I discussed the perils of implementing a Lift and Shift approach in a recent article about “Cloud Value Realisation (CVR)”. Increasing cloud infrastructure costs due to monolithic applications being unable to leverage cloud-native scaling is one of the biggest challenges technology executives face.

FinOps has been posited as a white knight to solve this problem and has resulted in a myth that implementing FinOps automatically reduces cloud infrastructure costs.

This article breaks this myth and makes a case for leveraging FinOps to understand cloud spending and how to profit by deriving business value from cloud investments instead of focusing on reducing costs.

Implementing FinOps may increase cloud infrastructure costs, but it provides tremendous benefits such as revenue growth, understanding where investment dollars are spent, and matching investments to direct business outcomes.

Problem statement

Technology executives are facing the following three big challenges in managing cloud costs:

• Lack of governance: Having no link between cloud infrastructure and business outcomes creates a challenge to justifying cloud investments.
• Overspending: Technical resources spin up infrastructure which is difficult to track because hyper-scalers have thousands of SKUs with constant changes in pricing models.
• No single pane of glass: Technology executives find it very difficult to budget, forecast, monitor, and control consumption because it is a big challenge to create a single dashboard by consolidating information from different hyper-scalers. This problem is exacerbated because each hyper-scaler has variable pricing models, there is no standardisation of billing models, and tagging/ allocating costs internally implies the need to navigate through internal organisational dynamics.

FinOps is an evolving cloud financial management discipline and cultural practice that enables organisations to get maximum business value by helping engineering, finance, technology and business teams to collaborate on data-driven spending decisions.

Also Read: Exploring the rise of finance-as-a-service in APAC

The most important goal of FinOps is to bring accountability to cloud spending by providing information to business and engineering teams for making investment trade-offs between time to market, quality, and costs.

Steps to implement FinOps

Based on discussions with numerous C-level executives, I recommend that organisations start with the following three steps to implement FinOps:

Step 1: Create and empower a core team

A cross-functional team comprised of business leaders, finance team members, IT/engineering team, and FinOps practitioners must lead the way to derive business value from cloud investments. This cross-functional group is responsible for calculating cloud costs, tagging cloud resources, monitoring where cloud investments are focused, mapping investments to business outcomes, and, most importantly, breaking down silos to get a unified perspective.

Step 2: Shift the mindset of business and technology teams

During a lift & shift exercise, IT teams may focus on the speed of delivery and leveraging cloud computing but ignore cost-related matters, such as the impact a product enhancement or modification might have on cloud investment. Similarly, business teams may not be keen to understand the cost of implementing new functionality because they want a faster time to market.

Mindsets must be shifted for business, IT, and finance teams to design and develop software with costs in mind and tie these costs to business objectives. The cross-functional team must be able to justify the business benefits of adding a new product feature when compared to additional cloud infrastructure costs needed to implement the functionality.

The team can then properly make the necessary trade-off decisions ensuring business value is created daily.

Step 3: Create a framework to understand cloud investments

The cross-functional FinOps team must create a framework to understand cloud infrastructure spending and determine whether cloud resources are being used cost-effectively to derive business value. FinOps presents a big data challenge because there is a huge amount of data to reconcile across multiple hyper-scalers.

Each hyper-scaler creates a unique line-item charge every second a cloud service runs, resulting in a bill with more than a million line items. The core team must dive into these large data sets, reconcile them, and understand cloud costs and business benefits. The results of this framework should be shared as regular reports which are easy to understand by business, technology, and finance teams to make the right decisions.

How FinOps enables “money-making” instead of focusing on “cost savings”

FinOps provides organisations with tools and data to leverage the cloud for increasing business value via a real-time account of which cloud investments are delivering the biggest business results.

It also highlights areas that can do a better job of optimising cloud resources, such as shutting down idle resources or infrastructure not yielding forecasted revenue growth/profits. Cloud consumption then becomes more efficient and creates a mindset that extra consumption is tied to revenue generation, adding more customers, or increasing customer satisfaction.

Also Read: Bridging the gender gap and boosting women entrepreneurship with embedded finance

FinOps also democratise information and gives power to the team working at the ground level to make decisions about whether provisioned resources are producing sufficient business value and adjust those resources for an immediate financial impact.

Teams can measure the impact of that spending and take corrective actions such as improving time to market, adding new functionalities with existing resources, or leveraging hyper-scaler innovation to build new products.

Call to action

Create a centralised team to drive FinOps

The FinOps core team must be cross-functional, consisting of leaders from finance, business, and IT to drive best practices through the creation of easy-to-use reports that map cloud investment to any business value created.

They also focus on rate optimisations through commitment-based/ enterprise discounts and by shutting down idle resources that are not delivering business value.

Drive decisions by the business value of the cloud

A FinOps practice maximises the impact of cloud investments on business outcomes. This may result in spending more to drive innovation by leveraging hyper-scalers. It is critical to deliberately decide on increasing cloud spending instead of allowing spending to creep up slowly with an engineering team that may create more cloud resources that do not deliver business value.

FinOps reports providing enough data to make informed decisions on how to optimise cloud spending for various business priorities.

Create a framework providing timely and accessible FinOps reports

Today, cloud vendors provide cost data on a real-time basis using per-second compute resource billing. Business and engineering teams need self-serve access to cloud usage reports to understand the impact of infrastructure decisions.

This leads to an “ownership mindset” where everyone is accountable for deriving business value from cloud spending.

—

Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic

Join our e27 Telegram group, FB community, or like the e27 Facebook page

Image credit: Canva Pro

This article was first published on June 12, 2023

The post Debunking misconceptions about FinOps and cloud spending reduction appeared first on e27.