STOP BLEEDING MONEY- Why FinOps? Executives 101

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Kaltura Technology

7 min readMay 16, 2024

Fact:
Gartner forecasts that worldwide public cloud end-user spending will reach $679 billion in 2024 [1], an increase of 20.4% over 2023. Moreover, by 2025, 95% of new workloads will be in the cloud. [2]

The second largest expense for technology companies is the cost of their cloud computing platform, i.e., their infrastructure. It can be on AWS, Azure, GCP, OCI, Alibaba or any other cloud vendor. These platforms all share the same advantages - scalability, flexibility, and security. And they all share the same challenges: complexity and cost management difficulties.

In this blog post, I will refer to the biggest pain point of them all, the one that makes the company bleed money: cost management.

But how can we tackle this pain point?

First things first, let us discuss…

What is FinOps, and why do we need it?

“FinOps is an operational framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making, and creates financial accountability through collaboration between engineering, finance, and business teams.”
(FinOps Foundation)

This relatively new combination of “Finance Operations” (FinOps) is, in my point of view, a combination of Finance and DevOps. It emphasizes communication and collaboration between business and engineering teams. We must have both in order to optimize cloud spending.

FinOps needs to function as a cross-organizational unit that orchestrates the different teams, providing a vast understanding of both finance and technology. They lead the teams to take ownership of their cloud usage, gaining financial control and performing better predictions of the cloud expense. They are basically the cloud-cost captains.

The Why, How and What, or “The Good, The Bad & The Ugly”

One of the most famous management models is Simon Sinek’s “Why? How? What?”. When adding this model to the movie classic “The Good, The Bad & The Ugly”, we can create a new one; exactly the kind of model we need here to assist us in cutting costs and make cost management easier.

Let us dive in, shall we?

***Why, or “The Good”***

These are our goals. You must define your KPIs (Key Performance Indicators), including alignment of cloud spending, efficient resource allocation, and budget forecast alongside business goals.

Fact:
Andreessen-Horowitz claims that actual cloud spend ranges from 75% to 81% of COR (Cost of Revenue). Some companies reported they exceeded their cloud cost committed forecast by at least 2x. [4]

Which KPIs should you set? Obviously, there are many to choose from, but let us focus on four main ones:

Forecast the actual cloud spend with a high percentage of accuracy:
The forecast should rely on a combination of historical spending and future spending estimation, whether it is seasonality usage, new business, new features development, or special projects.
Since we are talking in big numbers, any deviation might impact on the budget dramatically. Each company needs to set its own threshold based on its FinOps maturity level. However, according to the FinOps Community of Practitioners [5], the level of accuracy should be between 80 and 90%.
Empower stakeholders to take action:
Provide tools and educate, educate, educate the different teams to own and take responsibility for their usage. All stakeholders should complete FinOps training, which should be focused on their needs. For example, the QA automation team’s training should cover how much it costs to run each automation, and the importance of shutting down unused resources, while the DevOps team should include choosing the right instance type, tagging, usage & rate optimization, etc.
Once the different stakeholders understand their importance, and how to examine the expense and take ownership, you will notice a shift in their mindset, leading to increased accountability.
Managing commitment-based discounts:
As all cloud providers offer discounts on services based on the commitment you are willing to take, you can increase the company’s Effective Saving Rate (ESR) by planning and regularly evaluating your business and the cloud provider’s offering.
The FinOps Foundation recommends maintaining a steady-state usage of 80% for resource-based commitment discounts [6].
Reducing waste of unused resources:
This KPI is a tricky one. On one side, all unused resources are a waste of money and should be deleted. These include obvious resources such as unassociated EIPs and unattached EBS (Elastic Block Store) volumes. However, what about systems that are kept in high utilization and thus, sometimes waste money? Here you need to review the organization’s guidelines; in case it is “stability above all”, in which you keep resource utilization high or redundant components and absorb the extra cost. Or you can face the outcome of lower performances and sometimes service interruptions. This KPI forces you to provide a stability strategy and enforce it.

***How, or “The Ugly”***

After configuring Why or The Good part, now, you need to get the tools to achieve the KPIs you defined. Here, you need to be execution-focused and prepare the methodology.

The best practice is to shift left and provide the needed tools and visibility to all stakeholders, starting from the software engineer to the DevOps and eventually to the C-suite.

Which tools can assist you? There are multiple tools you can use to achieve this. I will focus on two main ones that can provide both visibility and monitoring. These tools will allow you to measure yourself regularly: dashboards and tags.

You can create dashboards to provide the necessary visibility. These should be divided into executive dashboards aimed at C-level executives and lower-level stakeholders. In the executive dashboard, you present the bottom line at a higher level; where do you stand compared to the forecast you provided at the beginning of the year, and are you living up to the predictions?

The second dashboard should be a working tool for the lower-level stakeholders. It should contain much more detailed data and usage trends. You should be able to see, at a glance, if the current cost and usage are in line with the ones that you forecasted. Whether it is seasonal usage or fixed usage, you should be aware of your expenses.

These dashboards don’t replace the ones provided by the cloud providers, but provide a simpler, clearer, and more available tool. All the data is there with all the needed filters; you just need to take a look.

Not only do dashboards provide the necessary visibility. Additional work should be done on tagging the used infrastructure. You can use multiple tags, such as ‘Business Unit’, ‘Environment Name’, and even the product itself. This lets you calculate the product’s ROI and determine if you are paying the customers to use your product or if it is profitable.

On a more personal note, at Kaltura, using these tools has already saved us money. We noticed unusual usage in one of our environments, which led to an investigation and, later on, to a fix. Not noticing it, would have come with a significant price tag.

The main thing to remember here is not only to provide the tools and visibility. But also, to teach all the stakeholders how to use the tools, change their mindset, and start to take ownership. This approach allows you to be more scalable and move to a consulting position, allowing you to create additional innovations.

What, or “The Bad”

After you have set your goals and methodologies, and have the tools to achieve them, you now need to focus on our results and outcomes. This is done by measuring and evaluating the financial and technical outcomes.

You need to keep fine-tuning your steps to assist in achieving your company’s business goals and KPIs. The secret here is collaboration between the different teams and getting them engaged. Together, you can keep an ear to the ground, plan, and adjust your expenses accordingly.

In conclusion, “When you want to shoot, shoot, don’t talk!”

Now that you have all 3 parts of your new model ready, you can create a plan for your company to stop bleeding money. We know why we want to achieve, how we can achieve it, and what should be achieved.

Fact:
IDC poll reveals that 6 out of every 10 CIOs in surveyed organizations admitted that they are spending more on the cloud than initially budgeted. Up to 30% of cloud spend is categorized as “waste” spend that can be optimized. [3]

Putting this fact in mind… Which side do you want to be on?

Facts Sources: