The FinOps journey – the why and how of FinOps

Have you started hearing the word FinOps often? Or trying to wrap your head around how to manage your growing cloud costs? Without adding another time-consuming task to your team or removing the flexibility and agility of cloud in your organization?

This article gives you an overview of the why and how of FinOps so you can plan your FinOps activities and get started. In the bottom you’ll find the most important advice we’ll leave you with. Completely unintentionally… – you need to scroll through the whole blogpost to see it.

Why do you need FinOps?

The reason why you need to do FinOps is that you can save 50% of your bill through structured financial governance compared to an ungoverned cloud environment.

The savings come from 3 different sources:

Buying services as cheaply as possible and leverage all discount options
Only pay for what you need
Use the most cost-efficient services that fits your needs

FinOps is like cost management when you build a house

Just as when you are building a house – when you buy your materials, you want to buy the materials as cheaply as possible, and you might research where you can get them at discount. Second, you need to manage the quantity and make sure you do not buy more than needed so you later have to return them. Third, you look at the overall architecture and make sure you avoid using unnecessary expensive building blocks.

The new way to do financial management

Cloud calls for a new way to do financial management. The new thing is that we buy IT as a service and not large hardware and software investments. This gives flexibility and agility – but how do you ensure sound financial governance without creating a bureaucratic overhead sacrificing flexibility and agility – and adding a huge job on your scarce cloud resources?

Below we will go through the 4 steps of FinOps:

Visibility – know your costs

Create awareness of cloud costs by looking at your bill every month.

Visibility is the preliminary step to get your FinOps efforts going. If you’re not doing any FinOps initiatives yet, just taking the step of looking at your bill every month will put you in the mindset to start asking the right questions such as:

How much did we grow since last year?

What areas are driving the increase in costs?

Are we using everything we are paying for?

You need to know these things and track the development over time to avoid being blindsided by rising cloud costs. For example, a 5% increase one month may not seem like a lot, but if it continues for 6 or 12 months it’s completely different numbers.

Price optimizations – Buying services as cheaply as possible

Avoid overpaying for your services and leverage all discount options. This will save you 20-25%.

You can optimize price in many ways, but fundamentally it boils down to optimizing price, by working through the cloud service catalog, price, and discount models.

You might know the 3 essential ways to optimize on price – reservations /commitments, Azure Hybrid Benefit, and shared resources. But what makes price optimizations complex is the myriad of options there is within each of these, all affected by complex details, the state of your environment and the fact that Microsoft keeps changing the options for price optimizations. It’s not a difficult task – it’s just really time consuming and you need to ask yourself:

Does it make sense for you and your team to trawl through your whole cloud environment as well as your portal? Or would it be easier to get someone else to do it?

A tool is a great idea to do this as it is an optimal task for technology. With a tool your team doesn’t have to spend unnecessary time doing it.

While there is a tool side to price optimizations, i.e., using the organization tools in your portal, the main reason for not getting price optimizations done is uncertainty. What if our environment changes? What if I will move to a different service shortly? What if…?

The solution is investing in both tool and training. The tool makes you able to find the needle in the haystack and training gives you the necessary expertise to remove uncertainty and act on the recommendations from the tool.

Read more about price optimizations:

3 ways to get the most Azure for your money – and how to get it done!

3 indicators of a cost-efficient cloud

The 4 things you want to know as a CIO about cloud costs

Quantity management – only pay for what you need

Avoid paying for something you don’t use. This will save you another 20-25%.

In this step you need to get the different business owners involved in making decisions about shutting down services (lifecycle management), shutting services on/off, and buying the right capacity services (rightsizing).

To get the business units committed you need showback / chargeback to gain an overview, of which department is using what. Also, adding chargeback, incentivizes the different departments to take ownership and manage their cloud costs in a more structured way if they know they will gain the economic benefit of their own efforts.

Showback / chargeback is a moving target. In the beginning, the distribution of costs between departments can be relatively simple by just taking your cloud bill and split it between the different business owners. But with time more decisions need to be made e.g., how do you know which department is using what? how will you distribute hidden costs? and how do you distribute shared costs (shared Azure infrastructure, the FinOps team, and much more) and resources (containers, micro services etc.)?

Getting started you need to work with tags – and we strongly recommend adding virtual tagging to reduce administration. Consider using an external FinOps partner to get going in just a few weeks and avoid the common pitfalls that will make it time consuming to maintain.

Cost architecture – Use the most cost-efficient services that fits your needs

Avoid using unnecessary expensive services/ building blocks. This will save you another 10-15%.

Cost architecture is most likely the last step in the FinOps journey. Surely your team has done some research on this, but cost architecture is an ongoing activity – just like the other FinOps activities.

The reason for needing to do this ongoing is that the cloud has in-build challenges e.g., that the price for one service never drops. Consequently, you need to change server if you want a cheaper compute option.

What you specifically should focus on in your organization varies, but we see over and over again that SQL-servers, VMs, evergreening, IaaS vs. PaaS and Data Analytics are topics where an annual cost architecture review will greatly pay off.

“How do you ensure sound financial governance without creating a bureaucratic overhead sacrificing flexibility and agility? and adding a huge job on your scarce cloud resources? “

If you do these 4 things your bill will be halved compared to if you do not do any FinOps initiatives.

You might have taken some steps already or have not started yet. The most important to do right now is that you get started – 50% off your cloud bill amounts to a lot of money that could be used on other priorities.

The most important piece of advice we will leave you with

Starting from scratch and building your FinOps efforts is complex when FinOps is not your primary assignment. The good news is that your needs will look the same as other organizations, making FinOps an ideal external assignment. That way, you avoid a slow implementation process which only result in paying Microsoft or the other cloud providers more than necessary. With a FinOps partner you get a guide that asks the right questions, and helps you overcome the complexity by learning the simple principles of FinOps.

Our most important piece of advice is therefore to engage with an independent FinOps advisor, that can provide you with both tool and training.

Ready to move on? Have the FinOps journey infographic at hand so you know what to do when, or book a 30-minute inspiration meeting with us.