FinOps: Optimizing cloud costs to increase value

A blog post by David Linthicum, Managing Director, Chief Cloud Strategy Officer

More than ever, as cloud costs continue to rise, organizations are seeking ways to optimize their cloud spending. And as cloud usage keeps expanding, so does the complexity of managing and controlling costs. This is where FinOps comes in—a methodology that aims to optimize cloud costs by fostering collaboration and cooperation between financial management and cloud operations.

So, what is FinOps? FinOps is short for financial operations. It’s a set of strategies, practices, and tools that helps organizations manage their cloud spend more efficiently. The goal of FinOps is to bring the finance, business, and technology teams together to understand the organization’s cloud spend and how to optimize it.

FinOps is founded on leveraging a structured approach to cloud-spend optimization, starting with identifying cost drivers, followed by formulating and implementing cost optimization strategies, and monitoring and reporting on cost savings. By leveraging FinOps effectively, organizations can get more value from their cloud investments, without significant spending increases or compromised performance.

The three pillars of FinOps

FinOps is built on three pillars: people, processes, and technology.

• The people pillar involves bringing together the finance team, people from the business, and cloud operations teams to create a shared understanding of cloud costs and how to optimize them. Collaboration among these teams leads to better decision-making and cost optimization strategies.
  
• The process pillar involves identifying cost drivers, implementing cost optimization strategies, and monitoring and reporting on cost savings. It’s highly structured and based on developing processes that span the cloud ecosystem to root out where the costs are and identify opportunities to reduce or eliminate them. This structured approach helps enterprises get more value out of their cloud investments, without overspending or compromising performance.
• The technology pillar involves implementing cloud cost management software, data analytics tools, and financial management systems. Observability and automation are essential components of the technology pillar. Observability helps organizations gain better visibility into their cloud costs and take corrective actions to optimize them. Automation helps enterprises reduce the amount of manual work in processes, which can improve process efficiency, reduce costs, and improve performance.

Getting started with FinOps from the ground up

Getting started with FinOps can be a daunting task, but it doesn’t have to be. Here are some steps organizations can take to implement a FinOps program:

1. Define the objectives: The first step in getting started with FinOps is to define the enterprise’s objectives for FinOps. After defining FinOps objectives, it’s essential to develop a road map for success.
   
2. Identify stakeholders: The next step is to identify the stakeholders involved. This includes people from finance, IT, and the business. The team can work together to create shared strategies and goals for managing cloud costs and optimizing them.
3. Establish a FinOps framework: Once the stakeholders are identified, the next step is to establish a FinOps framework that includes the processes, people, and technology involved—as well as a FinOps governance structure to manage the program.
4. Implement tools and processes: When the framework is in place, the next step is to put the tools in place and start implementing the defined FinOps processes. This could include implementing cloud cost management and observability software, automation, data analytics, and financial management tools and processes.
5. Monitor and adjust: The final step in implementing a FinOps program is to monitor what the organization has put in place, regularly and formally review cloud spending, identify new cost drivers, and adjust cost optimization strategies as needs and activities change.

Increase the value of cloud investments with FinOps

FinOps can also help organizations get more value from their cloud investments. With a sound FinOps program in place, enterprises can gain more visibility into their cloud costs, identify what’s really driving those costs, and take corrective action to fix any issues that arise. These actions can enable tighter controls on spending, which can increase the spend-to-value ratio and enable enterprises to invest in more innovation and growth opportunities.

Closing thoughts

The bottom line is that organizations need FinOps because it provides a structured approach to managing cloud costs, which can quickly spiral out of control in the absence of proper monitoring and optimization. With the growth of cloud usage, organizations are seeking ways to optimize their cloud spending, and FinOps helps achieve this by bringing together finance, business, and technology teams to create an organizational understanding of cloud spend and how to optimize it. And, finally, FinOps promotes accountability and collaboration, leading to better decision-making and cost optimization strategies—which, in the end, helps increase the value of the organization’s cloud investments.