How FinOps Has Changed the Way Businesses Approach Cloud Computing

Jun 30th, 2022
How FinOps Has Changed the Way Businesses Approach Cloud Computing
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Cloud technology has continued to grow over the last decade. A key component to the growth and success of cloud computing is that it can decrease costs. The fee structure of most cloud services makes them accessible to any business, not just big businesses. Across industries, companies benefit from the scalability of cloud computing. However, many teams have experienced the loss of control and ballooning costs contributed to, in part, by a lack of oversite into cloud spending. 

To regain control and oversight, companies are adopting an operating model that is breaking down barriers between IT and finance teams to optimize cloud costs. This discipline is known as FinOps. FinOps enables companies to maintain financial accountability while retaining the freedom to innovate. Approximately 43% of companies have reported having the basics of FinOps in place. This figure is expected to rise as more and more companies continue to adopt cloud technology. 

This article presents three ways in which a FinOps philosophy backed by FinOps tools is transforming business operations.

  • Cloud cost optimization

Cloud service providers have made products and services so accessible that they may be deployed by anyone in a company in a matter of seconds. This can make cloud technology an expensive affair due to a lack of oversight. Cloud costs also vary a lot and are incredibly unpredictable as compared to on-premises servers. Very few people even understand the different components of a cloud bill. 

In a recent survey, only 29% of employees stated that they are responsible for managing cloud costs. This means that the rest of the 70% of employees do not consider the implications of cloud spending. In most companies, engineers and developers in IT departments don't care about the cost of their operations. Their primary concern is agility as they respond to market demands. Such an operational philosophy, however, leads to unused and underutilized cloud resources. At the end of the month, the company may receive a huge cloud bill. 

The FinOps philosophy has been created to solve this issue. FinOps teams have members in both technical and finance departments. This cross-functional team will analyze all cloud costs and identify underutilized or unused resources. The team can also identify reserved resources available at lower costs which can lead to cost savings. The benefit of having such a cross-functional team is that their different areas of expertise complement each other as they work towards the goal of implementing cloud cost savings. Since cloud cost optimization is an ongoing practice, the FinOps teams will continue to bring focus on analyzing, monitoring, and managing cloud costs.

  • Cost allocation

Businesses have struggled with cost allocation since they began adopting cloud technology. Cloud resources can be easily deployed, and worse still, procurement departments often have no control over them. This makes it hard to charge cloud costs to specific business units or departments. The solution offered by the major cloud providers like AWS, Google, and Azure is resource tagging. Tagging is the process of adding descriptive tags to cloud infrastructure. As most companies have not implemented a tagging policy, many cloud users do not do it. 

Every cloud tag should have three components: the owner, a short description, and the product name. The owner is the user who sets up a cloud service. This can be an individual, a department, or a business unit. In the short description, the owner needs to explain why the resource is being implemented. Finally, the product is the component the tag is associated with.

Once a tagging policy is fully implemented, the cost can be accurately applied to one or shared across all the different users, products, or business units. A tagging policy shouldn’t just be implemented by a siloed IT team. It needs the participation of all the departments in the company. A FinOps team should be the driving force that creates a tagging policy, distributes it, and manages its adoption across the business. The team also works on educating other cloud users in the business on the importance of cloud cost optimization.

By applying tags to reveal cloud usage, businesses can understand their actual cost per product, per customer, or per feature. The business can also identify which teams build efficiently or which segments of the business are profitable.

3. Precise forecasting

Budget teams in businesses often struggle with forecasting cloud costs. This is because they usually don't have access to accurate data on current cloud spending, ongoing deployment activities, and/or future requirements. Accurate cloud forecasting can only be achieved by providing the right personnel with cloud FinOps tools. A FinOps tool helps to reveal current consumption costs and trends. The FinOps team will scrutinize data from such cloud cost management tools to come up with cost-saving initiatives. 

Such forecasting is important for businesses as it helps in planning. Businesses can also create robust and safe financial plans with accurate forecasts. For example, an ecommerce business in the American marketplace will anticipate increased activity during seasonal holidays like Thanksgiving and Christmas. AWS FinOps tools will forecast the increased activity: the FinOps team can then reserve cloud resources at affordable prices for this period. 

FinOps teams operate in a three-step cycle. The first step is to inform the organization. In this step, the team gets all the data on cloud spending. They then compare this data with industry standards and any historical data they may have. The next step is optimization. In this step, cloud spending is analyzed to identify unused and underutilized resources. Unused resources are then terminated, while underutilized ones are rightsized. The last step is to operate: which involves running cloud services to measure whether there have been any improvements. The FinOps team will conduct this cycle repeatedly as they try to innovate new ways to save costs.

The cloud is a supremely useful platform as it allows businesses to innovate rapidly. However, it is imperative that businesses have the financial discipline to ensure cloud costs don’t spiral out of control. FinOps has grown rapidly as it fulfills its promise to tackle the problem of high cloud costs. It's enabling companies to reap maximum rewards for adopting cloud technology. FinOps has already made a significant impact by enabling companies to optimize their cloud costs, allocate costs, and provide accurate forecasting of cloud costs.

If you are interested in becoming part of the FinOps revolution and gaining control over your cloud spend, sign up for our free trial today.

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