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Cloud FinOps: What Is It, How Does It Work, and Benefits

what is cloud finops

Cloud teams, especially the ones running on AWS, have to deal with a ton of moving parts. 

With multiple departments across the organization spinning up their own resources, each with its own operational model and pricing plan, it can be challenging to stay on top of your cloud expenses while minimizing waste and reducing costs.

Cloud FinOps is a new field that involves cleverly managing your cloud computing resources and expenses so that your organization can achieve operational and financial efficiency across its various workflows.

In this ultimate guide to Cloud FinOps, let’s take a detailed look at the underlying principles, best practices, and automation tools key to running a successful business in the cloud.

What is Cloud FinOps?

Cloud FinOps is an evolving cloud financial management discipline and cultural practice that enables organizations to get maximum business value by helping engineering, finance, and business teams to collaborate on data-driven spending decisions.

A breakdown of the FinOps lifecycle

Cloud FinOps is an iterative process that involves continuously monitoring, analyzing, and improving cloud environment usage and spending. Its lifecycle involves cycling between three key steps: inform, optimize, and operate.

Inform

This is the first step in the FinOps lifecycle, and it’s all about visibility and accountability. The goal here is to ensure that all stakeholders clearly understand the organization’s cloud usage and costs. This involves:

  • Unit economics: Understanding the cost of delivering individual units of value, such as the cost per transaction, cost per customer, or cost per workload. 
  • Allocation: Assigning costs to the appropriate teams, projects, or cost centers. This helps to create financial accountability that organizations can achieve through tagging or other cost-allocation strategies. This also gets FinOps teams closer to chargeback or showback capabilities
  • Benchmarking: Comparing your costs and usage to industry standards or previous periods to identify trends and anomalies.

Optimize

Once you have a clear understanding of your cloud costs, the next step is to look for ways to reduce them without impacting service delivery. This involves:

  • Rate optimization: Making sure you’re using the most cost-effective pricing models and discount programs, such as Reserved Instances or AWS Savings Plans. 
  • Resource optimization: Ensuring that you’re using the right resources for each workload and that those resources are appropriately sized. This might involve rightsizing instances, shutting down unused resources, or moving workloads to more cost-effective services.
  • Efficiency measures: Implementing practices that improve the efficiency of your cloud operations, such as automating repetitive tasks or improving your deployment processes.

Operate

The final step in the FinOps lifecycle is to take action: implementing the plans defined during the Optimize phase and incorporating cloud cost optimization into your daily operations. This involves:

  • Budgeting and forecasting: Using your understanding of your cloud costs to predict future spending and set budgets.
  • Governance: Implementing policies and procedures that control cloud spending, such as requiring approval for high-cost services or setting spending limits for individual teams.
  • Continuous improvement: Regularly reviewing and updating your FinOps practices to ensure they remain effective as your cloud usage evolves.

Key fundamentals of Cloud FinOps

Cloud FinOps is a field of work that brings together technology, business, and finance professionals with the goal of helping organizations get the most value from every dollar they spend in the cloud. It involves a mix of systems, best practices, and culture—such as:

Accountability and enablement

In a FinOps framework, you need to make sure that the right people in the organization have the right information and tools to make informed decisions about cloud usage and costs. 

The process requires creating a culture of accountability, where teams understand their cloud spending and are responsible for optimizing it. Enablement is the flip side of the coin. It’s all about providing the necessary tools, training, and support to help teams manage their cloud costs effectively.

Measurement and realization

Monitoring and reporting on cloud usage and costs, then using this information to drive decision-making within your team, is the governing idea behind FinOps. 

This can involve measuring the cost of individual workloads, understanding the unit economics of your business, and realizing the financial impact of architectural decisions. The goal is to ensure that all cloud spending is transparent, understood, and under control.

Cost optimization

Cost optimization is a critical aspect of Cloud FinOps. It involves continuously looking for ways to reduce cloud costs without impacting service delivery. 

This can include rate optimization (choosing the most cost-effective pricing models) as well as usage optimization (rightsizing resources and implementing efficiency measures). The goal is to have the most efficient usage at the best possible rate for your organization.

Planning and forecasting

Planning and forecasting involve using historical data and predictive analytics powered by machine learning to forecast future cloud costs, then using these forecasts to inform budgeting and planning processes. 

This helps organizations avoid unexpected costs and ensure their cloud spending aligns with their business objectives.

Tools and accelerators

Finally, automation is a key part of Cloud FinOps. Automation software and services help organizations track, manage, and optimize their cloud cost, such as cost management tools, financial automation tools, and cloud management platforms. 

These tools can accelerate the FinOps process by automating routine tasks, providing real-time visibility into cloud costs, and offering insights and recommendations for cost optimization.

The 6 core principles of FinOps

There are six core principles of Cloud FinOps that provide a foundation for organizations to manage and optimize their cloud costs. Organizations can use these principles to guide the way they approach cloud spending, the way their teams collaborate, and the way they make decisions. 

Let’s dive into each of them in detail:

1. Teams need to collaborate

Collaboration is key to a successful FinOps implementation. It’s not just about the finance team understanding the costs, but also about the engineering, operations, and business teams understanding and taking responsibility for the costs they incur. This cross-functional collaboration ensures everyone is on the same page about cloud usage and costs, enabling more informed decision-making.

2. Business value drives cloud decisions

Every decision about cloud usage should be tied back to its impact on the business. This means considering not just the cost of a service but also the value it provides in terms of speed, agility, scalability, and business outcomes. This principle ensures businesses always align cloud spending with the metrics that define their business objectives.

3. Each individual assumes responsibility for their utilization of the cloud

In a FinOps operating model, everyone who uses cloud resources is responsible for the costs they incur. This means that developers, engineers, and other cloud users need to understand the cost implications of their actions and make decisions accordingly. This principle fosters a culture of cost accountability throughout the organization.

4. Accessibility and timeliness are crucial aspects of FinOps implementation

FinOps is only effective if information about cloud usage and costs is accessible and timely. This means providing real-time, granular data about cloud spending to all relevant stakeholders. This allows for quick, informed decisions and helps to prevent cost overruns.

5. A centralized team drives FinOps decisions

While everyone in the organization has a role in managing cloud costs, a centralized FinOps team typically leads the effort in Cloud FinOps. This team, often composed of members from finance, IT, and business units, sets the policies, processes, and tools for cloud cost management. They also provide the training and support needed for the rest of the organization to manage their cloud costs effectively.

6. You must harness the benefits of the cloud’s variable cost model

One of the key benefits of the cloud is its variable cost model – you pay for what you use. FinOps takes full advantage of this, using practices like demand management, resource optimization, and pricing model selection to adjust cloud usage and costs in response to changing needs and conditions. This principle ensures that organizations always get the most value from their cloud spending.

Benefits of Cloud FinOps

Cloud Financial Operations (FinOps) is not just about managing costs but also about unlocking the full value of cloud investments. By implementing FinOps practices, organizations can realize a number of significant benefits. 

Let’s delve into some key benefits of adopting a FinOps approach to cloud cost management.

Cost savings through cloud computing optimization

One of the most direct benefits of FinOps is cost savings. By implementing FinOps practices such as resource rightsizing, demand management, and pricing model selection, organizations can significantly reduce their cloud costs. 

FinOps also helps to eliminate waste, such as idle or underutilized resources, further contributing to cost savings. Organizations can then reinvest these cost savings into other areas of the business, driving further value.

Enhanced financial performance

FinOps can also enhance an organization’s financial performance. By providing a clear understanding of cloud costs and their impact on the bottom line, FinOps allows organizations to make more informed financial decisions. This can lead to improved budgeting, forecasting, financial planning, and better financial performance.

Enhanced decision-making capabilities

FinOps provides the data and insights needed for more informed decision-making. By providing real-time, granular data on cloud usage and costs, FinOps allows organizations to make quick, data-driven decisions about their cloud investments. This can lead to more effective resource allocation, better project prioritization, and more strategic decision-making.

Heightened transparency

Finally, FinOps brings heightened transparency to cloud costs. By making cloud costs visible and understandable to all relevant stakeholders, FinOps ensures that everyone in the organization is aware of and accountable for their cloud spending. This transparency can lead to a more cost-conscious culture, where everyone is working towards the common goal of optimizing cloud costs.

The power of automating FinOps

Cloud FinOps only works when your finance and business departments work in step with the engineering team to create and implement a cohesive strategy to optimize cloud costs. However, the amount of bandwidth required to run a successful cost optimization program often exceeds the capacity of most engineering teams—and engineers should focus instead on delivering faster and higher quality services to the organization. 

That’s where automation comes in. By streamlining your financial operations implementation using platforms that automate the tracking, monitoring, and reporting of cloud costs, you can free up your engineering and accounting teams to work on only the most crucial cost optimization tasks.

Automatically reduce AWS costs with ProsperOps

Automating your Cloud FinOps operation with a “Savings-as-a-Service” provider like ProsperOps can help you achieve financial efficiency without overburdening your organization’s engineering and accounting departments.

ProsperOps provides a fully autonomous compute rate optimization service for AWS, aiming to maximize cost savings and minimize commitment risk with minimal ongoing effort.

Want to learn more about how ProsperOps can help your team save money and resources on AWS? Request a free demo of our Cloud FinOps solution today!

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