Most organizations suffer from various unpredictable costs with cloud infrastructure. These costs can be exceptionally damaging---limiting innovation, growth, and business value--- when not sufficiently mitigated. For organizations to deliver on business value and successfully scale applications in the cloud, they must transition from fixed-cost data centers to flexible, usage-based clouds. 

With the market value for public cloud services expected to grow at a CAGR of 16.6% by 2022 according to Gartner, organizations must leverage a business management approach and analytics software to manage, plan, and forecast the cost of cloud infrastructure. FinOps enables an organization to provide financial accountability to the inherently fluctuating cost of cloud usage.

In this article, you will gain a better understanding of FinOps and the impact it has on your organizational infrastructure.

What Is FinOps and Why Do You Need It?

FinOps, i.e., Financial Operations, refers to the practice of combining the best practices, technologies, and people to provide financial accountability and the right balance on cloud costs, quality, and speed. The FinOps Foundation describes it as “the practice of bringing financial accountability to the variable spend of cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.” 

The cost of running a business in the cloud can be extraneous and gut-wrenching. Imagine you have to decide on which software or third-party library to add to your growing tech stack and weigh it against your organization's needs and budget constraints. Putting it simply, FinOps helps you maximize cloud investments amid a variety of potentially burdensome costs.

For SaaS businesses, FinOps takes a slightly different role. Leveraging monthly costs, upgrades, deprecations, third-party libraries, and renewals amid greater degrees of volatility can rapidly get out of hand without proper handling.

To deliver better value and ROI, FinOps provides a proactive approach and best practices to help optimize cloud spending. These may include evaluating trial offers, negotiating price rates with vendors, planning, forecasting software costs, reviewing and auditing licenses, and implementing several other financial management techniques.

Benefits of FinOps

Approximately 49% of respondents to the FinOps foundation's 2021 State of FinOps survey have little to no automation for managing cloud spend, which happens to be a core FinOps capability. The FinOps approach proffers several benefits that can help your organization address the challenges and costs of working in the cloud.

Cloud Cost Optimization: It’s normal for cloud costs to soar out of control. With FinOps, organizations can continuously manage cloud costs to either scale up or down. That will provide you with insight into available resources and competitive prices you can take advantage of right away. You can also leverage analytics and data collection tools to help analyze current costs and predict future costs by looking at available data.

Cost-Saving Potential: If you don't have visibility over your cloud and can't identify irregularities in spending, reducing waste is impossible. With FinOps, you can efficiently balance cost needs for every department depending on the business needs. You can effortlessly identify cost-effective solutions, identify cost-cutting strategies, and identify key performance indicators to reduce costs.

Licensing Compliance: License agreements, cloud contracts, and existing investments can be highly complex and challenging to understand, often resulting in non-compliance. You can reduce expenses and ensure compliance by documenting FinOps best practices for both signed and pending contracts.

Risk Reduction: If your business does not know how much cloud computing will cost in the future, you may run into budget overruns and face difficulty in innovating. FinOps can assist you in preventing these disruptions, controlling cloud costs, and putting yourself at a competitive disadvantage.

Increased Visibility: If you don't have visibility over your cloud infrastructure, and you're unable to identify abnormal spending patterns, determining the sources of waste can be challenging. Having a complete view of your current situation by employing FinOps practices will allow you to identify optimization opportunities and continuously make the necessary adjustments.

Accountability Culture: FinOps can help you tag, organize, share, and allocate application costs to every department or stakeholder. The implementation of FinOps in all departments, especially engineering, can be challenging. By setting up a FinOps team with strong management support, aligned KPIs, and tools that facilitate change, FinOps can empower and inspire accountability among the group. 

FinOps: The Cloud Financial Management Workflow

Now you know what FinOps entails, it’s time for a closer look at how the FinOps process works. Here’s the breakdown:

Inform

Just like most operation models, FinOps begins with people. In this phase, you provide the team with clear roles and responsibilities and gain insight into your cloud costs and governance. Here, you ask, “Who is responsible for controlling costs, and how much will you pay?” By sharing visibility with your team and creating shared accountability, you can keep them informed and be more effective.  

FinOps gives all stakeholders visibility into cloud costs by allocating the whole burden of expenses back to the business while emphasizing the team's responsibility for cloud costs.

Optimize

The next process is to optimize the processes. In this phase, you empower the team with real-time spending reports, analytics, and workflows. Your team can streamline workflows, gain insight into operating processes, and apply best practices based on enterprise objectives by optimizing.

Operate

The last part involves the use of technology. That means providing your team with the tools and infrastructure to be more productive. When you piece together the insight from the first two phases, your next step should be creating actionable recommendations, predictions, purchase insight, and governance policies to ensure your company meets its financial and business goals. Then you implement a comprehensive monitoring system so you can generate real-time reports.

Essentially, you are not only trying to increase the affordability of the business, but you also want to improve efficiency and enable innovation.

The Best Practices for Successful FinOps

The following are the best practices for implementing a successful FinOps process.

Improve Collaboration: Cloud infrastructure may pose unique challenges that require communication between teams. That means eliminating silos within the organization and ensuring near real-time transparency to innovate efficiently and achieve business objectives.

Enable Cloud Usage Ownership: To achieve speed and innovation, team members must remain accountable and responsible for cloud usage. That also means empowering the team to make decisions.

Implement a Centralized Team: It is necessary to centralize certain activities to reduce duplication. Expenditure report is an example. By centralizing processes, it allows the company to streamline operations, improve quality, and boost efficiency.

Provide Accessible and Timely Updates: If you can give your teams instant feedback and reports, it will help you foster a more collective and responsible company culture. Team members can focus their efforts on implementing changes needed with timely updates.

Ensure a Value-Driven Approach to the Cloud: Optimizing cloud costs doesn't necessarily mean saving money. It’s about getting the most value out of your spending. You can save costs by understanding why costs exceed expectations by analyzing variances and trends. That means finding a balance between those savings and their tradeoffs.

Optimize Costs and Enhance Business Value

Analyzing the cost of the cloud can be a difficult task for any organization without the appropriate processes and workflow in place. Similarly, if you fail to give significant focus on the cloud application. Because of its costs, you might struggle to maximize your cloud investment or to speed up the product launch, enhance innovation, or improve customer experience. 

FinOps helps you maximize your cloud ROI and achieve these goals. You can start by making better business decisions by measuring cloud unit economics. With FinOps, you have a robust model for managing costs efficiently in the cloud.