If you are like most, you probably experience IT costs not being stable as they used to be. You might experience some budget overruns or have a nagging feeling that you are overpaying for some of the new cloud services. This blog post will outline a simple roadmap for your FinOps journey, so you can focus on delivering business value.
What is FinOps?
FinOps is a concatenation of Financial Operations, just like DevOps is Development and Operations. It is the name of a new task that all consumers of the cloud must do.
In the old on-premises times, optimizing IT costs was mostly about optimizing how you bought technology. You negotiated large hardware or software deals with teams from multiple departments, including legal, procurement, finance, and IT.
In the cloud, there is no single large purchase. Instead, you buy services continuously as developers deploy workload, and bills are monthly and therefore seem “small” compared to the hardware purchase made once a quarter.
Make no mistake, though; the total amount is large.
The Cloud Requires You to Think Differently about Cost Management
Before we move on, we have a few statements to consider regarding how IT, finance, and procurement are working together to manage your cloud costs.
- The monthly cloud cost should be multiplied by 50 to evaluate if it requires broader involvement in purchase decisions
- We cannot rely entirely on vendor negotiations to get the lowest price
- Optimizing prices requires data, expertise, and a lot of time
- We need to optimize cloud cost frequently – at least quarterly
- We need external help for cost optimization – but we cannot rely entirely on our cloud provider
If everybody agrees on these statements you are most likely completely in control of your cloud costs. If not, you may want to read a few of our blogposts on this.
The Four Key Components in FinOps
FinOps is the practice of managing cloud costs in a variable spend model. Or maybe easier to understand, FinOps is about managing this equation:
Cloud Cost = Price * Quantity
Price is about keeping your unit costs down, i.e., getting the services you buy today as cheaply as possible. You can do this in many ways, but fundamentally it boils down to:
- Optimizing price by working the cloud service catalog, price and discounts models (applies to all organizations), and
- Negotiating enterprise-specific discounts and special terms (if you have sufficient scale).
The great thing about price optimization is that you can do it without impacting the business.
Quantity is making sure that you are not buying more than you need, i.e., by shutting down unused services (life cycle management) or purchasing the necessary capacity (right-servicing). These types of decisions typically require the involvement of the business owner and come in two maturity levels:
- Inform the business owner about what they are spending, and this will immediately have an impact on the quantity consumed
- Manage quantity in a structured process where you monthly or quarterly sit down with the business and go through material costs
A Roadmap to FinOps
No matter if you are a large or small enterprise, private or public, technology-based or traditional products and services, we experience the following roadmap providing the best results:
Inform. What you don’t measure you can’t manage. Hence, start by creating transparency on who spends how much on what.
- Optimize price. This is the second step. You can generate significant savings fast without impacting (or involving) the business. You can get external help to do this, so it will not take valuable time away from your cloud team.
- Manage quantity. This is where you need to get the business involved to make decisions about shutting down services (lifecycle management), shutting services on/off, and buying the right capacity services (rightsizing).
This roadmap provides excellent results because price optimization delivers considerable savings, making it easier for you to move on to business-critical decisions on quantity.
Get external help for price optimization
Another reason to start with price optimization is that it is well suited for external assistance.
You can get more savings, you can get them faster, and you need to spend only a 10th of the time or less.
The reason is simple – you share the cost of the time-consuming parts with other companies. Don’t worry about tracking changes, getting your spend, analyzing it, reading the fine print, etc.
You want to retain control of your environment by validating the recommendations and ensuring that they do not run contrary to any plans you might have.
You might argue that you already have a person or a team doing this. Indeed, they are doing a great job on this. However, ask yourself if they can create more business value if they spend their time on other tasks than price optimization.
FinOps is much more than delivering savings
The fact is that most cloud journeys do not have a cost focus. Rather, it is about digitalization, speed, and agility. Therefore, you might state the success of your FinOps journey in the direction of:
- Getting more digitalization for the same money,
- Avoiding digitalization slowdowns due to cost overruns,
- Getting more time in the cloud teams to building and operating your cloud rather than managing costs.
Is this true for you? If so, working with an external partner like Kostner will help you focus more on success and less on the commodity parts of price optimization.
Want to know more?
Hopefully, it should be clear by now that we are here to make your life simpler. You will save more, faster, and your team will spend less time on FinOps and cloud cost management.
Book a free meeting, where you can learn about how we would work with you and ask any questions you may have.
We are looking forward to making your life a little simpler.
