Want to Control Spiraling Cloud Spending Costs? Consider FinOps
A detailed look at the rising costs of cloud computing makes it clear that for many analysts, FinOps may be the solution to the growing financial burden of deploying to the cloud.
Organizations seeking to cut costs and spend wisely need to be empowered with granular usage details that help them to make informed and defensible choices. FinOps ideally brings finance, engineering and business teams together to make better decisions around cost and performance, empowering them to act in a more responsible manner — provided, of course, they have access to the right data to inform their decision making process.
The Role of FinOps
David Linthicum, managing director and chief cloud strategy officer Deloitte, explained that FinOps is, at its core, about putting observability, accountability and discipline within a single program that includes cross-business information sharing, integration, governance and automation.
The idea, he said, is to have complete visibility into ongoing cloud computing spending — including spending on data management — and be able to respond to spending patterns in near real time by using core analytics to find the most optimal path to cost optimization.
Using a FinOps program, Linthicum said, should allow for a completely automated process, occurring transparently, to give visibility into which resources are being leveraged, by whom and for what purpose. He cites two major activities occurring in the background:
Operational Cost Management: This involves the cloud data users optimizing their cloud resource usage, such as data storage and management.
Visibility into overall cloud spend for senior business leaders: This enables leaders to look at the strategic aspects of that spending and make adjustments as needed, such as negotiating better prices from cloud providers, or even moving data to other more cost-effective cloud resources.
Harish Grama, global cloud practice leader at Kyndryl, agreed. "FinOps provides visibility into cloud spend that a CIO or CFO otherwise would not have," he said, "with the opportunity for such collaboration to not only help an organization save money, but also to make money."
However, Grama pointed out, without communications and collaboration between business and engineering teams, there can be a disconnect that leads to the misconception that cloud spending overall is too costly.
Related Article: What You Need to Build a Cloud Strategy for the Digital Workplace
Cloud Expectations
Sunil Moorjani, director of digital practice for ISG, pointed out that many firms at first set unrealistically high expectations of what they might get from the cloud, while disregarding the amount of work and skill needed to adopt cloud services properly.
"FinOps brings cloud strategy, governance, and best practices together to drive financial accountability and help make the right decisions to transform the business using the cloud," he said.
When firms encounter these challenges, Moorjani said, they struggle to remediate issues and get from "cloud first" to 'cloud done right." Many firms rush to adopt operational and financial models, resulting in misleading business cases and ROI calculations that do not translate into delivery dollar savings.
The question most organizations are working to solve, he said, is how to keep a business case valid and prioritize IT capabilities that are critical to business differentiation and deliver maximum benefits with minimal effort and cloud migration costs. In order to do this, it is important to:
- Migrate workloads to the cloud that can deliver maximum benefits
- Consider the culture and business priorities of your firm when justifying cloud migration, and
- Retain just enough private cloud to reduce complexity and increase agility while fulfilling compliance requirements.
Recent ISG research found taking these actions could drive a 20% to 30% reduction on committed spend and savings. Additional actions to inform cost optimization include:
- Understanding business requirements for workloads and appropriate consumption
- Establishing full cost allocation and implement chargeback-enabling tagging strategy
- Developing KPIs and benchmark across internal teams and external industry peers.
Cost Visibility and Optimization
FinOps addresses these issues by providing organizations with cost visibility and optimization strategies and by bringing people and processes a way to rationalize cloud spend, John Thuma, director of solution architectures at BlueCloud, told Reworked.
Because the cloud makes it easy to spin up new resources and forget about them, developers often leave instances running in the cloud, unaware that every second counts as a cost. Over time, this can become very expensive. As a result, Thuma said, understanding how to manage the cloud and its costs is a significant challenge for many enterprise organizations.
Learning Opportunities
He also said hyperscalers — large-scale data centers that offer massive computing resources, typically in the form of an elastic cloud platform — make it easy to experiment and demonstrate use case viability for an organization. Unfortunately, with this flexibility, many architects and developers may bypass due diligence and discipline that would be obvious in on-premises infrastructure. So, having a process and maturity model for understanding an organization's ability to manage its costs is precisely FinOps is meant to provide.
"FinOps helps enterprises govern their cloud costs by bringing together people in technology, finance, and business owners to maximize their revenue potential and overall customer satisfaction in the cloud," he said.
He added that it is a practical approach to managing cloud costs, but it should be viewed as part of a larger cost management strategy rather than a complete solution on its own — and it requires ongoing management to be effective.
Related Article: How Baseline Security Practices Could Have Prevented Recent Cloud Attacks
The Cloud Comes Into Its Own
From a wider perspective, PwC cloud and digital lead Cenk Ozdemir told us that cloud is really only just now coming into its own in terms of cost and economics.
Cloud 1.0, as he defined it, was the period where most companies took advantage of cost savings in infrastructure as well as flexibility and scalability of cloud architecture. In this phase, he said, many companies exited their data centers and moved their workloads — applications and data — to the cloud, while converting their CapEx to OpEx. Cloud 2.0 is when the true value from the cloud is unleashed in two and sometimes parallel steps:
Modernization: Taking the applications and data running in the cloud, almost same as they were in legacy environments, and connecting them to microservices provided by CSP. In many cases, these microservices are “packaged innovations” that enable transformation of technology and functions in existing data and applications.
Cloud Native Development: Rewriting the front and middle office legacy applications with the intention to re-engineer/re-invent the business or create new business models.
"Value and ROI out of the cloud in the current business environment is closely tied to moving to Cloud 2.0 phase," Ozdemir said. "In other words, the biggest differentiator between companies producing ROI and companies that don’t is that successful companies are looking at the bigger picture when it comes to cloud transformation.”
PwC's Cloud Business Survey found 78% of companies were getting too in the weeds with cloud technology, he said, and not spending enough time focusing on how it will drive business results.
"For organizations to see results, they need to develop a roadmap that outlines the capabilities the organization hopes to unlock with cloud technology and how they will fundamentally re-architect the organization's operations," Ozdemir said.
About the Author
David is a European-based journalist of 35 years who has spent the last 15 following the development of workplace technologies, from the early days of document management, enterprise content management and content services. Now, with the development of new remote and hybrid work models, he covers the evolution of technologies that enable collaboration, communications and work and has recently spent a great deal of time exploring the far reaches of AI, generative AI and General AI.
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