During the first few years of cloud computing, cost savings were the driving force behind cloud adoption. Today, however, businesses are facing increasing cloud costs. There’s even a word for the emerging process to tackle it: “FinOps.”
Photo: Joe McKendrick
Organizations continue to waste significant spending in the cloud, according to the recently announced Flexera State of the Cloud Report 2022, based on survey responses from 753 global cloud users and decision makers. 66% of executives say cloud usage is “higher than originally planned this year”. They estimate that their organization wastes 32% of their cloud spending, up from 30% in last year’s survey.
Additionally, “spending can be less efficient and possibly even higher than average, as many organizations tend to undervalue their waste,” the survey’s authors report. Additionally, respondents said their public cloud spending exceeded their budget by an average of 13% for the previous year. They expect their cloud spending to grow by 29% over the next 12 months.
Among SMEs, 53% are currently spending $1.2 million per year on cloud computing, up from 38% in 2021. While the survey’s authors did not give a number similar aggregate spending for larger businesses, they report that more people spend $12 million or more annually on select public cloud services – 18% of businesses spend this on AWS, 15% of this spend is on Microsoft Azure and 7% on Google Cloud Platform.
So a lot of money is being poured into cloud services. It’s likely that a lot of monthly subscription bills will be passed along to a bunch of unused or underutilized services that no one can really account for. Someone in the department signed into a cloud instance to run some tests three years ago, abandoned it, and the company continues to pay for its use.
Enter FinOps. This approach aims to help organizations get the most business value from the cloud “by helping engineering, finance, technology, and business teams collaborate to make data-driven spending decisions.” “, according to FinOps . organization. (Yes, now there’s even an entire platform devoted to practice.) In many cases, they’re practicing the art of FinOps without even calling it that. Respondents are actively engaged in ongoing use and cost management for both SaaS (69%) and IaaS and PaaS public clouds (66%). “More and more users are joining the pool’s FinOps system, even if they may not yet know it – or call it FinOps,” said the authors of the Flexera survey.
Additionally, for the sixth year in a row, “optimizing the use of an existing cloud was the top initiative for all respondents, underscoring the need for FinOps teams or the like.” to improve cost-saving initiatives,” they also note.
Although the survey did not explicitly ask about FinOps adoption, the authors also say that a number of organizations have organized FinOps teams to assist in the assessment of cloud computing metrics and values. (Specific percentages were not provided.) They also found that “for the sixth year in a row, optimizing existing cloud usage was the top initiative among 59%, followed by 59%. followed by moving more workloads to the cloud (57%).
The survey’s authors are optimistic about what the cloud can do to enhance the value of technology for businesses: “As organizations move more workloads to the cloud, they could remove the technical debt associated with maintaining and operating traditional data centers,” they said. (We’ll have to double check that, won’t we?)
What are organizations doing to better understand and keep cloud costs private? Nearly two-thirds, 64%, focus on maximizing resource usage, while 50% are involved in removing or discarding unused or idle resources. This means that half of the respondents are not actively considering cloud services for which they pay a monthly fee.
Another 41% consider vendor discounts such as pre-ordered instances. Another 39% are pursuing a pure FinOps approach: using unit economics , is considered a key component of FinOps disciple. (Unit economics, like explain by Andrew Midgley of Apptio, is “average revenue or cost or profit, directly linked to a particular unit delivered by an organization.”) As illustrated at the FinOps platform website, “for a customer-facing app, that might be a user or customer’s check-in; for an e-commerce platform, it could be a transaction; and for an airline, that could be a seat.By calculating cloud spend for total revenue, you can tie cloud spend growth to your overall business growth.When these align with each other, which means that cloud spending isn’t wasted. When cloud spending is growing faster than business activity, there can be cause for concern.”
The survey found that automation is a key tool for optimizing cloud costs. Over 40% of respondents are using automated policies to close after-hours workloads and to authorize unused instances. Another 33% are using automated policies to implement required tags, while 43% are still doing this laborious process manually.
While at least half of IT executives recognize the value the cloud is bringing to the business, the key measure of success remains cost savings. This is possibly the easiest and most expressive pitch for the C level and the board. Speed to market is also a highly tangible benefit and therefore also ranks highly as a measure of success. Innovation and competitive advantage due to the flexibility of the cloud are perhaps the most enduring advantages of a cloud-based business, but it is a little tougher on the metric. The following are the top metrics for measuring progress against the cloud goals identified in the survey:
- Economical / cost effective 74%
- Delivery rate of new products/services 68%
- Increase innovation speed 48%
- Value delivered to business units 47%
- Increase competitive advantage 47%
- Number of jobs moved 45%
- Retirement / technical debt reduction 37%
It is clear from the survey that FinOps is still an emerging way to operate in his cloud that has yet to be clearly defined. The following is Rule was developed by the FinOps Foundation to help bring clarity to the roles involved and the purpose of the practice.
Teams need to collaborate
- Finance moves with the speed and granularity of IT
- Techniques that consider cost as a new measure of efficiency
- Continually improve your practice for efficiency and innovation
- Define governance and control for cloud usage
Everyone has ownership rights to their use of the cloud
- Empower product and feature teams to manage their own cloud usage against their budget
- Gain visibility into cloud spending at every level
- Track team-level goals to promote accountability
A focus group promoting FinOps
- Centralized Dominance and Control Discounts on Commitment, Dedicated Instances, and Volume Discounts / Customization with Cloud Providers
- A centralized discount purchasing process that removes exchange rate negotiations from the engineering team’s consideration
- Detailed allocation of all costs, direct or shared, to the groups and cost centers responsible for them
Reports must be accessible and timely
- Fast feedback loops lead to more productive behavior
- Visibility helps determine if a resource is under- or over-provisioned
- Resource automation drives continuous improvement
Decisions driven by the business value of the cloud
- Analysis of trends and variances helps understand why costs are rising
- Internal team benchmarking drives best practices and celebrates wins
- Industry peer-to-peer benchmarks determine how your company is performing
Leverage the cloud’s variable cost model
- Licensing versions and services helps promote consistent sourcing
- Compare prices across services and resources to help make better decisions
Source: FinOps . Foundation
