What is FinOps? How it works? Best Practices & Tools in 2022

Hi there! Let‘s talk about an important new approach called FinOps that helps businesses manage their cloud computing costs.

What Exactly is FinOps?

FinOps stands for cloud finance operations. It is a way of monitoring and optimizing your spending on public cloud services like AWS, Azure, or Google Cloud.

As companies rapidly adopt cloud computing, their costs can spiral out of control. FinOps brings financial accountability to cloud usage through cross-functional teamwork, advanced data analytics, and cultural shifts.

The key goals of FinOps are:

  • Full visibility into cloud spend and usage
  • Accurate budgeting and forecasting of cloud costs
  • Continuous optimization to eliminate waste and maximize efficiency

With FinOps, you can balance speed, cost, and quality trade-offs in real-time based on actual data. It helps ensure you maximize cloud value while meeting your budget.

Why Should Businesses Care About FinOps?

There are a few key reasons FinOps is becoming critical:

Cloud Spending is Growing Rapidly

Public cloud services are estimated to hit over $362 billion in revenue by 2022 according to Gartner. That‘s up from $182 billion in 2018 – nearly doubling in just 4 years!

As cloud adoption accelerates, costs can easily get out of control. Research shows organizations waste 30-45% of cloud spend on unused resources.

Cloud Outages Can Be Costly

When cloud services go down, companies can lose millions per hour in productivity and revenue. Outages often happen due to poor cloud capacity planning and resource allocation.

FinOps provides the data and analytics to prevent these oversights and ensure you have resources scaled optimally to your needs.

Complex Pricing Makes Forecasting Difficult

Public clouds have complex pricing models with on-demand pricing, reserved instances, spot instances, volume discounts, etc. This variability makes it hard to forecast and stick to a cloud budget without advanced analytics.

How Do FinOps Processes Work?

Experts recommend approaching FinOps as an iterative cycle with three core components:

Inform

The first step is gaining transparency into your cloud usage, resources, and spending through detailed cost allocation reporting and analytics. Cloud providers offer tools to pull usage data and create visualizations.

You can also set budgets and forecasts based on historical spending patterns. This informs your business leaders and helps them make data-driven decisions about cloud usage.

Optimize

With clear visibility, you can take action to optimize your cloud footprint by right-sizing resources, purchasing reservations for discounts, eliminating waste, and implementing automated policies to prevent overspending.

The goal is to maintain performance and availability while maximizing efficiency. As an example, AWS estimates customers save 10-40% on costs after FinOps optimization.

Operate

Finally, you institutionalize an operational culture focused on cloud cost management. Continuously monitor usage and spending while enforcing FinOps principles across technical and business teams.

This new culture and ongoing process improvement helps sustain a lean and efficient cloud environment.

What Can FinOps Do for Your Business?

Implementing FinOps practices and tools can provide huge benefits:

  • Up to 40% reductions in annual cloud spending
  • Better predictability and accuracy of forecasts
  • Increased accountability and reduced "shadow IT"
  • Maximized utilization and fewer outages
  • Granular visibility into spending and usage
  • Smartered financial trade-off decisions

According to Gartner, 80% of enterprises will require specialized tools to manage cloud cost optimization and governance. FinOps provides the methodology and software to control your cloud spend.

Best Practices for Managing Cloud Costs

Based on proven FinOps success stories, here are my top tips for managing cloud expenditures:

Process & Organizational Tips

  • Create cross-functional FinOps teams with finance + IT ops
  • Require spend authorization and peer review for new services
  • Eliminate shadow IT with transparency into resource usage
  • Right-size reserved instance purchases to balance savings and flexibility

Technical Tips

  • Tag resources appropriately to identify usage by department, app, etc.
  • Implement auto-scaling and notifications to respond to usage spikes
  • Centralize IdAM and RBAC to limit employee access and overprovisioning
  • Leverage AWS Savings Plans for long-term cost reductions

Procurement Tips

  • Commit volumes to 1-2 vendors for maximum discounts
  • Avoid vendor lock-in with multi-cloud or hybrid approaches
  • Leverage unified procurement processes and purchasing channels

Common FinOps Challenges

Transitioning to FinOps does come with some challenges including:

  • Internal cultural resistance to cloud cost transparency
  • Lack of granular data from cloud providers
  • Inability to map spend to business units and applications
  • Skill gap in understanding complex cloud pricing models
  • Justifying investment in new software tools and training

However, leading organizations have demonstrated the vast benefits outweigh these barriers with the right executive support.

FinOps In Action

Netflix provides a powerful example of FinOps and cloud governance in action. Their FinOps team reviews all spending and ties usage to business metrics. By shutting down unused resources immediately, Netflix has maintained profitability while scaling rapidly.

Other examples include Adobe, Nike, and the U.S. Air Force. The benefits are clear across industries.

Tools to Implement FinOps Successfully

Specialized software is essential for collecting cost data, monitoring usage, identifying waste, and making recommendations. Top FinOps tools include:

  • Cloudability – For usage analytics, cost visibility, rightsizing and budget alerts
  • CloudHealth – Multi-cloud management with governance, security and financial management
  • Apptio – IT spend planning and tracking with dynamic forecasting
  • ParkMyCloud – Automatic resource scheduling, rightsizing, and utilization monitoring

Combined with executive sponsorship, cross-team collaboration, and a culture of cost transparency, these FinOps tools can help you transform the way your business consumes cloud services.

Let me know if you have any other questions! I‘m always happy to discuss FinOps best practices in more detail.

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