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.
But don’t worry. 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.
In our company we agree that:
- 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 costs frequently - at least quarterly;
- We need external help for cost optimization - but we cannot rely entirely on our cloud provider.
This is not the time or place to detail each of these critical questions, but if you want to dive further into these questions, you can read our blog “Five critical elements in your cloud cost thinking.”
Surely, this requires a vastly different approach than in the on-prem world. Welcome to FinOps!
If you do not manage cloud costs with the right approach, you run the risk of overpaying. Maybe this is the reason why the average budget overrun reported in a recent survey by Flexera is 23%!
The Four Key Components in FinOps
FinOps is the practice of managing cloud costs in a variable spend model. Or simply put, FinOps is about managing this equation:
In this equation, 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:
STEP
01
Optimize Price
In order to optimize price you need to take a snapshot of your current environment, optimize it using a tool with a complete up-to-date service catalogue and price/discount list, validate the findings and make the adjustments in your portal.
STEP
02
Inform about Spend
When you have optimized price – and taken the largest part of the savings available – you can start creating transparency on who spends how much on what.
STEP
03
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).
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:a
Want to know more about each of the steps? Read our blog on “Fasttrack Roadmap to FinOps.”
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.
And if you get external assistance, you can optimize price very fast!
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 in the Real World
All of our customers have one thing in common – they care about not overpaying and want to stay in control. Some of them have large teams, other just a single person with limited time. They understand cloud technologies and all the concepts required to manage cloud costs. Yet, there is always time and money to be saved.
Let us share with you a couple of examples.
New Possibilities
A Media client in Azure was spending large amounts on App Services. There had been no ways to save on these services other than reducing the number you ran. In the fall of 2020, Microsoft suddenly introduced reservations. Now, by upgrading these instances from standard to premium and reserving them, clients could save 60+% on these resources. We notified our client, and within one week, the customer implemented the change and saved hundreds of thousands of euros annually. Continuous monitoring of new announcements is an essential part of FinOps – but also one you can easily outsource.”
A highly technical save
One of our global clients run a large data warehouse in the cloud. It runs on massive machines with very high performance. However, on the cloud vendor’s advice, they had configured the environment with so much storage performance that they exceeded the limits of what the database servers could handle. The result: they were paying tens of thousands of dollars for the performance they were physically unable to utilize. The fix? Adjust the performance setting for the storage drives, instantly lowering costs by 50%.
The Aha! moment
We recently facilitated one of the first Showback review meetings for a client. They showed their development teams the costs they were driving, including the resources with the highest spending. What did they find? “That, that has been inactive for at least 18 months, I thought it was gone!”. You would be surprised how often this happens. No-one has the job to review all running services, so even with a team more than willing to help, this is not their priority. A 20-minute online meeting saved nearly $100k, by merely creating transparency and responsibility.”
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.
To make your decision as simple as possible, we have two completely risk-free ways of finding out if you want to work with us:
- Book a free meeting, where you can learn about how we would work with you and ask any questions you may have, or
- Find out exactly how much you can optimize price by taking our free assessment. We will go through our optimization results, and you can ask any questions you might have.
We are looking forward to making your life a little simpler.
