According to Gartner, the total amount of spendings on public cloud services in 2024 will grow 20.4% and amount to $675.4 billion in total. The sum is enormous, but what if the reason for such a boom is irrational use of resources? It is easy to check thanks to a new trend in cloud services management — FinOps.
Meaning of the term
FinOps is a management practice, introduced by organizations to optimize the financial outcome of their cloud computing infrastructure. The term was coined by merging ‘finance’ and ‘operations’ together, so its full name is basically ‘financial operations’. On practice, it is more complex than it sounds: not just a mere cost control, but rather a methodology, cultivating a particular work culture and analyzing the balance between quality, velocity, and cost of providing cloud services.
FinOps features
This practice has three fundamental tasks: inform, optimize, and manage. They cycle continuously, so perfection in performing them is never attained. This creates a stable cloud workflow model.
Awareness means transparency in all costs, allowing companies to clearly track when, how much, and for which services they have paid, as well as look at spending patterns. When each employee understands exactly what the organization is paying cloud providers for, they take greater responsibility for using virtual space and work resources. At this stage, the team develops a corporate cloud usage policy, assigns tasks, and provides access to necessary analytics tools.
The next step after becoming aware of costs is their optimization. By analyzing where most money is spent, the company can identify wasteful budget spending or, on the flip side, determine the need to increase cloud presence. At this stage, data analytics tools are improved, and a strategy for reducing the budget is developed.
After optimization, the process reaches automation in management. A clear algorithm for working with the cloud is established, with regular checks and performance measurements. Processes stabilize and remain largely unchanged for a certain period. Then, the results are reported to the team, which may have comments and suggestions, have changes in reasons to use cloud — and the cycle begins again.
It is impossible to reach perfection in FinOps, but there is a Finance Operations Maturity Model, depending on how deeply it is implemented within the company. It includes such stages:
- Crawl — business is slowly reaching the cloud services automation and can pre-estimate their cost with a 20% tolerance;
- Walk — most processes for performance analysis are automated, while the tolerance is 15%;
- Run — company is able to implement comprehensive cloud projects, estimate their cost with 12% margin for error, and engage all its team into optimization.
Why It Matters
When financial operations related to the cloud are put under strict company control, this provides the following long-term benefits:
- Savings
According to HashiCorp’s 2022 State of Cloud Strategy Survey, 94% of enterprises overpay for cloud services. Typically, this is due to a lack of employees tasked with optimizing cloud expenditures and monitoring them. When the entire team is involved in tracking how cloud costs align with the actual needs of the business, there is less risk of unnecessary resource allocation or ordering various components that end up not being used.
- Expense conformity with goals and strategy
Cloud service providers typically can advise and select the most effective and necessary features. However, long before seeking such services, it’s essential to decide internally which tasks need addressing, whether the costs are justified, and if there are other options available. Sometimes, implementing a multi-cloud strategy, i.e., using services from different providers, might be more effective, and this decision needs to be made within the team by comparing various offers. FinOps helps centralize this analytical and research work.
- Easier Budget Planning
Cloud services are included in operational expenses (OpEx) for the ever-growing amount of organizations, making financial control crucial since these costs can be unpredictable. Each service in the cloud is billed separately, and a lack of understanding about which services the company will use in the next billing period can lead to either unnecessary purchases or exceeding the planned budget. However, with FinOps, the budget can be predicted with minimal deviation.
- Trust and Engagement
FinOps involves everyone whose work touches the cloud. The IT support department monitors the quantity and quality of resources; managers directly interact with providers and track resource usage efficiency; the finance department handles payments, and other employees use the provided solutions. Thus, everyone is accountable.
How FinOps is evolving
In some companies, cloud financial management becomes so crucial that designated positions emerge, engaged in this line of work, such as Certified Practitioners and Certified Professionals. The FinOps Foundation, a Linux Foundation project established in February 2019, provides this certification. It unites thousands of independent experts from various institutions like Spotify, Nike, MIT, Atlassian, Pearson, etc. They form an active community involved in developing rules, guides, and assessment systems.
According to Flexera, financial management is the biggest challenge for 82% of organizations of various sizes working in the cloud. Therefore, FinOps is likely to continue evolving and becoming a long-term approach.
So, this practice is currently highly relevant. It actively engages not only IT specialists who understand the technical side but also almost the entire team, whose task is to determine where cloud services are involved in their work; analyze their effectiveness; and control where to cut costs or where to scale up.
