FinOps: The Operating Framework of the Cloud

Cloud fosters innovation by providing “flexibility” and “velocity”. However, the decentralized model poses significant challenges for the enterprises to manage the cost and show Return on Investment (ROI) by leveraging cloud.

On one side, it enables people in the organization to determine, use and control cloud infrastructure and cloud based applications without any dependency on the IT infra team or any other functions in the organization. However, it also over-empowers them to leverage the power of cloud without even realizing the cost implications due to ineffective use of cloud and lack of governance. When we use cloud in our applications, our focus is on immediate needs leaving hundreds of cloud instances running in idle state without even realizing it. Of course, it provides infinite elasticity but on the other side it creates cost pressure for the business, technology and finance leaders.

FinOps is the operating model that provides a mechanism for business, technology and finance to analyze, control and recommend the most effective way to use and manage cloud. It is the evolving cloud financial management framework that enables organizations to maximize business by bringing in financial discipline and data-driven cloud spending.

It’s a cultural change for the entire team to make trade-offs between speed, flexibility and cost in the application architecture, engineering & customer experience decisions. It’s not about reducing the spend, it’s more about removing inefficiencies in the system, increase awareness in the team and drive decisions where to invest more.

But we should not think FinOps as a way to manage and cut down cost saving money. It’s actually about effective way of managing cost to make money. Beyond flexibility, adoption of Cloud drives speed at which products or features are available to the customers improving customer experience and driving customer base growth. It improves transparency between business and engineering teams as ‘cost as a driver to business decisions’ is no longer a decision only with business. Engineering or Technology has equal say in it.

Personas

While we can have a centralized FinOps team (team of FinOps practitioners) to drive cloud cost management, however the success comes only when different stakeholders directly or indirectly involved in cloud usage or adoption work together to drive effectiveness.

1. FinOps Evangelist — work closely with product, business, technology and finance teams in providing cloud cost insights to optimize cloud spending while enhancing business value. They are responsible for setting up a FinOps Framework of industry best practices and establishing the FinOps culture in the organization.
2. Product Managers or Business — as this team takes business or product decisions or future investment decisions, so they need to understand how and where cloud is used, how cloud is driving customer base growth and how each $ invested is improving speed, agility and customer experience.
3. Technology or Engineering — they live on cloud day-in day-out. They are the direct consumers of cloud, understand the internals of working of cloud, deploy applications to cloud and many more. They understand when and how to scale applications to meet scalability requirements of growing customer base and how each $ invested on cloud is being used internally.
4. CloudOps — responsible for cloud configuration management, resource allocation, security & compliance and service-level agreements (SLAs) compliance.
5. Finance & Procurement — responsible financial control & management, contract management with cloud providers, etc. They should work closely with FinOps practitioners to analyze billing data forecast and measure accurate cost models and negotiate contract with cloud providers.

Principles

FinOps Foundation has a defined a set of six principles that guide the activities of FinOps practice. Those are-

1. Centralized FinOps — a centralized FinOps team drives governance, makes decisions about cloud usage practices, allocation of resources, when and where to use reserved instances(RIs), discounted buying process, etc.
2. Collaboration — all the teams involved need to collaborate and define the monitoring and control standards, implementation of best practices, promote the culture of FinOps in the organization and encourage their respective teams to adhere to defined standards & practices to gain efficiency and desired innovation.
3. Ownership — effective usage of cloud is the responsibility of each team. To ensure effective usage of cloud, the continuous visibility needs to be provided to each team. Each team needs to own their spend and maintain it within the budgeted limit.
4. Variable Cost Model — Cloud providers offer different cost models that allows enterprises to choose optimized model based on the current usage and future needs. If effectively used, it can provide significant cost advantage. So, enterprises should take the advantage of the variable cost model and should continuously do rightsizing of instances to determine the appropriate model to choose from.
5. Business Value driven — decisions are driven by business value of using cloud. So, it’s important to analyze every $ invested on cloud to understand if it is enhancing the customer experience, achieving required speed and helping in expanding customer base. There needs to be a continuous peer-level benchmarking how the company is utilizing cloud and optimizing spend to perform better than earlier.
6. Reporting & Insights — quick feedback loop results in more efficient actions and this is possible only if there is a well-established mechanism of continuous insights & reporting. This helps to determine if resources are effectively used and drives continuous improvement.

Primary Responsibilities

1. Cost Allocation & Analysis — Set of practices to identify, analyze and share the cost details with various groups who use cloud within the organization. It is done through a combination of hierarchy of projects, allocation and resource-level tags or labels applied when a new cloud resource is instantiated. In addition to managing allocation, providing real-time visibility & reporting about total costs, key metrics, opportunities for cost avoidance is equally important. Generally, the cloud providers offer tools to analyze and produce real-time visibility.
2. Workload Management — It focuses on keeping resources in running state only when they are needed. This helps the FinOps team to match supply to demand most efficiently, optimize cloud usage through measurement of workload demand and provision capacity & resources dynamically.
3. Budget Planning & Forecasting — It is about tracking actual expenses, forecasting remaining or future spend based on historical spending or future plans and identify variances to influence future cloud investment decisions. It requires collaboration across different functions — Product, Engineering, Finance, FinOps, CloudOps, etc.
4. Establishing FinOps Culture — For successful FinOps adoption, it’s very important establish the required culture and mindset in the organization. We all need to understand that FinOps is not about creating a technical solution, it’s more about a way of approaching the cloud adoption and cloud cost management with collaboration of all stakeholders in the organization. Everyone involved directly or indirectly needs to understand the importance and best practices of cloud cost management and how to leverage FinOps framework to accelerate the business value creation.

Phases

The FinOps model consists of three phases which are iterative and continuous.

1. Inform — Business & technology leaders want to ensure they are driving ROI while staying within cloud budget and continuously optimizing cloud expenses. On the other side, the on-demand and elastic nature of cloud makes it difficult to control the usage. So, timely visibility into spending and forecasting is required for intelligent business decisions. This phase aims at empowering organizations with visibility, allocation, benchmarking, budgeting, and forecasting.
2. Optimize — On one side, cloud provides speed and flexibility but on the other side, the usage needs to be controlled to stay within the budget. Cloud offers various plans including reserved instances and encourage organizations to leverage the same to optimize their cloud footprint if they have visibility into current commitments, scalability needs and future growth. Also, organizations need to devise different optimization strategies such as switching off resources during off hours, limiting resource sizes for specific use (for e.g. dev and test environments may need smaller size instances), cleaning up resources which are in idle state for long time, etc.
3. Operate — Once the optimization strategy is in place, business or engineering teams should continuously evaluate business objectives and performance metrics to understand how they are performing. They should measure business alignment based on speed, quality, and cost.

Maturity

A “Crawl, Walk, Run” approach to performing FinOps enables organizations to start small, and grow in scale, scope and complexity as business value warrants maturing a functional activity.

We can also use these maturity levels to identify where we are currently operating at, and to identify areas we’d like to move from Crawl to Walk, or from Walk to Run maturity level.

Crawl

In the Crawl maturity stage, organizations will typically have very little reporting and tooling, basic set of KPIs for the measurement of success, basic process & policy framework and the FinOps capabilities are broadly not followed by all the major teams within the organization.

Walk

In the next phase of the maturity curve i.e. Walk, the capabilities of FinOps framework are understood and followed within the organization but any scenarios those are less likely to occur are not well addressed. The automation of most of the capabilities are in place and the improved set of KPIs for the measurement of success criteria are tracked and monitored to a large extent.

Run

In the last phase of the maturity curve i.e. Run, the capabilities of FinOps framework are well understood and followed within the organization as well as all scenarios those are less likely to occur are addressed. The automation of all of the capabilities are in place and the improved set of KPIs for the measurement of success criteria are very well tracked and monitored.

Conclusion

Any organizational success is possible only if the organization builds a culture of FinOps which involves a FinOps Center of Excellence built around business, technology, financial, and operational stakeholders who define the governance policies and models while rest of the organization strictly follow the same. While Cloud promises to bring in required “flexibility”, “speed” and “agility” to the organization, the proper implementation and adoption of FinOps Framework will ensure the most effective and productive usage of Cloud Computing.

I’m learning and I would like to spend more time on FinOps Framework and associated best practices. I would love to hear your feedback about the key factors for the successful adoption of Cloud. Please leave your comments here and we’ll connect to discuss it further.