The FinOps Lifecycle is a framework designed for managing cloud costs in a dynamic and scalable manner based on DevOps’ core principles. It consists of three phases: Inform, Optimize, and Operate. But while the process is iterative, it’s not linear.
Companies may find themselves operating in multiple phases simultaneously across different business units, applications, or teams. As each phase progresses, insights and learnings create a positive feedback loop, contributing to continual refinement and improvement of cloud cost optimization strategies.
This fosters a collaborative, cross-functional approach where technology, finance, and business teams work together to maximize the value of their cloud investments.
As cloud expenditures grow, the ability to efficiently manage and understand these costs is not just beneficial—it’s imperative. For those navigating the intricate balance between cloud innovation and cost management, the FinOps lifecycle provides a structured pathway to achieving financial clarity and maximizing investment value.
This article details these three phases of the FinOps Lifecycle to help businesses better understand how to improve their cloud costs.
Stage 1: Inform
The first phase in the FinOps Lifecycle is the “Inform” phase. This phase helps organizations to achieve visibility, allocation, benchmarking, budgeting, and forecasting in cloud cost management.
This stage is vital due to the on-demand and elastic nature of cloud FinOps, along with customized pricing and discounts, and requires accurate and timely visibility for intelligent decision-making.
Accurate allocation of cloud spend based on tags, accounts, or business mappings, is essential for effective chargeback and showback. It also improves overall visibility, helping business and financial stakeholders drive ROI while staying within budget and accurately forecasting spend through FinOps.
Gaining visibility into cloud costs allows organizations to understand where and how they’re using their cloud resources.
Here are a few best practices to keep in mind when engaging in cloud cost monitoring and reporting for your organization:
- Set Clear Monitoring Goals: Having clear and measurable goals for your cloud monitoring efforts is essential. These goals should align with your broader business objectives, whether reducing costs, improving application performance, or enhancing security. Key metrics might include CPU usage, disk read/write operations, or network bandwidth usage.
- Choose the Right Monitoring Tools: Selecting appropriate tools is crucial. Various cloud platforms offer native monitoring tools, such as AWS X-Ray and AWS Trusted Advisor, which provide deep insights into cloud resources’ performance and health. Third-party solutions like Economize can also provide a comprehensive view of your cloud environment, especially in multi-cloud setups.
- Establishing Baselines with Benchmarking: Setting baselines for cloud performance is a fundamental aspect of cloud monitoring. FinOps benchmarking provides best practices for managing and optimizing cloud costs and offers a clear picture of your current cloud expenditure, forming a solid foundation for your baselines.
Let’s explain this even better with an example scenario. Let’s say that a company discovers through cloud cost analysis that they’re underutilizing or overprovisioning a particular service, leading to unnecessary expenses.
By adjusting its resource allocation based on these insights, the company can optimize its cloud spend, improving business value through substantial cost savings.
Key procedures during the Inform phase
Key functions of this phase include:
- Gaining accurate and timely visibility into cloud usage and expenses.
- Allocating cloud spend based on tags, accounts, or business mappings for accurate chargeback and showback.
- Ensuring ROI while staying within budget and accurately forecasting spend.
- Benchmarking to develop a high-performing team and make informed decisions.
Stage 2: Optimize
In the “Optimize” stage, organizations and teams, now empowered with clear visibility and understanding of their cloud spend, move to actively optimize their cloud footprint. This stage involves the utilization of various levers provided by cloud providers to maximize efficiency and cost-effectiveness.
Notably, this stage includes transitioning from the more expensive on-demand capacity to more cost-effective options, such as Reserved Instances or Committed Use Discounts. It also encompasses rightsizing and automating the elimination of wasteful resource usage.
Strategies for optimizing cloud resources and costs
Several strategies exist to help optimize costs and resources in the cloud:
- Rightsizing Instances: This involves matching resource capacity to actual utilization. For instance, resources that are provisioned larger than necessary can lead to increased costs without corresponding benefits. Utilizing cloud mechanisms like auto-scaling helps dynamically adjust resource sizes based on actual utilization, ensuring organizations don’t pay for idle instances.
- Implementing Cost-Saving Measures: This includes adopting various practices that enhance the efficiency of cloud operations, like automating repetitive tasks or improving deployment processes. These measures can lead to significant savings by reducing manual intervention and optimizing resource usage.
- Leveraging Reserved Instances: Reserved instances are a pricing model where cloud services are reserved for a certain period (typically measured in years) in exchange for significant discounts compared to on-demand pricing. This model is best suited for long-term deployments with consistent performance requirements and can offer substantial cost savings.
The role of automation and optimization tools
Automation and cost optimization tools are invaluable in FinOps, particularly in the cost optimization stage of the lifecycle. They enable organizations to turn potential savings into tangible financial gains. These tools are crucial for rapidly implementing cost-saving recommendations identified in the “Inform” stage.
Automation closes the gap between recommendation and implementation, allowing systems to autonomously make changes, such as adjusting consumption habits or modifying cloud network configurations. This approach saves time and ensures that organizations can capitalize on the full potential and ROI of FinOps initiatives.
As a “Savings-as-a-Service” provider, ProsperOps offers a fully autonomous compute rate optimization service for AWS. Our service focuses on maximizing cost savings and minimizing commitment risk with minimal ongoing effort from FinOps teams.
By automating the optimization process in the lifecycle, ProsperOps helps organizations achieve financial efficiency without overburdening their engineering and accounting teams. It provides a solution that aligns with FinOps principles like visibility, optimization, and efficiency.
For more information on how ProsperOps can aid in optimizing AWS costs and to request a free demo, visit our product page.
Stage 3: Operate
The “Operate” stage in the FinOps lifecycle is where organizations continuously evaluate their business objectives, the metrics they track, and how they align with their cloud spend.
This stage measures business alignment based on speed, quality, and cost, and typically necessitates a Cloud Cost Center of Excellence. This center is composed of mostly business, financial, and operational stakeholders who define the appropriate governance policies and models.
We can’t overstate the importance of ongoing cost management at this stage. It allows organizations to maintain alignment with business objectives, ensure that cloud spending remains under control, and adapt to changing needs or market conditions.
Best practices for the Operate stage
As we transition into exploring the best practices for the “Operate” stage in the FinOps lifecycle, it’s important to recognize that this phase is about ingraining a culture of cost consciousness and strategic management into the fabric of the organization. This stage is not just about maintaining efficiency; it’s about continuously enhancing it.
The following are some essential best practices:
- Establish a Culture of Cost Awareness and Financial Accountability: FinOps is more than a set of practices; it’s a mindset that integrates finance, operations, and engineering teams. A collaborative culture of cost transparency is crucial, fostering a sense of shared responsibility across departments. This enables organizations to make informed decisions and optimize cloud computing resources effectively.
- Integrate FinOps Practices into Budgeting and Forecasting Processes: Organizations can better predict and manage cloud costs by embedding FinOps practices into budgeting and forecasting. This integration ensures that cloud spending aligns with business objectives and helps avoid overruns.
- Continuously Monitor and Optimize Cloud Spending: Continuous monitoring and optimization of cloud spending are vital. Empower cost leaders with access to cost management tools for generating reports, dashboards, budgets, and forecasts. This constant vigilance helps identify areas for improvement and ensures that spending remains efficient.
Benefits of embracing the FinOps Lifecycle
The FinOps Framework represents a transformative approach to cloud financial management, integrating cost, operational efficiency, and strategic decision-making. This comprehensive framework offers significant benefits to organizations that embrace it.
Cost control and savings
In the FinOps Lifecycle, enhanced visibility and strategic adjustments at each stage lead to significant cost control and savings. From identifying inefficiencies in the “Inform” stage to adopting cost-effective models in the “Optimize” stage, and continuous resource adjustment in the “Operate” stage, this approach ensures efficient expenditure aligned with business goals.
The FinOps Lifecycle enables data-driven insights, leading to more informed decision-making. It harmonizes financial data with operational metrics, providing a comprehensive understanding of cloud investments and their impact. Thus, it facilitates strategic decisions that balance cost, performance, and speed.
Improved resource utilization
Optimizing resource utilization is a key focus in the FinOps Lifecycle. Continuous monitoring and rightsizing ensure resources match actual demand, promoting operational efficiency and reducing wastage, thus enhancing cloud infrastructure performance.
Enhanced financial transparency
A fundamental aspect of the FinOps Lifecycle is its emphasis on financial transparency. By breaking down silos between finance, operations, and engineering, it fosters a shared understanding of cloud costs and their business impact, which leads to accountable and balanced cloud management strategies.
Optimize your FinOps Lifecycle with ProsperOps
Embracing the FinOps Lifecycle is pivotal for harnessing the full potential of your cloud investments. It offers enhanced cost control, informed decision-making, optimized resource utilization, and greater financial transparency across your organization.
ProsperOps simplifies the optimization process in the FinOps Lifecycle to ensure maximum savings with minimal ongoing effort. Many organizations will wait until they are informed and optimized, from an engineering perspective, before they will commit to discounts.
ProsperOps allows organizations to have financially optimized usage throughout engineering optimization cycles. Humans cannot stay on top of the ever-changing environments, but automated platforms like ProsperOps can.
Discover how ProsperOps can transform your organization’s approach to cloud financial management. Request a demo and take the first step towards optimizing your FinOps Lifecycle today.