Mastering Cloud FinOps: Key Practices for Financial Efficiency
According to Gartner, by 2025, 51% of IT expenditures will transition from traditional solutions to public clouds. Because of the fundamental shift from Capital Expenditures (CapEx) to Operational Expenditures (OpEX) that comes with cloud-first strategies, this trend means that enterprises face a new set of FinOps challenges. Today’s OpEx-heavy cloud models drastically differ from the CapEx-driven on-premises deployments of the past.
Left unchecked, cloud subscriptions can quickly lead to unexpected costs and negatively impact the bottom line. As a result, enterprises often begin to reevaluate their cloud commitments and the overall value proposition of a cloud-first strategy. Fortunately, a disciplined approach to cloud FinOps can enable enterprises to keep cloud expenses under control and get the most out of their infrastructure investment.
This article will explore cloud FinOps in detail, including its importance in business strategy, essential best practices for FinOps integration, and cost optimization at scale.
Summary of cloud FinOps best practices
The table below summarizes the six cloud FinOps best practices we will explore in this article.
|Establish a culture of cost accountability
|Empower every individual in the organization to take ownership of their actions and the results they yield.
|Lead with trust-based relationships
|Cultivate a reliable and open environment where each team member feels valued and their contributions are recognized.
|Always make business-first decisions
|Prioritize strategic choices that directly align with and support the organization's overarching business goals.
|Prevent budget blowouts with planning
|Develop structured, forward-thinking strategies to guide decision-making and resource allocation effectively.
|Measure, improve, repeat
|Implement systematic tracking and analysis of key performance indicators to evaluate success and inform future actions.
|Optimize your cloud footprint
|Continuously refine processes and resources to achieve maximum efficiency and effectiveness in operations.
Preventing wasteful spending with Cloud FinOps
According to Statista, more than 80% of organizations name reducing cloud waste as one of the top cloud adoption challenges. Is your organization outperforming this statistic, or is there room for improvement? A typical challenge for enterprises transitioning to the cloud is pinpointing the sources of cloud overspending and transforming them into a strategic advantage for their business.
Common cloud adoption challenges. (Source)
While various solutions exist, FinOps stands out for its direct focus on addressing overspending and excessive consumption in the cloud. Combining financial management and cloud computing aims to optimize costs and align cloud spending with business goals.
Due to the consumption-based nature of cloud services, this approach comes with its own challenges. The cost of cloud services, inherently linked to usage, can be difficult to predict precisely. Factors such as sudden spikes in traffic, the launch of new products, or data-intensive operations can lead to fluctuating costs.
This variability introduces complexity into budgeting and financial planning, making FinOps even more crucial. Cloud FinOps strategies are designed to manage these fluctuations and provide insights and control mechanisms to optimize cloud spending in alignment with dynamic business needs.
FinOps strategies revolve around three pillars:
- Visibility encompasses gaining clear insights into cloud usage and costs.
- Optimization involves identifying cost-saving opportunities.
- Governance ensures that policies and processes are in place to control cloud spending and enforce accountability.
The following cloud FinOps best practices in the sections below highlight practical ways organizations can integrate the principles behind these pillars to improve their cloud ROI.
Establish a culture of cost accountability
Unlike traditional models that rely heavily on responsibility-assignment matrices like RACI, FinOps practices should adopt a more fluid, persona-user-story format. The essence of this structure is its adaptability and the overarching principle of accountable decision-making.
Accountability ensures that decisions are made by individuals who are well-informed and have the appropriate authority. As an outcome, decisions are based on a comprehensive understanding of their impact, context, and the pace at which they must be made.
For smaller organizations, the accountability framework can remain lightweight – avoiding overburdening processes, yet providing a clear hierarchy for decision-making authority. Larger enterprises may, on the other hand, integrate a comprehensive RACI matrix, detailing roles and responsibilities more granularly. This flexibility ensures the framework's relevance across different scales, ultimately supporting a culture of strategic planning and minimum viable data sets for decision-making.
Cost accountability best practices
- Learn from your mistakes. Mistakes are bound to happen. Embrace a blameless culture that allows your team to focus on learning from failure and improving rather than being defensive.
- Think organization-wide. Promote a holistic view of cloud economics across the organization. Adopt a shared responsibility model where every team member understands and contributes to cloud cost management, from developers to finance personnel.
- Incentivize good behavior. Establish accountability metrics and incentivize cost-efficient behavior for teams and individuals who successfully manage and optimize cloud costs. This could be done through recognition programs or other rewards emphasizing the importance of cost efficiency.
Lead with trust-based relationships
Before assigning accountability, it is essential to acknowledge the vastness of technical resources in cloud computing and the impossibility of one person mastering all. Trust is critical in empowering team members to responsibly manage cloud resources and implement cost optimization techniques.
For FinOps practitioners, integrating trust should start early in the engagement process and evolve through consistent performance and communication. Encourage your organization’s FinOps practitioners to seek guidance from development teams, who are the experts in the underlying technology stack and can relate the differences a change in practice can potentially bring. Laying all cards on the table also signifies a commitment to transparency by promoting a culture of cross-departmental information sharing.
Trust-building best practices
- Give trust to get trust. Leadership should empower teams, treat them as experts in their domains, and provide them the autonomy to make decisions. This approach builds trust and empowers teams, leading to more effective and collaborative FinOps practices.
- Embrace feedback loops. Implement a feedback loop that provides continuous input on performance and decisions. Regularly review and adjust FinOps practices to align with evolving business needs and technical advancements.
- Admit mistakes. Admitting mistakes and promoting an open environment for discussions can help build trust. The goal should be to create a team that is working together and trusting each other, leading to a more successful adoption of collaborative efforts.
Always make business-first decisions
Besides measuring the impact on application performance and user experience, financial decisions must be made with a clear understanding of the impact on the bottom line. This requires a culture that prioritizes data-driven analysis, risk management, and strategic planning.
Traditional aggregate spend metrics offer a limited view of the cloud's impact on a business. Instead, unit economics and value-based metrics provide a clearer picture of how cloud investments translate into business value. These metrics, such as cost per transaction, user, or workload, help stakeholders understand the efficiency and profitability of cloud resources. They enable organizations to assess whether cloud spending directly contributes to business growth, customer satisfaction, or other key objectives.
An overview of the Cloud Unit Economics Maturity Model. (Source)
Key to this model is the progression from a simple hierarchy in the ‘Crawl' stage to a well-defined and documented structure in the ‘Walk' stage, and eventually to a standardized, benchmarked process in the ‘Run' stage. Each stage of maturity brings sharper focus on reducing cycle times between data, decisions, and outcomes. As a result, organizations can gradually evolve their FinOps practices, align cloud cost controls, establish tagging standards, and synchronize spending with business goals.
Cloud FinOps decision-making best practices:
- Focus on business-oriented KPIs. Align your cloud financial metrics with key performance indicators (KPIs) tied to your business objectives. For example, if customer satisfaction is a critical KPI, track cloud spending in relation to user experience and promptly address performance issues affecting customers.
- Leverage tags. Enforce a robust resource tagging strategy that includes business-related tags. Tag cloud resources with relevant information such as department, project, or product line. This enables precise cost attribution and facilitates data-driven decision-making.
- Customize metrics to meet your needs. Develop custom value-based metrics tailored to your organization's specific goals. For instance, if market share growth is a priority, create metrics that correlate cloud spending with market expansion efforts.
Prevent budget blowouts with planning
Imagine a company that has committed to a certain level of spending by purchasing hardware and setting up its own data center. The expenses are predictable, reported on financial statements, and expected within their fixed operational budget. However, unlike traditional data centers where capital expenditures are pre-ordered and pre-committed, cloud expenses are dynamic and can change significantly throughout the life cycle of a product. Being proactive in planning your cloud spending to avoid any unexpected surprises or “bill shock” is almost always the first logical step.
Most MSPs provide mechanisms to get notified if a set budget has been exceeded and inform stakeholders of an issue requiring their attention. Some organizations go a step further and set up custom monitoring and alerting systems like those found in CoreStack Governance to catch cost anomalies and changes in spending patterns.
Organizations must be mindful of unplanned and unexpected cloud growth expenses in a distributed cloud ecosystem, especially because of its dynamic nature and the number of moving parts. For instance, noticing some of your workloads are stateless will allow you to move to spot instances that can be terminated and cost less. A different scenario may demand frequent rightsizing exercises to use the most cost-effective resources for your workload requirements. This involves analyzing the performance and utilization data to identify orphaned, underused, or oversized instances that can be downsized or terminated.
Cloud FinOps planning best practices
- Track costs granularly. Accurate resource tagging is key to determining where and how money is spent in the cloud. Use detailed tagging of every cloud resource for granular tracking of costs associated with specific projects, departments, or usage types.
- Automate as much as practical. Automation in scaling is a crucial performance factor of your cloud setup. But tread carefully, and ensure that unplanned scaling of resources does not impact your bottom line.
- Use reserved instances to reduce costs. Commit to reserved instances or savings plans for predictable workloads. These options typically offer significant discounts compared to on-demand pricing in exchange for a commitment to a certain usage level over a specified period.
- Create exit strategies. Always have an exit strategy or plan for your cloud resources. This includes understanding data egress costs, contract termination clauses, and the financial impact of migrating workloads back on-premises or to another provider.
Measure, improve, repeat
Overprovisioned or orphaned resources are a common challenge for many organizations, and the cost difference between on-demand rates and commitment-based discounts can be substantial. To avoid such instances, measuring cloud spending helps ensure that an organization's assumptions align with reality.
Cloud waste typically stems from paying for cloud services that are provisioned but remain unused. A key starting point to tackle this issue is to categorize and then measure the impact of cloud waste.
Generally, waste can be segmented into these categories:
- Idle or unattached resources: These resources are available but inactive, such as unattached storage volumes.
- Oversized resources: Many resources are larger or more powerful than necessary for their actual workload, ultimately leading to unnecessary expense.
- Missed commitment purchases: These are situations where opting for commitment purchases or reserved instances would be more economical than on-demand pricing.
The next step is mapping this categorized waste onto the unit cost framework. Categorization helps pinpoint opportunities for savings, while establishing the relationship between cloud waste and unit costs allows organizations to understand the impact of waste on the overall cost more effectively. As mentioned previously, reducing waste could mean decommissioning resources that have remained idle for long periods, rightsizing resources better to fit the actual workload, or reevaluating pricing models to ensure they align with usage patterns.
Measuring cloud cost with CoreStack Budget Management.
Continuous improvement best practices for cloud FinOps:
- Use the smallest units practical. Enhance the granularity of cost attribution by breaking down expenses to the smallest unit relevant to your business, such as per transaction, per user session, or per data processed. A finer granularity allows for a more precise understanding of how different cloud services impact specific business activities and create opportunities for improving the bottomline.
- Conduct regular reviews. Regularly review cross-service utilization across different providers. This review can unveil opportunities to consolidate services or identify more cost-effective alternatives.
- Benchmark frequently. Frequently conduct benchmarking against industry standards and competitors. A thorough comparative analysis helps understand where your organization stands regarding cloud efficiency and where there is room for improvement.
- Implement AI-powered tools. Leverage AI-powered platforms such as CoreStack to analyze usage patterns and automatically suggest rightsizing opportunities. Such platforms can assess historical data to recommend instance-type changes, identify underutilized resources, and predict future needs.
Optimize your cloud footprint
Optimizing your resource consumption entails a more hands-on approach to managing the cloud environment. The goal should be to identify opportunities for efficiency in the cloud infrastructure, where every aspect of cloud usage is scrutinized — from computing and storage to network capabilities — to pinpoint areas where improvements can be made.
On-demand capacity is the most straightforward option to achieve high performance, yet it almost always comes with the highest price tag. Cloud providers incentivize advanced reservation planning and commitment through various discount programs like reserved instances or Committed Use Discounts (CUD) to counter this issue and promote more efficient cloud usage. These options, however, involve complex calculations and a thorough understanding of future needs to make reservations effectively.
The success of your FinOps strategy also lies in its ability to bring together multiple aspects of an organization’s operations under a unified vision of efficient and effective cloud usage. Make sure your business goals align with the three core parameters: speed, quality, and cost. This alignment ensures that your cloud usage is not only efficient in terms of cost but also meets the required speed and quality standards to achieve your business goals effectively.
Cloud footprint optimization best practices
- Select the right cloud pricing models. Leverage different pricing options like reserved instances, Savings Plans, or Spot Instances offered by your MSP. These models can offer significant savings over standard on-demand pricing, especially for predictable, steady workloads.
- Leverage purpose-built tools. Utilize platforms like CoreStack that offer NextGen FinOps to enable comprehensive attribution of all cloud costs, ensuring that every aspect of your cloud expenditure is accounted for and efficiently managed.
- Optimize code and the surrounding infrastructure to reduce costs. Make code changes to increase efficiency, such as optimizing algorithms or choosing more cost-effective cloud services.
- Keep an eye on resource consumption. Regularly review consumption data to better understand usage patterns and leverage this information to negotiate volume-based discounts. Additionally, monitor data transfer costs and optimize network architecture to reduce data transfer and egress fees.
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Implementing proven cross-cloud management practices is a complex challenge for enterprises juggling thousands of services across multiple cloud providers. Mimicking strategies from peers or competitors may initially sound tempting but remember that your ”umbrella” solutions should be tailored to your organization's specific needs.
CoreStack is a trusted partner for organizations looking to adopt the cloud or scale their existing cloud operations. Book a demo here to assess your FinOps maturity and see how you can reduce your cloud footprint.
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