How FinOps can rein in cloud costs

With half of key IT spending expected to shift to cloud in the next three years, organisations will need to get a better handle on cloud cost management to make sure their cloud spending continues to deliver business outcomes.

While IT procurement tends to be done centrally, that is no longer the case for cloud applications and services for which buying decisions are increasingly being made by business units across an organisation.

“Companies are struggling with getting finance and distributing accountability and governance throughout the organisation,” said Ben Allard, vice-president at Apptio Asia-Pacific.

“That includes providing visibility into the cloud services being consumed, how they are being consumed, and as cloud usage starts to increase, when to make use of purchasing agreements to get bulk discounts for the resources they are buying from cloud providers,” he added.

To address these challenges, Allard said more organisations are adopting FinOps, an operating model that brings business, technology and finance teams together to drive cloud spending decisions. The term FinOps, or financial operations, is coined from finance and DevOps.

Cloud service providers have also started to invest in FinOps by providing cloud financial management tools on their platforms, while technology consulting firms have set up FinOps practices to drive the cultural change – such as involving engineers in cost optimisation – and governance needed to reap its benefits.

The FinOps lifecycle comprises three phases, starting with the inform phase, which provides visibility into who procured a cloud service, why it was procured and what it is used for, so that the person responsible for the workload is aware of the cost and usage of a cloud service.

The second phase is to optimise, which includes internal benchmarking that enables different teams to know how they stack up in terms of cloud consumption; right-sizing of workloads to minimise waste; and identifying consistent workloads that can benefit from committed usage discounts.

The third phase is to operate, which tracks the unit economics of cloud across an organisation to ensure cloud services are used for the right purpose. This will help teams to build business cases for growth in cloud consumption and get better visibility into budgets and forecasts for increases in cloud spending over time.

Allard noted that larger organisations that spend over $5m a year on cloud services are more likely to adopt FinOps practices. They could be using FinOps tools provided by cloud suppliers but later realise that they need more advanced tools to manage the financial aspects of the FinOps framework.

Those that engage multiple public cloud suppliers are also dipping their toes into FinOps. “As soon as an organisation uses multiple providers, their cloud spend will get relatively high. Then, they’ll need to change their approach and discipline to cloud adoption through FinOps practices,” said Allard.

Increasingly, these organisations include digital natives and cloud-first companies – particularly those in Southeast Asia – which are set to jump on the FinOps bandwagon.

“Digital natives don’t have the burden of traditional infrastructure, and so we’re going to see an uptick in terms of adoption of FinOps in Southeast Asia,” said Allard. “I don’t think they’re quite there yet, but I think we’re going to start to see that change pretty significantly over the course of the next couple of years.”

According to the FinOps Foundation’s latest State of FinOps survey, North America leads the world with the most FinOps practitioners, followed by Europe and the Middle East. In Asia, the number of FinOps practitioners accounted for about 7.8% of total respondents.