Achieving Effective Cloud Cost Management: How FinOps Helps Your Organization Meet Its Goals
Sustaining cross-functional, collaborative and transparent conversations on making the most of resources is a critical, ongoing task. It’s particularly important for organizations in the public cloud where spend can easily creep. For an organization to be efficient, profitable, and ultimately successful, FinOps (cloud cost management) is a team effort. At a minimum, finance, CCOE or cloud operations, engineering, and IT operations should work in concert. This is how you can achieve effective and prudent cost management and reach business goals.
A complete understanding of usage and spend across all cloud assets will serve teams well. With this view, these teams can:
- Accurately forecast and budget
- Allocate costs based on usage to drive accountability
- Detect anomalies and sudden cost fluctuations
- Embrace the underlying processes that glue their financial picture together
Let’s look at the following functional areas and how a FinOps approach effectively addresses the management of cloud costs and propels your organization forward within each one.
Finance teams
Finance teams have various ways to control cloud costs: by instituting and enforcing financial and accounting process rules, establishing budget allocations by team, negotiating contracts and other strategies. Because financial management involves all levels of an organization top down and bottom up, such as cloud spend rolling up to IT spend, or the cloud budget stemming from a percent of total expenses, it’s important to accurately forecast and budget cloud spend as granularly as possible.
Another important metric Finance considers when planning for projects to invest in is ROI to understand one project’s expected revenues in relation to costs against other projects. In order to do this effectively, Finance must evaluate the unit economics for each project i.e., cost divided by a unit (such as applications, BU, region). A Finance controller may allocate those costs proportional to the unit’s cloud usage. Understanding the revenue relative to the associated costs enables decision-making for the projects and efforts that are the most profitable for the company. It also sets a benchmark for success.
Allocating costs also drives accountability. In the past, IT was considered a cost center that absorbed all technology costs. Now, with an increase in decentralized decision-making and budgets, finance can properly chargeback users based on their usage.
With CAPEX (long-term costs) and OPEX (expense-as-you-go), moving to the cloud has forced many finance teams to embrace OPEX financial strategies. Spending on “as-you-need” public cloud services is a big change for organizations that, just a few years ago, would’ve spent millions on a datacenter. It has significant implications for the CFO and their team in context of profitability and Wall Street expectations. This should be a careful consideration.
Cloud operations teams
Cloud operations/cloud center of excellence (CCOE) teams are the administrators of the public cloud, and they hold the access keys for the software development team. In larger enterprises, it is possible that one manager will be assigned to one cloud service provider. This team is likely a part of regular cloud vendor negotiations. Some of their tasks include:
- Provisioning cloud access
- Setting up computing, storage, database and networking needs for specific users/teams
- Monitoring usage and costs
- Configuring capacity and workload rules
- Maintaining data security
- Accelerating digital projects
The cloud operations team also has visibility to the cloud billing. They are expected to minimize overspend or waste.
CCOE teams should make proactive decisions on which cloud service providers (CSPs) are the best for certain executions, how to scale operations and how to maintain high up-time in line with developer productivity.
Software engineering and Dev teams
Software developers and their ability to create test, development, and production environments are an integral part of your organization’s product innovation, revenue scaling, and employee productivity. Without governance or clear rules of when and how to use what cloud resource however, they will simply do “what it takes” to get work done.
While developers usually try to maximize their efforts in launching cool new features, products, and capabilities, they don’t often keep track of their cloud spend. Finance teams will notice big run ups on cloud costs, however. In some organizations, they will attempt to curb the spend if it exceeds budget or escalates exponentially. Alternatively, because some specialized software developers can be considered “expensive” resources, another approach is to allow them free rein to do their work, at any cost.
In both scenarios, FinOps can look at the importance of the workstream to downstream projects and the revenue associated with the cloud spend before making decisions about the spend itself.
IT Ops and Services teams
In some companies, the person with the IT operations role has evolved into the cloud operations or application owners. On the path to digital transformation, many IT teams have been tasked with migrating applications from the datacenter to the cloud. They re-platform, refactor, and rebuild to be cloud native. Because the IT team’s goal is to drive efficiency for both tools and personnel, this team should work to optimize IT costs across multi-cloud environments.
In the interest of delivering to business unit expectations, IT Ops strives to have high up-time with low time to resolve issues in a compliant and secure environment. That means that the workloads going to both private and public cloud need to be well-oiled and high functioning. They are stewards of cost and are often held responsible for knowing the licensing arrangements between what is paid on-premises and what might be “BYOL” in the cloud. An IT asset management (ITAM) program can be used to manage the user lifecycle across all hardware and software and SaaS licensing for maximum cost efficiency.
FinOps becomes a powerful enabler
As discussed in our first blog post in this series, FinOps isn’t just about capping cloud spend. It isn’t meant to place limits on creativity, productivity and innovation. Instead, FinOps is an organizational mindset that enables your organization to achieve strategic goals while effectively managing costs. In the spirit of creating visibility and reducing cost and risk, it’s closely aligned with ITAM programs and SaaS management. FinOps also includes the drive to understand and manage all technology. At Snow, we call this Technology Intelligence.
For more insights on FinOps, subscribe to our blog.