Why FinOps Is Essential for Cloud Strategy Planning

This is the second in a series of three articles on the importance and characteristics of FinOps for managing cloud spend, its business justifications and what it all means for your organization. Read the first post here. 

The pandemic spurred a rapid shift to the cloud as organizations sought to take advantage of its scalability, elasticity, resilience and high availability—all especially useful for companies needing to rapidly facilitate a global remote workforce. 

But this mad dash to the cloud also had unforeseen consequences that, in many cases, have led to ballooning (yet often unnecessary) cloud costs. A recent survey of executives indicated that around 30 percent of cloud spend is wasted. The same survey found that, on average, cloud spending exceeds budgets by nearly 25 percent.

That’s where FinOps (also known as cloud cost optimization) comes in. FinOps provides full visibility around your organization’s often hidden cloud consumption and costs to help keep them under control while handling the new realities of cloud procurement better than traditional IT financial management.

Here are just a few ways FinOps helps enterprises manage the new world of cloud cost and procurement strategy. 

The cost drivers of cloud

Cloud services can make financial planning difficult if not impossible under a traditional approach, largely because cloud costs don’t require centralized purchasing by IT and are driven by variable costs. 

There are several main cost challenges that organizations face after moving from a traditional to cloud environment:

1. Capacity planning and cloud usage estimation. Because most public clouds operate on a metered usage billing model, and because user activity drives cloud usage, accurate cloud usage forecasts depend on knowing your cloud consumption patterns intimately.
2. Estimation of spending forecasts. IT budgeting is challenging at best given the above difficulties with capacity planning, meaning spending forecasts require ongoing updates and frequent adjustments to be even close to accurate.
   
3. Scaling resources. Cloud can present a seemingly endless array of resource, sizing and capacity options, making it difficult to select the right cloud servers and storage and to predict the cost impacts of those choices.
   
4. Monitoring of consumption. Companies are required to continually monitor, analyze and adjust based on services purchased and the needs of the business. Ongoing feedback and tuning are necessary to optimize your cloud spend.
   
5. Lack of new processes. The considerable variability of cloud spend means organizations need new processes that deliver real-time feedback from cloud consumption monitoring in order to flexibly update spending forecasts.
   
6. Inability to allocate specific costs. All resources consumed under cloud’s metered usage billing must be tagged with accurate user and cost-center information—otherwise, it’s practically impossible to know which users or business groups are driving the most cloud costs.

All the above present major challenges to traditional models of IT financial management, but there are other cloud cost challenges for organizations that don’t have full visibility into their operations and spending. The steady accumulation of zombie instances—or unused yet paid for cloud resources—can lead to cloud sprawl, which in turn leads to organizations paying for unused capacity. 

Cloud providers also charge when moving data between regions or platforms, and a lack of visibility can lead to an unnecessarily high number of data transfer fees. Organizations with full visibility into cloud consumption and spending can adjust processes and architectures to eliminate unnecessary data transfers. 

These issues are among many reasons why a FinOps cloud cost optimization model is crucial for organizations invested in the cloud. Without knowing the cloud consumption and spending of various groups and users through analytics and continuous optimization, you’re flying blind when planning your cloud strategy.

Cloud’s new procurement complexities

Implementing a culture of cloud accountability through FinOps isn’t just to help control costs and optimize performance: it also helps your cloud services procurement strategy. Terms and conditions can vary dramatically among cloud providers—combined with decentralized purchasing among various users and groups, and it can be a huge challenge to optimize cloud buying decisions across the enterprise. 

A Cloud Cost Center of Excellence (CCoE)—a cross-functional team that works with cloud providers and the rest of the organization—can help in this regard by bringing order to a decentralized and sometimes chaotic cloud purchasing process.

Because a CCoE works directly with cloud providers on behalf of every business unit in the organization, it’s in a better position to be aware of (and negotiate) all the possible discounts and cheaper alternatives available with various cloud vendors, including:

• Reserved instances: Organizations can save considerably on cloud resources when making an organization-wide, up-front commitment to a set amount of capacity over a set number of years. Reserved instances from major public cloud providers include Azure Reserved VM Instances, Amazon EC2 Reserved Instances and Google Cloud’s Committed use discount. 
  
• Spot instances: For tasks such as batch jobs and stateless workloads, spare compute capacity can be accessed at discounts as large as 90 percent through spot instances such as Azure Spot Virtual Machines, Amazon EC2 Spot and Google Cloud Preemptible Virtual Machines.

These types of discounts can be more challenging to negotiate as individual business units, provided the business units in question even know these discounts exist. The survey we mentioned earlier found that only around half of organizations leverage options such as reserved instances, right-sized instances and workload automation. We’ll discuss all these and other opportunities for cloud discounts and cost-saving optimizations in the next post in this series.  

As a market leader, Pythian’s FinOps practice has been an integral part of the cloud cost optimization strategy of dozens of large enterprises. Get in touch with one of our sales representatives today to learn how we can save you an average of 25 percent in your monthly cloud spend.