Cloud FinOps | CloudKeeper

Introduction

This pandemic has taught businesses an indisputable lesson: Investment in Cloud technology is no longer a virtue for the more prominent players but a necessity to stay relevant. The rush towards Cloud storage & computing is changing the strategy adopted by Cloud service providers. With growing competition, leading players like Amazon Web Services (AWS), Microsoft Azure & Google Cloud Platform (GCP) offer a plethora of computing & storage options, each with its pricing structure. As companies are shifting to digital to drive their business forward and reap the benefits of Cloud adoption, Cloud Cost Optimization is quickly becoming integral to IT optimization. According to a recent study,

61% of organizations planned to optimize Cloud costs in 2021,
and 51% of organizations overspend their budget on the Cloud

“Cloud Cost Optimization” or “Cloud Financial Management” is a cultural shift in conventional Cloud operations and assigns financial accountability of the variable spends of the Cloud resources to the teams, prompting them to make cost and value trade-offs. It is an operating model where each team takes ownership of their Cloud resources as per centrally defined best practices.

Cloud FinOps Paradigm

The Challenge of Cloud FinOps

Gartner forecasts that the worldwide public cloud services market will grow to $364 billion USD in 2022, while Forrester estimates the public cloud market will grow to $411 billion USD by 2022.

The cloud is changing how businesses function. In addition to their core competency, companies are transforming into technology companies by adopting cloud technologies. Nike, Walmart, ICICI Bank are great examples of such transformations. Elasticity replaces fixed spend models with variable cloud consumption. Ownership is decentralized as it shifts from a central organization to engineers. Such a significant shift is challenging and has a huge bearing on cloud optimization efforts.

Complex and overwhelming number of choices

Cloud pricing can be incredibly complex and difficult to understand, with thousands of different SKUs, various dynamic pricing models, and various discount plans offered by many cloud service providers. The complexity of extreme granularity in billing and constant changes in offerings and pricing models creates ambiguity. Fluctuating variable prices and a lack of standardization in Cloud billing are also major concerns.

The complexity of extreme granularity in billing and constant changes in offerings and pricing models creates ambiguity. Fluctuating variable prices and a lack of standardization in Cloud billing are also major concerns.

This creates complexities in creating budgeting, forecasting needs, and consumption. If lacking, waste resources can add up substantial costs in the Cloud billings.

Many businesses lack the expertise to optimize system configuration changes or know how to effectively manage and track the compute power of instances, storage, and these associated costs. Business leaders will face challenges if they do not separate resources into groups to attribute costs and usage to specific applications.

Trade-off between commitment & costs

Cloud teams need to ensure capacity to handle unexpected traffic spikes and load fluctuations yet not too much that would result in overspending on unnecessary resources.

A major concern for the Cloud teams is to make a high-impact decision of choosing the best Cloud platform services at the lowest possible cost. Cloud teams need to ensure capacity to handle unexpected traffic spikes and load fluctuations yet not too much that would result in overspending on unnecessary resources.

Capacity planning can be of great help in reducing overall Cloud costs. Enterprises can get cost benefits and discounts by committing usage of resources but smaller companies may lack the financial flexibility for such commitment.

Lack of Cross-functional Collaboration

FinOps requires cross-functional understanding, support, and ownership to deliver an effective Cloud financial management practice. Infrastructure procurement decisions are typically taken by unified teams of Cloud and finance experts. Nevertheless, such a corporation fails to continue after the implementation of Cloud resources. The finance team must be involved during the continuous operation. They must be trained on Cloud, properly enabling them to take critical actions. On the other hand, the DevOps teams must be provided with relevant insights and recommendations but also well-understood workflows and a means to measure the ROI of actions taken. Integration between the Finance and DevOps teams is needed to make seamless actions, recommendations and measure realized savings.

Lack of expertise in Cloud FinOps

FinOps as a discipline is fairly new with a limited number of experts.

According to data.finops.org the average experience of a FinOps practitioner is 2.5 years. This when viewed through the lens of the exploding public Cloud adoption can be seen as a major talent gap.

Figuring to bring financial accountability
to all your variable cloud spends?

FinOps Principles

FinOps is a cultural practice that helps bring financial responsibility to the cloud-based spending model. It is the practice of placing financial responsibility for spending on the cloud, enabling global teams to make informed business decisions. Cloud FinOps aims to hold engineers responsible for costs as they are for DevOps. FinOps is primarily a culture shift where cloud cost is moved to the forefront of everyone's thinking.

Collaboration: Continuous improvement and innovation are needed to optimize the per resources-per-second-cost and require seamless cooperation of the Finance and Cloud Infrastructure teams. As a cultural change, these teams can no longer work in silos. FinOps by discipline demands capabilities from these teams to collaborate to balance the Cloud costs and its value.

Value-Driven Decision Making: The broader FinOps concept of enterprise value per business unit influences real-time decisions of managing Cloud usage. Cloud costs are not isolated costs but a driver of innovation and enterprise value. While immediate cost optimization gains are attractive and help build a business case, FinOps is a practice of maintaining efficiency and flexibility to improve long-term Cloud deployment. Therefore companies should focus on increasing the business value of Cloud investments rather than cutting

Ownership: In a conventional Cloud infrastructure management setup, Cloud engineers would be responsible only for the availability, reliability, and security of the Cloud infra. FinOps adds an added responsibility of costs to this mix. FinOps aims at Cloud cost excellence in an organization. Each stakeholder in the Cloud infrastructure of a company should own the responsibility of being held accountable for Cloud usage and the associated costs.

Centralized FinOps Management: A cultural shift requires a leading authority for advocacy and goals to be successful. A FinOps team should develop principles and practices to enhance cost excellence for an effective operating model that can be adhered to by the organization.

Timely Availability of FinOps reports: In the world of automated deployments and per-second compute resources, monthly or quarterly reports aren't enough. Teams need real-time visibility into their Cloud usage and to make the best spend decisions. The dynamic nature of the Cloud demands real-time decision-making to make the best of Cloud FinOps.

Advantage of Cloud Variable Cost Model: Cloud-based capacity planning makes it much easier to determine how much capacity to buy and how many resources to use. Instead of assuming that future demand will increase, base your purchases on actual usage data.

Thinking of implementing FinOps in your
organization?

FinOps Teams

FinOps as a methodology is closely related to several others like DevOps, Agile, Technology Business Management or TBM, the AWS Well-Architected Framework, continuous integration and delivery, CI/CD pipelines, and the Cloud Center of Excellence or CCoE. They all have certain things in common. For example, they all are cyclical, continuous processes, they use a Crawl, Walk, Run approach, they use collaboration to support speed and agility, they value automation, and use a common language to align goals. Awareness and affinity around FinOps can be generated by drawing distinctions or highlighting similarities with the users of such methodologies.

FinOps improves business outcomes through ubiquitous visibility and collaboration. FinOps leverages other methodologies instead of competing with them.

FinOps Capabilities

FinOps Capabilities represent functional activities intended to be in service of enablement, education, knowledge sharing, advocacy, actionable tasks, business objectives, and FinOps maturity improvement.

Understanding Fully Loaded Costs: To accurately allocate cloud costs, the billing data needs to be mapped to the organizational hierarchy like of cost centers, business units, applications, and environments. Accounts and project team’s tagging often do not fully align with how leadership and Finance think of cloud spending. Also, there are untaggable cloud resources like data transfer costs that need to be attributed to provide a complete view of cloud costs.

Enable Real-Time Decision Making: FinOps team needs to provide every stakeholder with timely and consistent reports that provide spend data at a granular level. These reports need to be customized as per the viewer’s needs, ideally automatically. Cloud spend anomalies or potential savings opportunities need to be clearly communicated to the right people in a timely manner.

Benchmark Performance: The FinOps team needs to incorporate trending and variance analysis in their reports. Viewing spending data over a relative progression over time is more informative than at an absolute moment in time. Leadership will need custom reports with metrics and KPIs like cost per active customer, cost per widget sold, or cost per streaming hour. The FinOps team also needs to evaluate their capabilities against what is current practice in the industry.

Rate Reduction and Cost Avoidance: Rate Reduction refers to mechanisms like Enterprise Agreements, Private Pricing Agreements, and Reservations or Savings Plans that reduce the cost from list prices. Cost Avoidance efforts like right-sizing, cloud parking, auto-scaling, and re-architecting workloads reduce usage to be more cloud-native to take advantage of containers or serverless.

Align Plans to the Business: Continuous ongoing reviews with stakeholders about optimization opportunities to drive Cost Avoidance is a necessity for FinOps teams. The FinOps team needs to develop a framework for decision-making that aligns with the business drivers. Thus, moving cloud costs to the forefront of everyone's priority.

Know the 5 Best Practices for Cloud
Cost Optimization.

The FinOps Lifecycle

FinOps as a cultural practice is an efficient way to manage the Cloud infrastructure for the organization ad address the challenges faced in Cloud FinOps. Unlike any culture, companies should align themselves and embrace the principles that establish an effective and cost-conscious culture of FinOps. These principles will not help in cost accountability but also maintain business agility in the face of the dynamic technological advancements.

Let us have a look at the three phases of the FinOps Lifecycle and how they remedy the challenges listed earlier:

Inform: The inform phases help in mitigating the challenges of the complex and overwhelming number of choices of Cloud SKUs. This phase provides a granular view of Cloud spend, allocation, chargebacks, and tagging, while analytics help with insights into spend pattern, audit frequency, and recommendations for right-sizing and proper costing. The organization gets insight into the allocation of its resources during the information phase. The focus throughout this phase is to identify current resource allocation, the performance of the budget, and its future implications. The on-demand and dynamic nature of the Cloud, along with individualized pricing and incentives, allows for precise and real-time decisions.

Optimize: The second step is optimization, the granularity of the information gathered in this phase helps leads make better tradeoffs between commitment & costs. FinOps teams comprising Cloud and finance experts collaborate and identify cost-cutting options and take appropriate action. The idea is to spend resources more wisely and prevent wasting them. CSPs provide a variety of tools to assist teams in optimizing their operations. In this phase, organizations must automate the right-sizing of the current compute storage and network resources. Purchases of committed use plans also need to be automated to benefit from discounts while maintaining high utilization. Companies must leverage the proprietary Cloud resources & volume offered by vendors for discounts and savings. The granularity of the information gathered in this phase helps leads make better tradeoffs between commitment & costs.

Operate: The operate phase is the third and final phase. Companies should also identify the latest developments in the discipline of Finops, identify better FinOps technologies while taking proactive steps to ensure a competent FinOps talent pool in the future. The team should keep track of the company's objectives as well as the speed, efficiency, and cost of Cloud resources. It will help in monitoring spend optimization opportunities and the RoI from these opportunities. Companies must conduct periodic audits to ensure effective

Solution Provider Ecosystem

We now see a new class of software and service vendors focusing on specific stages of the FinOps lifecycle. The FinOps solution providers can be classified into five categories:

MSPs

MSPs is a third-party company that remotely manages a customer's IT and Cloud infrastructure. They have dedicated experts who use proprietary or 3rd party tools for Cloud analytics and automation. They take control of the FinOps cycle for their clients but are limited to Inform and Operate phases.

MSPs provide a dashboard, analytics, right-sizing, and right costing services to their clients but do not provide discounts.

They generally perform quarterly architecture reviews to align application/databases to Cloud infrastructure usage. MSPs provide a dashboard, analytics, right-sizing, and right costing services to their clients but do not provide discounts.

Accenture, Infosys, SoftwareONE, IBM, Turbonomic, Doil, and SOPHOS are some of the companies falling in this category.

Saving Plan/ RI Management bgline

These companies provide volume-based discounts to companies through the sale of RIs and savings plans through them. Clients benefit from the vendors’ volume and committed term discounts while maintaining complete flexibility. These companies charge a small percentage of the discounted savings they deliver but do not provide rightsizing and Cloud architecture review and expert recommendations.

Paraquantix, Prosper Ops, Zesty, Spot.io, Cloudwiry are some of the companies falling in this category.

Third-party CFM tools bgline

These are SaaS companies offering Cloud financial management tools. Most of these platforms may offer automated recommendations on right-sizing and right costing. These platforms do not provide Cloud billings analytics and volume discounts. Cloudability, Cloud Checker, CloudHealth, and Densify are some of the companies falling in this category.

DIY CFM tools by Hyperscalers bgline

These are the in-house Cloud financial tools provided by some of the major cloud service providers. Most of these tools are free to be used by companies but require in-house talent to make the most of them. These tools provide Cloud usage and billings analytics and dashboarding although with lesser depth when compared to third-party tools. Some of the hyperscalers may also provide volume discounts.

Holistic FinOps Service providers bgline

These companies provide the entire spectrum of FinOps services to their clients across all phases of the FinOps lifecycle. These are expert Cloud partners offering guaranteed, immediate, and superior cost savings among all service providers.

According to data.finops.org the average experience of a FinOps practitioner is 2.5 years. This when viewed through the lens of the exploding public Cloud adoption can be seen as a major talent gap.

Companies like Builder.ai, InterVision, and CloudKeeper by TO THE NEW are some of the companies falling in that category.