Create cloud financial accountability across your organization

Cloud FinOps, also referred to as Cloud Financial Operations, is a practice that focuses on aligning cloud costs with business objectives and improving overall financial management in the cloud.

When implemented correctly, it can provide you with a better understanding of your cloud spending patterns, enabling you to make more informed decisions on how to allocate and manage your costs.

FinOps: philosophy and function

FinOps as a philosophy relies on a cross-functional and holistic business ecosystem where all departments – from engineering teams to finance teams – share ownership and responsibility for financial decision-making.

The operating model isn’t solely preoccupied with controlling the expenditure and value of cloud investments or alternative IT systems. FinOps goes further, optimizing spend via strategic decision making and the systematic breakdown of traditional business silos that obstruct collaboration. In doing so, organizations can increase profitability at all levels, from product engineers to board-led business teams.  

How does FinOps translate as a tangible function? Essentially, all stakeholders – also known as personas – must actively consider the business value of cloud or regular IT services across an organization, pursuing optimal procurement, cost allocation and sustainability in their respective areas.

The FinOps Foundation – a community-led project providing best practices, connections, and useful resources – outlines six key FinOps Principles:

• Business value – Data-driven decision making and forecasting should focus on business value. FinOps practitioners must consider factors like potential increased revenue and improved efficiency alongside conventional cost-based metrics. This forms the foundation of Cloud Unit Economics;
• Cross-functional teams – Collaboration is a fundamental FinOps tenet. Business teams must work alongside their finance, technology, and product counterparts to increase efficiency in all areas;
• Financial accountability – All teams must take ownership of their cloud or IT usage, promoting a culture of shared responsibility across an organization. Finance teams provide budgeting and cost allocation insights, while engineering and DevOps teams optimize their resource usage;
• Consistent transparency and visibility – Organizations must share FinOps data across all levels to promise transparency and consistent visibility into IT or cloud spend. Cloud FinOps tools like the Vertice Cloud Cost Optimization platform can help track spend, optimize procurement, reduce software sprawl, and understand how services interact;
• Continuous Cloud Cost Optimization – With regard to Cloud FinOps specifically, organizations must take advantage of the variable cost model of SaaS and cloud services using agile iterative planning. By dynamically scaling resources based on actual needs, organizations can avoid unnecessary spending;
• Centralized FinOps teams – A centralized team of FinOps practitioners drives best practices within a decentralized shared accountability model. The idea is similar to security, which is overseen by a central team but holds everyone ultimately responsible.

Structural and product-led FinOps deployment

While traditional business and power structures form a pyramid, it’s better to think of FinOps’ structure as an interconnected matrix with a dedicated team of FinOps practitioners at the center.

All nodes are connected and follow broad instruction from the center without losing any autonomy for their own specific purposes. Borrowing elements from blockchain principles, this keeps information transparent, enables real-time data-driven decision making, and keeps all stakeholders accountable.

Who are the relevant FinOps personas? In short – most teams across an organization with an active interest in deployment, procuring, engineering, management, budgeting, and other crucial responsibilities. These include:

• FinOps practitioners
• Finance teams
• IT operations
• DevOps teams
• ITAM leaders
• Executives
• Business and product owners
• Procurement teams

Structural FinOps and Cloud FinOps deployment starts with breaking down silos to establish cross-functional teams with representatives from the departments above. Hiring or training specialist FinOps practitioners is the next step, as these personas bring invaluable knowledge to define a successful operating model.

Successful FinOps practice on a product-led level includes several key initiatives. Organizations may implement cost allocation and chargeback models to optimize IT or cloud usage. Tightly integrating FinOps principles into the DevOps lifecycle is also fundamental.

Leveraging Cloud FinOps tools is another important deployment tactic. These increasingly use automation to provide a complete picture of an organization’s cloud spending, identifying areas for potential rightsizing and optimized procurement. For example, the Vertice platform unifies SaaS and cloud management, enhancing visibility and cost-effectiveness – central FinOps elements.

What does a FinOps implementation process look like?

Before pressing ahead with implementation, ensure you understand the overall FinOps Framework as defined by The FinOps Foundation. We’ve discussed the main details above, but the framework is constantly evolving, so it’s worth exploring yourself.

Broadly speaking, implementation can be separated into three phases: Inform, Optimize, and Operate.

How does this translate into an actionable process? Here is a simplified overview using Cloud FinOps as an example:

• Establish the FinOps foundations – Define organization-wide roles and cross-functional teams with dedicated FinOps practitioners at the center. Establish KPIs and responsibilities so all stakeholders have clear goals;
• Analyze cloud spend – Assess current cloud spending and resource allocation using Cloud FinOps tools to understand your current SaaS stack. Share this data with all stakeholders to develop a holistic attitude at all levels;
• Cloud Cost Optimization benchmarking – Set benchmarks for cost reduction, improved resource utilization, and overall cloud value optimization across the organization;
• Integrate Cloud FinOps principles – Implement these objectives into existing cloud operations, budgets, DevOps, and procurement. Chargeback and cost allocation models can drive accountability, while organization-wide FinOps training hones the process;
• Continuous optimization – Consistently monitor cloud costs, celebrating wins and identifying areas for improvement. Use Cloud FinOps tools to highlight potential optimization actions and survey the process.

The steps above constitute a basic FinOps lifecycle. An iterative approach is key here, with all departments consistently going back to the Inform stage to address potential new strategies. It’s also important to note that these teams can run through the process at different speeds or simultaneously.

FinOps vs. Cloud FinOps

FinOps is a broad philosophy for optimizing IT spending. Cloud FinOps, on the other hand, refers specifically to the management and optimization of cloud investments and services. The principles can be applied to any cloud environment, including public cloud (AWS, Azure, Google Cloud etc), private cloud, or multi-cloud deployments.

The benefits of adopting Cloud FinOps

The trade-offs for successfully implementing and maintaining a Cloud FinOps strategy are extremely attractive, especially in the increasingly dynamic SaaS and cloud domains. Here are the main benefits:

• Optimize cost allocation – Improve your cloud cost and resource allocation to prevent wastage and enhance production in potentially neglected departments. The holistic and interconnected nature of the FinOps framework ensures an even approach to all corners of the business;
• Improved collaboration – Cloud FinOps breaks down silos, fostering a spirit of collaboration that drives better communication and decision-making surrounding cloud usage. This not only optimizes costs but influences greater productivity and workplace satisfaction;
• Enhanced DevOps capabilities – Cloud FinOps maximizes cost visibility, helping DevOps teams make better use of their cloud resources;
• Increased business agility – Running Cloud FinOps initiatives enables businesses to easily scale cloud resources depending on up-to-the-minute requirements. Increased agility, innovation, and growth are three significant advantages;
• Transparency and accountability – All departments have a clear picture of how resources are used and the subsequent cloud costs involved. This leads to essential transparency and encourages all stakeholders to be accountable for their usage and spending;
• Reduced cloud bill – Get a reduced cloud bill via optimized pricing made possible by Cloud FinOps tools alongside adopting the general philosophy. Practitioners can identify opportunities to use more cost-effective services or pricing models, especially where variable pay-as-you-go pricing is involved. Additionally, Cloud FinOps tools like the Vertice platform can help you procure SaaS and cloud services at a better price;
• Sustainability – Organizations successfully implementing Cloud FinOps are naturally more sustainable. The philosophy doesn’t just prevent wasted spend, it also eliminates energy and resource wastage to reduce the cloud’s carbon footprint;
• Effective Cloud Rate Optimization – Cloud FinOps ensures you’re using the most cost-effective cloud service tiers and configurations for your specific needs, maximizing ROI and Cloud Rate Optimization;
• Simplified cloud migration – Cloud migration can pose serious issues for segregated organizations, but a Cloud FinOps approach ensures optimum resource allocation and cross-functionality from the beginning. This can be particularly effective for hybrid or multi-cloud deployments;
• Reduced vendor lock-in – Cloud FinOps tools can reduce an organization’s dependence on a single vendor, helping to identify other cloud providers that could handle specific responsibilities at a lower cost.

The three phases of FinOps

Cloud FinOps initiatives require continuous strategy development and workflow refinement. By working iteratively through three key phases — inform, optimize and operate — FinOps teams can reduce the time to cycle.

Inform

The inform phase lays the groundwork for any ongoing FinOps projects. It’s a process of data harvesting, identifying and extracting information sources on cloud cost, usage and efficiency data.

Using these sources, teams can build budgets and forecasts while developing KPIs and other metrics to ultimately reveal the overall value of an organization’s cloud spend. These benchmarks are essential for the provision of accurate reports, allowing business and finance teams to ensure they’re delivering ROI and staying within budget.

But make no mistake: the inform phase is never a one-off exercise. The elastic nature of the cloud — where access to products and services is based on-demand — demands visibility through the continuous monitoring of overall usage. Complex pricing discounts also require businesses to revisit activities that will help inform ongoing cloud FinOps strategies.

Optimize

The second phase – optimize – puts the insights gathered during the inform phase to work and identifies areas for cloud efficiency improvement.

Organizations can optimize cloud resources in several ways: highlighting underutilized subscriptions to cloud services, modernizing cloud architecture, and using automation to manage workloads and eliminate waste.

Optimization can also be achieved through a revision of cloud costs. Leveraging analysis from the inform phase, purchasing teams can opt for more suitable pricing models such as reserved instances (RIs), savings plans (SPs) and committed use discounts (CuDs). Flexibility is a primary advantage of the variable cost model of the cloud.

The optimize phase exemplifies the overarching philosophy of cloud financial operations — the smashing down of business silos to foster better cross-team collaboration. Any area with misaligned performance metrics demand clear visibility and swift reporting so that appropriate action can be taken to achieve an organization’s cloud investment goals. All stakeholders must work together here in order to identify areas for optimization.

Operate

The operate phase involves governance and compliance policies alongside continuously improving cloud resources. Successful FinOps activities often hinge on stakeholder buy-in, which is why this phase also concentrates on developing individuals through training programs and team guidelines.

This process cultivates a culture of accountability, where teams combine to capitalize on the opportunities highlighted in the first two phases.  

Remember that the goal of cloud FinOps tools is to continuously iterate strategies and workflows. This means that teams carrying out work in the operate phase should never rest on their laurels — loop back to phases two and three to ensure consistent improvements to your organization’s cloud services.

Maturity models and how they relate to FinOps

A maturity model is a framework that allows a particular discipline to assess its capabilities for continuous improvement. These models are designed to evaluate how well a company, system, culture, technology etc. is able to develop itself from a given state.

Maturity models select an area of resource relevant to the discipline, against which to measure itself and its ability to develop in that area. In the world of cloud FinOps, maturity models focus on the efficient management of cloud use through iterative development processes.

The FinOps maturity model has three stages: crawl, walk and run. These stages encompass one of the core ideas of FinOps activities: start slowly, run tests in your environment to check performance, and add capabilities to your system only once you’ve identified the need to do so.

The aim of the FinOps maturity model is not to accelerate all processes to the final “run” stage. Just as you wouldn’t hire a Michelin-star chef to work behind the grill of a diner, building FinOps capabilities to maturity levels beyond your environment’s need is a waste of resources. In any FinOps project, it’s essential to concentrate on the areas that matter most.

The model’s ambition is for practitioners to use it as a means to gauge organizational needs and to meet them over time, incrementally adding complexity at a pace that suits stakeholders and builds trust throughout the process. Doing so allows stakeholders to participate in the development of simple-to-complex capabilities, stimulating buy-in across the board.

How to measure Cloud FinOps’ impact

Measuring the impact of cloud FinOps tools involves understanding the metrics that pertain to its success. There are a number of different KPIs that organizations may use to determine the success of a FinOps operation, depending on the aims of the project itself. We’ve outlined some of these KPIs in the list below.

• Optimized cloud cost — For RIs and SPs, optimized cloud costs can be calculated by analysing usage data and selecting the most cost-effective purchasing strategy.
• Cost optimization ratio — Known as COR, this metric is key for measuring the effects of cost optimization. A high COR score is indicative of cost optimization practices bringing better value to cloud investments.
• Cloud cost per application — By segmenting each application in your cloud system, organizations can identify the costliest apps in their environments and optimize spending accordingly.
• Cloud cost per user — Similarly, FinOps teams can look at individual usage data to see which users consume a disproportionate share of cloud resources.
• Utilization metrics — These metrics offer insight into areas of inefficiency or waste across cloud environments.
• Time to deploy — When new cloud resources are being deployed, this metric reveals how quickly systems can accommodate changing workload demands.
• Mean time to repair (MTTR) — When there are issues in cloud infrastructure, MTTR is a metric that reveals how quickly those issues can be resolved to reduce wider organizational impact.
• Budget variance — This metric reveals the difference between budgeted cloud costs and actual cloud costs. A continuous monitoring of budget variance highlights inefficiencies and allows teams to modify FinOps practices when necessary.

Improve your cloud financial management

Organizations now spend an average of $3.8 million on cloud computing each year, a third of which goes entirely to waste.

Part of the problem is that finance leaders lack visibility into their cloud costs, making it virtually impossible to control spend, identify areas of overspending or inefficiencies, and make informed decisions to optimize cloud resources.

With Vertice, this lack of visibility no longer has to be a problem. This is because our platform enables you to:

• Understand how your spend is adding up and where potential savings exist
• See how optimized your cloud environment is at all times and receive real-time alerts when there are irregularities in your cloud usage
• Drill down into the current and historic cost drivers for context on your cloud usage

Why finance leaders should care about cloud cost optimization ›

Achieve greater financial control with Cloud FinOps

By gaining a thorough understanding of how much is being spent on cloud computing, as well as how each of the services are being utilized, organizations can achieve greater financial control and in turn allocate resources more efficiently, better manage variable costs and implement strategies to reduce expenses.

Vertice can provide you with this visibility and control by continuously monitoring and analyzing your cloud usage patterns, in turn enabling you to:

• Optimize resource usage
• Prepare budgets and cash flow models with greater predictability
• Achieve financial accountability across your organization by aligning cloud costs to specific teams and projects

Is cloud cost management key to surviving an economic downturn? ›

Streamline the FinOps process

Given the complexities of the cloud infrastructure, this level of control is only possible with some degree of automation. After all, even organizations with a dedicated Cloud FinOps team are unlikely to identify every cost-saving opportunity, let alone execute on them.

Fortunately, the Vertice Cloud Cost Optimization platform leverages more than 75 sophisticated optimization tests with coverage across the AWS products used across your company, in order to continuously identify savings opportunities. We understand that time and resource is a major constraint for many, which is why our recommendations specifically:

• Require minimal engineering effort, with some automatically implemented on your behalf
• Provide quantifiable savings estimates

Vertice doesn’t just provide recommendations — our platform also utilizes advanced algorithms that trade reserved instances on your behalf.

Learn more about how Vertice Cloud Cost Optimization works ›

For more information on cloud visibility, resources, management, and any other cloud-related topics, check out the list of articles below.

• Cloud visibility — Understand why it’s important to gain visibility of your cloud resources and how Vertice can help your business here;
• Cloud providers — An explainer on cloud providers your organization should consider using;
• Cloud spend management — Learn how to monitor, analyze and control your cloud spend;
• Cloud asset management — Gain visibility, insights and control of your cloud assets;
• Cloud integrations — A guide to cloud integrations and how they streamline modern business processes;
• Cloud security tools — Learn the fundamentals of cloud security, including benefits, types of solutions, and best-in-class applications;
• Cloud migration — Discover how to build an optimal cloud migration strategy (and why you need to) in this guide;
• Cloud optimization — A guide on how to spend less and achieve more through cloud optimization;
• Multi-cloud management platforms — A guide on multi-cloud management platforms and how they’re vital to bringing cloud environments under control;
• Cloud contract management — Learn how to optimize cloud contracts to reduce spend, increase efficiency and minimize risk;
• Cloud computing tools — A basic guide into cloud computing and its tools, as well as a breakdown of the ten best cloud vendors.