The Harvard Business Review (HBR) paper, Balancing Cloud Costs and Business Goals with FinOps, acknowledges that cloud computing has become the cornerstone of innovation as it "drives organisational agility and high-velocity decision-making so that businesses can keep pace with changing consumer demands and market trends.
However, it also concedes that in the race to the cloud, organisations may have left out the part about managing cloud costs as some miscalculate cloud needs and how best to optimise resources. For some, the result is less than efficient IT spending.
[Editor's note: is it any better than the overprovisioning of resources that was the staple of IT planning in the on-premises world].
Translating cloud cost data into beneficial business decisions
The HBR report quotes one executive leading the cloud financial operations (FinOps) practice at a global consumer products company: "Without these checks and balances, cloud investment can easily become a runaway train.
The same executive says "A FinOps program puts the organisation in the conductor's seat, determining the end location of that train rather than allowing it to run full steam ahead."
Fredy Cheung, area vice president for Greater China, ASEAN and Korea at NetApp says many companies today still lack visibility into many parts of their public cloud operations, and thus are unable to monitor and optimise public cloud costs.
Gartner predicts that 60% of infrastructure and operations leaders will encounter public cloud cost overruns that negatively impact their on-premises budgets through 2024.
"By analysing cloud cost data and contrasting it against expected business outcomes within a defined timeframe, organisations can make informed decisions based on ROI/TCO. It is worth noting that timeframe has a big impact on the total cost," said Cheung.
Manish Bharti, chief revenue officer at Corestack, commented that all roads digital lead to and from (or ride on) the cloud – from the data centre to the edge, and every flavour in-between. He noted that with cloud spend now democratised and organisation-wide, it is harder to accurately forecast (agile, scale, speed). "The faster you go, the more guardrails and precision are required," he suggested.
Why FinOps matters
FinOps or cloud financial operations encourages a cross-functional approach to delivering greater financial accountability for increased cost savings, reduced business risks, and improved cloud quality. Technology, operations, and finance teams work together to enable faster product delivery while at the same time managing cloud costs and encouraging greater ownership of cloud usage.
NetApp's Cheung concedes that FinOps is a relatively new practice for driving visibility and bringing financial accountability to the variable spending model of the cloud. He explains that in FinOps finance and IT develop a series of measures to quantify and provide insight into the cost of cloud usage. He stressed that real-time visibility (as opposed to quarterly reporting) is the key.
"As investment in public cloud infrastructure deepens, there must be careful consideration of the business value gained from these resources," he added.
How FinOps impacts a business
Cloud has been marketed as creating value for the business. However, McKinsey says only 13% of boards are actively engaging in conversations about the cloud. At privately-owned institutions, that level rises a little better to 27%.
McKinsey puts the blame on business executives getting into the financial and operational discussions around the cloud "too late into the game."
Cheung says FinOps is a competitive advantage for enterprises by providing real-time visibility and enabling organisations to adjust spending on the fly.
Spot by NetApp Survey revealed that 96% of IT and business stakeholders responsible for public cloud infrastructure believe that FinOps is important to cloud success.
"FinOps creates a cloud financial model that balances committed spending with agility, thereby ensuring performance, availability and maximised ROI – and this is critical as enterprises continue to focus on improving cost management this year," said Cheung.
How FinOps impacts cloud cost projections and capacity planning
In the HBR report, J. R. Storment, executive director of the FinOps Foundation, is quoted as saying: "Cloud removes finance from the buying process and hands the credit card to cloud engineers." For large enterprises, he says, the result could be "billing files with tens of millions of individual charges."
Cheung explains that cloud cost projections and capacity planning are usually done using a combination of historical usage data, forecasting models, and monitoring tools. Some companies also subscribe to a wholly agile, zero-commitment cloud model.
"FinOps provides a more proactive, data-driven approach for cost projections and capacity planning. It can provide real-time cost and usage data, enabling enterprises to readily adapt to changing business needs and cloud usage patterns. This results in more accurate cost projections and effective capacity planning."Fredy Cheung
Tools and platforms to drive FinOps
According to Cheung, a successful FinOps strategy usually encompass a combination of solutions customised to the organisation’s specific requirements. He outlines several tools and practices:
- Cloud data analytics tools that enable organisations to analyse and visualise cloud usage and cost data.
- Automation tools that enable organisations to automate the optimisation of reserved cloud capacity.
- Cloud infrastructure management solution that offers real-time visibility into cloud cost, assesses cloud efficiency and identifies the best opportunities to lower cost.
Measuring FinOps results
Cheung says FinOps uses cost as an efficiency metric for all teams, driving collaboration between interconnected finance, IT, and engineering teams. Some common FinOps tool features include performance metrics, budgeting, and resource allocation.
"Ultimately, it is up to the organisations to decide what metrics they need to measure FinOps results effectively. Organisations can even use reporting tools that provide trending and variance analysis to inform all stakeholders about usage and expenses, tying cloud spending directly to business objectives," concluded Cheung.
Sustaining the FinOps initiative
While it reads like the new flavour of the month, experts suggest that FinOps is not a once-only exercise.
Corestack's Bharti calls FinOps a perpetual strategy and demands constant observation, execution and optimisation. He suggests FinOps should be part of an organisation's governance posture as they embrace cloud capabilities.
"Not all cloud resources are equal," he pointed out. There will be occasions to go “sport-mode” when needed and “economy-mode” when required (or both at the same time)," he continued.
Storment is adamant that FinOps isn’t a once-a-year planning exercise in which engineers decide what to purchase next. Rather, IT teams must “proactively design software and build systems with costs in mind and be able to tie these costs to business objectives,” he concluded.