Why FinOps Is Key to Cloud Cost Optimization

For more expert advice on optimizing cloud computing costs, read our Cloud Cost Optimization: Best Practices for IT Pros report.

The discipline of managing the costs of cloud operations is an evolving one, with different approaches. Among the emerging approaches to cloud cost optimization is financial operations, or FinOps.

FinOps, much like other Ops movements including DevOps, is a loosely defined space. The practice of FinOps isn't just limited to any one group or foundation and is an increasingly important challenge for organizations to solve as cloud usage grows.

For management consulting firm Deloitte Consulting LLP, which recently joined the FinOps Foundation, managing costs in the cloud is one of the most significant issues facing its clients. Formed in 2019 and becoming part of the Linux Foundation in 2020, the FinOps Foundation is one of the leading groups trying to bring some structure to FinOps.

"The economics of the cloud are very different than on-premises IT financial management," Rakinder Sembhi, principal at Deloitte Consulting LLP, told ITPro Today. "FinOps recognizes this and proposes a model for managing cost in the cloud that is designed around the principles of cloud." 

Key Challenges of Cloud Operation Costs

There are multiple challenges when it comes to cloud operation costs.

According to Peter Berry, CTO of cloud technologies at Navisite, one of the most common issues organizations face is the lack of traceability. It's easy to spin up resources in the cloud, and that can be a problem, he said. Without accountability over what resources were used, by whom and for what projects, along with tagging of those resources back to their sources, costs can quickly get out of control.

"Part of the problem goes back to organizations not taking the time to do the up-front work to plan for and appropriately size resources for the cloud," Berry told ITPro Today.

Another key challenge for FinOps is costs. Cloud cost optimization is more than just lowering the cost of compute, according to J.R. Storment, executive director of the FinOps Foundation.

"The big thing in the space that we found is that it's not about spending less; it's about spending the right amount," Storment told ITPro Today. "So I like to say FinOps is not about saving money – it's about making money."

In Storment's view, moving to cloud is not just to measure the cost per unit of compute but to help organizations get out of the business of running physical services. With cloud, organizations can focus on the higher order functions, such as running applications and services that can actually have an impact on the business, he said.

Best Practices for FinOps in the Cloud

So how can organizations optimize cloud usage? Fundamentally, it's about having the tools and processes in place to strategically plan and manage what the business is trying achieve with its cloud spend.

There is no one group that is responsible for FinOps; rather, it is a cross-functional activity that includes accounting, finance and technology leaders within the company, Storment said. In general, he said he'd rather not see CFOs and accounting be the only groups looking at FinOps as a cloud cost optimization exercise.

"If you have the technology spenders watching the spend, it's sort of like the fox guarding the henhouse," Storment said.

Understanding how and where resources are used is a critical cornerstone of FinOps. Rich Hoyer, director of customer FinOps at SADA, told ITPro Today that when possible, organizations should make sure spend can be segmented along whatever dimensions are most useful to the organization, whether that's by department, geography or product.

Hoyer also suggests that when possible, organizations should maximize the percentage of spend that can be traced to both financially and technically responsible parties.

"In an ideal scenario, someone is on the hook for every dollar spent," Hoyer said.

Another best practice is for organizations to understand what should and what should not be in the cloud. Each workload must be evaluated to determine whether cloud or on-premises is the best option for the workload, Hoyer said.

"Critically, cloud may be a better choice even if it is more expensive, since new cloud technologies like cloud elasticity and geo-flexibility may bring an organization revenue gains that significantly eclipse any potential cost premium," he said.

In Hoyer's view, the question of whether or not cloud is more expensive than on-premises is not the right question as it doesn't really provide an answer about the best business benefit.

"The correct question is, for a given workload, is the ROI of infrastructure spend higher on-premises or in the cloud?”