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What Is FinOps and how can it affect your organization’s computing costs?

What Is FinOps (Financial operations)?

FinOps (short for Financial Operations) is a set of practices, processes, and strategies for managing and optimizing cloud spending in organizations. The goal of FinOps is to help businesses understand and control their cloud costs and ensure they get the most value from their cloud investments.

With the widespread adoption of cloud computing, many organizations are finding it challenging to manage their cloud costs. FinOps offers a framework that helps organizations establish accountability, transparency, and collaboration among their teams involved in cloud operations, finance, and business.

FinOps involves a set of best practices, including:

  • Cost allocation: Understanding and allocating cloud costs to the relevant teams, departments, or products.
  • Cost optimization: Identifying areas where cost-saving measures can be applied, such as rightsizing underutilized resources, leveraging reserved instances, or using spot instances for non-critical workloads.
  • Cost governance: Establishing policies and guardrails to govern cloud spending, ensuring adherence to budgets and preventing unexpected expenses.
  • Data analytics: Using data analysis and visualization tools to monitor, track, and report cloud costs and usage to stakeholders.

The core principles of FinOps

The FinOps Foundation, a non-profit trade association focused on promoting the principles of FinOps, has developed six core principles that serve as a framework for cloud financial management. These principles are:

IT-Wide, cross-function support

FinOps requires working across organizational boundaries to align cloud spending with business objectives, reduce risk, and increase innovation. This can involve creating cross-functional teams that bring together stakeholders from finance, IT, and business units to optimize cloud spending, identify opportunities for innovation, and reduce risk.

Business objectives related to managing costs, innovation and other priorities drive cloud decisions

The goal here is to optimize cloud spending continuously, identifying and eliminating waste, right-sizing resources, and exploring new cost-saving opportunities. This can involve using automation and data analysis to optimize resource utilization, identifying and reducing idle resources, and implementing policies to discourage inefficient spending.

Individual accountability for cloud usage and spend

This principle involves creating a culture of responsibility and ownership across the organization for managing cloud costs. This includes ensuring that everyone understands their role in FinOps, setting clear goals and expectations, and measuring and reporting progress towards those goals.

Accessible and timely reports

FinOps requires continuously improving cloud spending by using data analysis to monitor spending and identify opportunities for optimization. This can involve implementing policies to prevent wasteful spending, rightsizing resources to match workload demand, and using cost optimization tools to identify opportunities for savings.

Centralized ownership of Finops

This principle promotes creating visibility into cloud costs and usage across the organization. This can be achieved through the use of reporting and analytics tools that provide insights into cloud spending patterns and resource utilization. This transparency helps everyone in the organization understand how their actions impact cloud costs and make informed decisions.

Active management of the variable cost model of the cloud

Governance involves establishing policies and procedures to manage cloud spending effectively. This can include budgeting, cost allocation, and vendor management policies to ensure that cloud spending aligns with business objectives, stays within budget, and complies with internal policies and regulations.

How can FinOps affect your organization’s computing costs?

FinOps can have a significant impact on an organization’s computing costs by providing a framework and processes to manage cloud spending more effectively. Here are some of the key ways FinOps can help control and optimize cloud costs:

  • Cost transparency: By tracking and analyzing cloud spending, FinOps provides transparency into how much different teams are spending on cloud services. This can help identify areas where costs can be reduced, and make it easier to allocate cloud resources effectively.
  • Optimizing cloud infrastructure: FinOps helps organizations identify underutilized resources, which can then be optimized or shut down to save costs. This can include taking advantage of reserved instances, using spot instances for workloads that can be interrupted, or optimizing containerization strategies.
  • Budgeting and forecasting: With a clear understanding of cloud spending, organizations can better plan and budget for cloud costs. FinOps can provide guidance on how to allocate resources effectively, and how to optimize cloud spending for maximum value.
  • Collaborative governance: FinOps involves collaboration between teams to ensure that cloud spending is aligned with business goals. This includes cross-functional teams with finance, operations, and engineering professionals working together to manage costs, and regular communication to ensure that everyone is aligned on business goals.

Saving costs with finops in your organization

Plan for FinOps before you migrate to cloud

One of the most critical aspects of FinOps is understanding the cost implications of your cloud strategy. FinOps should be part of your cloud migration plan for business, and you should consider the necessary resources and processes to manage those costs. This can include establishing a cloud budget, defining cost allocation and tagging policies, and identifying tools and processes to optimize cloud spending.

Don’t sacrifice value for savings

While reducing cloud costs is an essential aspect of FinOps, it should not come at the expense of value. When implementing FinOps practices, ensure that you align them with your business objectives, and that they provide the necessary resources and capabilities to support innovation and growth. This can involve identifying the right balance between cost optimization and value creation and considering the long-term impacts of cost-saving decisions.

Calculate your actual costs

One of the most challenging aspects of FinOps is accurately calculating and allocating cloud costs. Use tools and processes to calculate your actual costs, so you have a clear understanding of how much you are spending and where the money is going. This can involve implementing cost allocation and tagging policies, using cloud cost management tools, and establishing processes for tracking and reporting cloud spending.

Build FinOps into your organization as an ongoing practice

FinOps is not a one-time event; it should be an ongoing practice. Establish processes and practices to continuously monitor and optimize cloud spending, and ensure that everyone in the organization understands their role in managing costs. This can involve creating cross-functional teams to optimize cloud spending, establishing metrics and KPIs to track cloud costs, and using automation and analytics tools to optimize resource utilization.

Set clear responsibilities

Establish clear roles and responsibilities for FinOps, so everyone in the organization understands their role in managing cloud costs. This can involve creating a FinOps team, establishing accountability for cloud spending, and ensuring that everyone understands the policies and procedures that govern cloud spending. By setting clear responsibilities, you can create a culture of responsible cloud spending that supports your business objectives.

Conclusion

In conclusion, FinOps offers a framework that helps organizations optimize cloud costs and innovation. The six core principles of FinOps include accountability, efficiency, transparency, collaboration, optimization, and governance. By following these principles, organizations can establish a well-governed FinOps culture that balances the need for innovation and growth with the need to manage costs effectively.

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