimize and control your cloud costs.

We have a dedicated discipline of Cloud FinOps with a team of Certified FinOps Practitioners to help businesses start their FinOps journey and adopt the FinOps Framework to optimize their cloud costs or gain complete control over it. 

Please note: This is our first write-up from the ‘FinOps 101’ series. The next blog will be on how to implement FinOps in your organization while unlocking the power of cloud computing and leveraging cloud systems in an efficient, profitable, and cost-effective way.