Everything You Need to Know About FinOps

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FinOps is a solution for controlling operational costs in a cloud environment and offers ways for teams to manage their cloud costs, wherein everyone takes ownership of their cloud usage.

FinOps term is coined by combining Finance + DevOps. It’s an evolving cloud financial management discipline and cultural practice.

In practice, FinOps means establishing performance indicators on an organization’s cloud costs based on service, business unit, environment, etc. and diagnosing the organization’s consumption based on these indicators.

FinOps is also referred to by the following names: Cloud Financial Management; Cloud Financial Engineering; Cloud Cost Management; Cloud Optimization; and Cloud Financial Optimization.

Key Market Drivers for FinOps

  • Reduce wasted cloud spend – As per the latest 2022 analyst and vendor reports, 32% of total cloud spend is wasted spend i.e., out of every 100 USD spent in cloud, 32 USD is wasted spend.
  • Cost management across multiple clouds – 90% of organizations across Geos are using multiple clouds. Traditional cost management tools provided by CSPs/Hyperscale’s like AWS, Azure, and GCP support only their respective cloud and don’t support cloud cost management across multiple clouds.
  • Strong demand from end customers to optimize cloud spend – There is an increasing demand for timely reports on cloud spend + accountability on the cloud spend with allied business value obtained. Organizations are looking for FinOps/ Cloud Management Platforms (CMP) that can be leveraged to optimize cloud spend across all cloud environments.
  • Operating model changes arising from increased cloud spend – IT and Finance teams need to operate more efficiently together to support the agility of the business and pro-actively monitor and react to spend. This will also enable teams to take advantage of the variable cost model of the cloud.

Key Benefits that Client Organizations Get by Following FinOps Practices

The following are the key outcomes that an organization would get by following FinOps best practices:

  • Gain visibility to control cloud costs by understanding cloud usage
  • Drive accountability for cloud spend. Assists cross-functional teams in maintaining financial accountability for the cloud services they utilize
  • Simplifying cloud budget management
  • Identify cost optimization opportunities and automate tasks
  • Accelerate fulfillment requests
  • Enable data-driven decision making
  • Organizational alignment on cloud spending

FinOps is a cross-functional practice, and the following are the typical personas associated with Cloud Financial Management: FinOps Practitioner /CoE team; IT Operations/ Engineering team; Business/Product Owner; Finance; and Procurement.

KPI Categories Tracked as Part of FinOps

FinOps relies heavily on key performance indicators (KPIs). KPIs are used to gain visibility and a metric perspective to streamline the cost-controlling process. FinOps KPIs can be broadly categorized as follows:

  • Cloud Visibility KPIs – includes metrics related to cost, consumption, performance, configuration, security, and availability across cloud environments
  • Cloud Optimization KPIs – includes metrics related to cost savings, production incidents, mean time to repair, security lapses, etc.
  • Cloud Governance and Automation KPIs – includes metrics related to financial management governance, operational governance, security, and operational governance

Key Metrics Tracked as Part of Various FinOps KPI Categories

KPIs establish measurable benchmarks and metrics to support the monitoring of cloud resources and their consumption. The following are the key metrics tracked:

FinOps KPI categoryKPIs /Metrics
Cloud Visibility KPIs
  • Forecast Spend Vs Actual spend variance
  • Forecasted cost against the cost of cloud resources
  • Percentage of the environment with proper tagging in place
  • Percentage of bill from untagged resources
  • Total spend against the cost of cloud resources per team
  • Percentage of revenue that is spent on the Cloud
  • Total cost against the cost of unused resources in the Cloud
  • Average price of compute per hour
Cloud Optimization KPIs
  • Rightsizing savings percentage
  • Effective cost per resource
  • Production incidents by application/team
  • Reverted cloud deployments
  • Mean time to repair or mean time between failures
  • Number of security lapses in a month
  • Number of assets that don’t meet configuration standards (wrong VM type, location, image, OS, tagging)
Cloud Governance and Automation KPI
  • Percent of policies in compliant state
  • Cost optimized over time
  • Cost optimized per policy over time
  • Time saved as a result of policies
  • Number of reservations automated
  • Time to remediate security violations
  • Resource based commitment discount target coverage
  • Service availability
  • Time to deployment

 

The FinOps Foundation has defined a “Crawl, Walk, Run” maturity approach with respect to FinOps. This approach enables enterprises to start small and grow in scale, scope, and complexity.

In assessing the state of a client’s FinOps capability or domain, we can use these maturity designations to identify where the enterprise is currently operating and identify areas for moving from a Crawl to a Walk, or from a Walk to a Run maturity.

FinOps Maturity Level Maturity Level characteristicsIndicative Goals/KPIs
Crawl
  • Very little reporting and tooling
  • Measurements only provide insight into the benefits of maturing the capability
  • Basic KPIs set for the measurement of success
  • Basic processes and policies are defined around the capability
  • Capability is understood but not followed by all the major teams within the organization
  • Plans to address “low hanging fruit”
  • Forecast spend Vs actual spend accuracy variance is 20%
  • Resource-based commitments discount target coverage of approximately 60%
  • Should be able to allocate at least 50% of cloud spend
Walk
  • Capability is understood and followed within the organization
  • Difficult edge cases are identified but decision to not address them is adopted
  • Automation and/or processes cover most of the Capability requirements
  • Most difficult edge cases are identified and effort to resolve has been estimated
  • Medium to high goals/KPIs set on the measurement of success
  • Forecast spend Vs actual spend accuracy variance is 15%
  • Resource-based commitments discount target coverage is approximately 70%
  • Should be able to allocate at least 80% cloud spend
Run
  • Capability is understood and followed by all teams within the organization
  • Difficult edge cases are being addressed
  • Very high goals/KPIs set on the measurement of success
  • Automation is the preferred approach
  • Forecast spend Vs actual spend accuracy variance is 12%
  • Resource-based commitments discount target coverage is approximately 80%
  • Greater than 90% of cloud spend can be allocated

 

Common Challenges faced by FinOps Team

As per the recent survey done by the FinOps Foundation, the following are the top 5 common challenges faced by FinOps teams across organizations:

  1. Getting engineers to act on recommendations made by FinOps team
  2. Accurate forecasting of cloud spends
  3. Dealing with shared costs
  4. Reducing waste or unused resources
  5. Full allocation of costs

Tools Leveraged for Cloud Cost and Usage Optimization

Cost Management tools provided by Cloud Service Providers (CSPs) like AWS, Azure, and GCP are typically leveraged by organizations that are leveraging services from a single cloud provider. These are popularly known as native cost management tools, and their support is limited to the specific cloud platform. Ex: AWS Cost Explorer supports only AWS and doesn’t support Azure, GCP, Oracle Cloud, IBM Cloud, etc.

Enterprises using multi-cloud leverage third party tools – popularly known as Cloud Management Platforms (CMPs) or FinOps tools, which offer many advanced features and functionalities compared to native cost management tools. Ex: Apptio can be leveraged to support multi-cloud environments using AWS, Azure, and GCP.

Cloud Service Provider (CSP) Native Cloud Cost & Usage Optimization Tools 
AWS 
  • AWS Cost Explorer – Drill into historical cloud spend and understand trends with flexible cost reporting 
  • AWS Budgets – Set up custom budgets that send alerts when budgeted thresholds are exceeded or when Reserved Instance (RI) coverage drops below targets 
  • AWS Recommendation – Identify potential resource savings and surface optimization recommendations for rightsizing EC2 instances and RI purchases 
  • AWS Trusted Advisor – Provide recommendations to reduce costs and improve system performance and reliability. 
Azure 
  • Azure Cost Analysis – Visualize Azure cloud spend with simple dashboards. 
  • Azure Budgets – Establish budget notifications and threshold alerts via email or Azure Action Groups. 
  • Azure Advisor Recommendations: Offer cost-saving recommendations encompassing Virtual Machine (VM) rightsizing and RI purchases. 

 

GCP 
  • Billing – View reports with a graphical representation of current cost trends and forecasts that can be filtered and grouped by Project, SKU, and Location. 
  • Pub/Sub – Configure GCP’s general messaging service to manage budgets and trigger alerts. 
  • Compute Engine – Lists VM instances and append recommendation column to surface cost saving opportunities. 

 

 

Analyst’s View on Cloud Management Platform

Cloud Management Platforms (CMP) are bucketed in the Plateau of Productivity category in the latest Gartner report on the Hype Cycle for Agile and DevOps published in July/August 2021.

This implies that the real-world benefits of the Cloud Management Platform have been successfully demonstrated and accepted.

The report further adds that a rapid growth phase has begun for CMPs that are stable and tools are set to enter a second or third generation of innovation.

The above statement on rapid growth is testified by the recent acquisitions made by leading product vendors to strengthen their FinOps offerings.

  • 2018 – VMware acquires CloudHealth
  • 2019 – Apptio acquires Cloudability
  • 2020 – NetApp acquires Spot
  • 2021 – NetApp acquires CloudCheckr

Figure 1: Hype Cycle for Agile and DevOps, 2021

As FinOps is a rapidly growing market with very high adoption across Verticals and Geos, all leading analysts including Forrester, Gartner and ISG periodically publish reports on FinOps tools and market. Following are the recently published analyst reports published:

ISG – Multicloud FinOps Cloud Management Platform (CMP) report published in 2021

Forrester – Cloud Cost Management and Optimization published in 2020

Top 3 Pros and Cons of 3rd Party FinOps Tool vis-a-vis Native Tools from CSPs

 Native cost management tools from CSPs Ex: AWS Cost Explorer 3rd party independent FinOps tools Ex: Apptio Cloudability, Centilytics, etc. 
Pros
  • Available free of charge. No additional cost for the allied CSP customer. 
  • Cost savings recommendations specific to cloud are provided periodically based on cloud usage 
  • Very high adoption and usage across Geos and Verticals 
  • Supports multi-cloud 
  • Granular visibility for each account by service, region, resource tags, etc. 
  • Supports many advanced features including container management, automated reserved capacity management service, cloud provisioning automation, etc. 
Cons 
  • Supports only native cloud. No support for multi-cloud environment 
  • Granular cost visibility details cannot be obtained easily 
  • Offers limited or no support with respect to advanced features supported by 3rd party FinOps tools 
  • Additional licensing cost 
  • Native integration with all Infra monitoring and ITSM tools may not be available 
  • Requires specialists for initial implementation 

 

IT Infra team handling client’s cloud environment typically handles day to day FinOps activities in client environment.

Based on availability, native cost management tools or 3rd party independent FinOps tools are leveraged by this IT Infra team handling FinOps activities.

Periodic FinOps related reports and dashboards are shared by IT Infra team with several stakeholders including Finance, Procurement, cloud consumption team spanning development and testing.

Infrastructure services division/BU typically owns FinOps services in Tier 1 and Tier 2 SI’s.

If the SI doesn’t have dedicated Infrastructure division, FinOps services is handled by multiple BU’s including Application Development and Engineering team.

Conclusion

FinOps assessment can be done by Cigniti FinOps practitioners jointly with our partners. This assessment will be focused on determining the current FinOps maturity level (as per maturity designations defined by FinOps Foundation) and arrive at recommendations and best practices that will enable the client organization to move to Run level in a phased manner.

Following are the popular 3rd party tools that are widely adopted across Geos. Cigniti has connect with all leading tool vendors.

  • Apptio Cloudability
  • Centilytics
  • CloudBolt
  • Corestack
  • NetApp CloudCheckr + Spot
  • VMware CloudHealth

Based on the customer requirement, Cigniti would be teaming up with the right partner to render the allied FinOps service successfully to our end customer.

Cigniti FinOps service OfferingsCigniti has several FinOps accelerators including FinOps maturity assessment calculator, Cigniti FinOps platform, etc that can be leveraged during both pre-sales and delivery cycle.

Cigniti has established connect with all leading CSPs and 3rd party independent vendors.

CSP Partnership status (native cost management tools) – Cigniti has partnership with AWS, Microsoft and Oracle Cloud. We are in the process of signing partnership with GCP

Partnership with 3rd party independent FinOps tools – Cigniti has established partnership and established good connect with all market leading Cloud Management Platforms/FinOps tool vendors including Appttio, Centilytics, CloudBolt, Corestack, Hystax and NetApp.

Author

  • Vijayaraghavan has 17+ years of progressive IT experience in multiple technologies and Verticals. He has largely been associated with emerging technologies including Cloud, DevOps, Packaged Applications (ERP,CRM and E-commerce), E2E Testing and Application Security during his stint in various Tier I IT companies. His key expertise includes: Consulting, Presales, Solution Architecture, New Offerings Management, Partnership & Alliance Management and Partner led Solutioning.

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