Cloud FinOps as an Effective Cost Management Tool

Cloud has become the de facto operating model for organizations seeking digital transformation. Yet after migration, many quickly realize just how difficult it is to manage public cloud costs and resources effectively. Those pursuing hybrid cloud and multicloud strategies can experience similar sticker shock, even if they already understand the inherent tradeoffs between computing in the cloud versus on-prem data centers versus some combination thereof.

One of the main reasons organizations are turning to cloud FinOps is the pressing need to visualize, balance, and optimize cloud investments — regardless of deployment model.

This article explores cloud FinOps, why adoption is on the rise, and how FinOps best practices can help organizations capture the full business value of cloud computing.

What is cloud FinOps?

The FinOps Foundation defines cloud FinOps as "an operational framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making, and creates financial accountability through collaboration between engineering, finance and business teams."

In building out our own FinOps practice at WWT, we've heard clients refer to cloud FinOps by similar names, such as cloud optimization, cloud financial management, cloud financial engineering, and cloud cost management. Whatever you call it, the continuous application of FinOps best practices enables organizations to get the most out of their cloud investment by driving collaboration, accountability and workstream efficiency to teams across historically siloed teams.

A cloud FinOps practice is typically supported by a central best-practices group, often housed within an organization's Cloud Center of Excellence (CCoE) or Cloud Business Office (CBO).

Why are organizations adopting cloud FinOps?

Cost challenges of cloud

Countless businesses base their initial decision to migrate to the cloud on the promise of cost savings. Yet many struggle to realize the full value of their investments in cloud post-migration. In fact, some even encounter a "double bubble" experience where costs rise across both cloud and data center footprints.

While cloud computing has become critical to nearly every business, it still represents a fundamentally different consumption model than most IT departments are accustomed to operating under. This is particularly evident in the various cost-related hurdles that cloud can pose, such as:

• Unpredictability: Cloud costs can be notoriously difficult to forecast with accuracy, which sets the stage for potential budget overruns. This volatility can be attributed to a combination of factors, including inexperience with the type of PAYGO models favored by public cloud hyperscalers such as AWS, Google Cloud and Microsoft Azure.
• No oversight: Many organizations are surprised to learn that a lack of oversight can contribute to the proliferation of unnecessary cloud spend. Consider scenarios in which unmonitored cloud resources are permitted to be over-provisioned or run continuously, even when not needed.
• Poor visibility: Similarly, organizations often lack visibility into where and how their cloud budget is spent across the organization. This can make it tough to pinpoint opportunities for savings and efficiencies.
• Shadow cloud: The decentralized and often siloed nature of cloud consumption across business units can promote shadow cloud — the use of cloud services or solutions without official IT approval or alignment with IT policies. Such disorganized consumption patterns can make it challenging for finance and IT teams to collaborate on cost management initiatives.
• Resource demands: Any organization implementing generative AI (GenAI) solutions will need to scale up its cloud infrastructure to handle resource-intensive AI workloads. As AI often demands substantial compute power, this level of resource usage can be costly if not properly managed.

How can FinOps help?

FinOps offers a proven methodology for managing shared cloud costs, optimizing cloud resource utilization, and aligning cloud spend with business objectives.

In situations where cloud investments are integrated with legacy IT infrastructure and services, FinOps' resource optimization benefits are particularly valuable, as the complexity of such hybrid environments can make it even harder to predict and manage cloud costs.

As a cultural practice, FinOps can help organizations foster an ethos of cost awareness and financial accountability across teams that rely on cloud resources and services. Introducing FinOps best practices into such workflows is an excellent way to encourage cross-silo teamwork, especially as business units become more comfortable taking ownership of their own consumption and costs.

This type of cost accountability through visibility and organizational alignment can help drive more responsible, data-driven decision-making in the long term. Moreover, the application of cloud FinOps can serve to augment your financial planning capabilities and provide a foundation of greater operational and financial flexibility to pursue digital transformation initiatives.

Types of FinOps capabilities

A mature FinOps practice will feature a wide range of functional aspects, activities and processes that organizations can choose to mature over time, including:

• Cost allocation (metadata and hierarchy)
• Data analysis and show back
• Managing anomalies
• Managing shared costs
• Forecasting
• Budget management
• Workload management and automation
• Managing commitment-based discounts
• Resource utilization and efficiency
• Measuring unit costs
• Data ingestion and normalization
• Chargeback and finance integration
• Onboarding workloads
• Establishing a FinOps culture
• Frameworks that intersect with FinOps
• Cloud policy and governance
• FinOps education and enablement
• Establishing a FinOps decision and accountability structure

Implementing FinOps a cost management continuum

Following a "crawl, walk, run" maturity framework, we encourage organizations to start small and incrementally scale the capabilities of their cloud FinOps practice in parallel with the outcomes and business value generated.

Once you've committed to a particular capability, this three-part approach can help you incrementally mature it to drive meaningful outcomes:

1. Inform phase: Create the transparency, visibility and allocation needed to achieve your goals. Gather all data related to cloud costs, usage and efficiency to gain visibility and create shared accountability. To attain the right level of transparency, it's crucial that business and financial teams collaborate. Establishing accurate and timely visibility into cloud usage across business units will help organizations make better data-driven decisions that lead to more value.
2. Optimize phase: Focus on driving efficiencies and identifying areas of improvement by leveraging insights from the Inform phase. Start exploring ways to right-size cloud resources and services while leveraging AI-powered automation to manage workloads and eliminate waste. Optimize your ability to report and analyze all your data. Integrate AI into your cost management practice to predict future cloud spend and improve forecasting accuracy. Make sure you're taking advantage of all commitment discounts and optimizations. Depending on your use case and business need, you may want to consider using different combinations of hyperscaler commitment discounts, committed-use discount pricing models, and supplementary resources.
3. Operate phase: Enact a plan to achieve continual operational excellence at the organizational level, in a way that lets you scale your FinOps capabilities over time. FinOps success hinges on fostering a culture of accountability across engineering, finance and business teams, who must collaborate to act on the goals and solutions outlined in the Inform and Operate phases. You will be iteratively developing strategies and refining workflows at the Operate stage, which may require looping back to the Inform and Optimize phases as needed.

It's important to understand that the journey to cloud FinOps maturity is never fully complete. It's an iterative process that should evolve as organizations grow in confidence and capabilities. As your practice matures, you'll be able to shorten the time it takes you to cycle through these three phases for maturing a FinOps capability.

Is cloud FinOps right for you?

If you're unsure whether cloud FinOps is right for your business, these questions can help distill where FinOps best practices might deliver value:

• Can you clearly describe your current cloud infrastructure, including how it supports your business operations?
• What is your rough monthly cloud bill (MRR), and how has it changed over the past year?
• How do you currently track and manage your cloud costs?
• Are there any specific areas where you feel your cloud spend is higher than it should be?
• How do you forecast future cloud spend?
• Do you have any specific goals or KPIs for reducing cloud spend?
• How are you allocating cloud costs across different departments or projects in your organization?
• What challenges do you face in managing cloud financials?
• How do you currently measure the effectiveness or impact of your cloud spend?
• Are there any specific cloud services or features that contribute significantly to your cloud spend?
• How do changes in business operations affect your cloud spend?
• How do you ensure that your cloud spend aligns with your business objectives?

By addressing the ongoing challenges of cloud cost control, resource management and organizational silos, FinOps can help organizations harness the full potential of their cloud investments.