Unlocking Cloud Efficiency: An Introduction to FinOps

Currently, many organizations use cloud computing to implement their data architecture and infrastructure due to the flexibility, scalability and elasticity that this gives them, among other benefits. This flexibility, however, can lead to a "lack of control" of costs. 

In this process, organizations constantly seek to maximize the value of their investments while controlling costs and maintaining operational efficiency. It is in this context that arises FinOps - the contraction of the English terms "Finance and DevOps", a discipline that combines financial practices with operational ones to manage and optimize cloud spending effectively.

The practice is urgent and relevant. Gartner forecast that global end-user spending on cloud services would increase 20.4% in 2022 to nearly $500 billion, reaching nearly $600 billion in 2023, with more than 40% of enterprise workloads deployed on the cloud. cloud, amplifying the importance of managing resources responsibly.

At ixpantia we believe that FinOps is one of the pillars of a "data first" organization. In this article we give an introduction to FinOps and to the framework we use to help our customers introduce best practices to their cloud cost management.

What is FinOps?

In a nutshell, FinOps It is an element of the operating and governance model that defines financial responsibility for the variable cost of the cloud. To be successful in using the cloud to manage an organization's processes, it is necessary to have a methodology that gives the teams of an organization a common language and processes so that they can manage costs without sacrificing the flexibility and speed that the cloud provides. . 

At ixpantia we are guided by the framework of FinOps Foundation (https://www.finops.org) which We have adapted in some parts to better fit the reality of our clients in Latin America. 

Framework components

The main components of the FinOps Framework are:

Each of the components has a detailed description in the framework of FinOps established by the FinOps Foundation. Here we present a summary of each one so that you can form an idea of ​​what the implementation of the FinOps framework in your organization involves, with the exception of Capabilities since this component itself has many elements and is not the objective of this blogspot. get into that level of detail. In another post later we will explain this component in detail.

1. Phases

With the objective of providing an order to take the first steps in FinOps and move forward with time, andThe model consists of three stages:

Inform

The main objective of this first stage is to give visibility to cloud costs to the organization. With this we create and attribute responsibility to the different teams for the expense of their resource consumption. In addition, it is a first step to train the organization.

Optimize

As a second stage we seek to empower teams to take the correct actions and optimization based on the defined goals. The possibility that cloud service providers provide by offering discounts for committing to a long-term purchase of resources plays an important role here. At this stage teams and organizations can optimize the environment by correctly sizing and automating the shutdown of any inefficient use of resources.

Operate

In this last stage we seek to refine finance and business goals to focus and scale operational efforts through continuous improvements, and we do so by breaking down silos between teams. It is the time when organizations begin to continually evaluate the business objectives and metrics they are tracking against those objectives, and how they are evolving. Take into account that any organizational success at this stage is only possible if the organization builds a culture of FinOps.

2. Domains

They describe the fundamental business results that organizations must achieve through the practice of FinOps. Each pillar describes a set of capabilities that an organization possesses to achieve these results. They are not steps in a serial process; rather, activities in multiple pillars will be pursued in parallel as an organization develops capabilities for its practice of FinOps. All pillars and capabilities are interdependent.

The 4 pillars of the framework FinOps are:

Understand cloud usage and cost

The result of this pillar is a better understanding of an organization's use of the cloud.  Here, we seek that organizations work to collect all the information necessary to carry out FinOps. Information to be collected should include: direct and imputed cloud costs, cloud usage, observability data, utilization, sustainability, and other data sets required by any FinOps pillar. 
Activities involved in this pillar include defining organizational metadata to categorize, map, and summarize cloud cost and usage. As well as, define the reporting and analysis processes that make that data available for use by all Persons of FinOps.

Quantify business value

Connecting usage and cost data to the business value created by the cloud resources that produce it helps ensure that value is transparent and within the organization's expectations. The activities that derive from this pillar include: assign monetary and non-monetary cloud costs to organizational budgets, use historical information and future plans to forecast, establish and measure technical and organizational KPIs, as well as benchmark between teams, business units and with other organizations.

Optimize Cloud Usage and Cost

This pillar focuses on efficiency in the cloud, ensuring that organizations only use resources when they provide value to the organization; and that the resources used are acquired at the lowest acceptable cost and with the least impact to meet the organization's objectives.
To do this, we measure efficiency in a variety of ways, including monetary costs, carbon usage, or more traditional IT operational efficiency measures.

With this pillar we seek to enable the organization to manage the types, timing and amount of cloud resources used, and the rates paid for those resources. In addition, it addresses the modernization of architecture, sustainability considerations for equipment FinOps and the use of licensed, consumption-based SaaS products.

Manage the Practice FinOps

The last pillar about managing the practice of FinOps in an organization weenables continuous improvement to change and align the entire organization, including its people, processes and technology, to adopt FinOps and use the cloud in ways that create value for the business. Here we focus on an effective operation of FinOps, in working on training the entire organization to improve interaction with all the people and business functions involved, in order to more effectively support and represent the use of the cloud. 

3. Principles

There are 6 principles that drive the efforts of FinOps in an organization within our framework:

Teams must collaborate.

In order for us to be successful with the implementation of the framework FinOps, finance, technology, product and business teams need to work together in near real time as the cloud operates on a per-resource per-second basis. What we seek is for these teams to continually collaborate to improve efficiency and innovation.

To foster this collaboration we need to be clear about the monetary economic metrics with which we can demonstrate business impact better than aggregate spending. With this, teams can make conscious decisions to adjust the balance between cost, quality and speed.

A centralized team or monitor drives FinOps.

When we push usage and cost responsibility to the limit we have engineering managers taking responsibility for costs from architectural design to ongoing operations. This means that product development teams are empowered to manage their own cloud usage within their budget.

In this way we decentralize decision making around cost-effective architecture, resource use and optimization.

Reports must be accessible and timely.

We seek to process and share cost data as soon as it is available. Near-real-time visibility helps autonomously drive better cloud utilization. Additionally, it is important to provide consistent visibility of cloud spending at all levels of the organization; this visibility helps create culture. FinOps In the organization.

We create reports that help us analyze trends and variations in costs at different levels of aggregation and thus seek to explain why costs increased when (and if) this happens. Calculating and analyzing metrics internally helps drive best practices and celebrate achievements at the organizational level. Additionally, we seek to have metrics visibility over industry peers to help evaluate company performance in comparison. 

Decisions are driven by the business value of the cloud.

It is important that we see the cloud as a driver of innovation. However, when making decisions about the use of the cloud in an organization, we must think about having a balance between cost, quality and speed. To achieve this, we seek to calculate and maintain visible economic metrics at the level of disaggregation that align with the business model and that are based on the value they add to the organization directly. This way we can demonstrate the business impact of cloud projects better than aggregate spend metrics.

Everyone takes responsibility for their cloud use.

Although the core team encourages, evangelizes and enables best practices FinOps, does so in a shared responsibility model, everyone is responsible for their part. Part of this is that the practice of FinOps requires having executive support for its practices and processes. The efforts.

The optimization of rates, commitments and discounts if we seek to centralize it to take advantage of economies of scale. Eliminating the need for engineering and operations teams to think about rate negotiations allows them to stay focused on optimizing the use of their own environments.

Leverage the cloud variable cost model

We must see the cloud's variable cost model as an opportunity to offer more value, not as a risk for the organization. That is why we seek to adopt the prediction, planning and acquisition of new capabilities in a timely manner.

We prefer agile and iterative planning over static long-term plans, which help adapt to emerging business needs. What we seek is to create and maintain a proactive design of the FinOps, giving continuous adjustments to cloud optimization instead of infrequent reactive cleanups.

4. Maturity Model

To measure an organization's FinOps maturity, FinOps Foundation proposes a "Crawl, Walk, Run" approach. This approach allows organizations to start small and grow in scale, scope, and complexity as business value justifies maturing a functional activity.

Below we detail the characteristics of organizations in the different phases of the maturity model. FinOps:

Crawl

At this first level of maturity, there are poca generation of reports and use of tools. Measurements are made but these only provide information about the benefits of continuing to advance (or mature). This is where organizations create basic processes and policies and plan next steps in FinOps to address "low-hanging fruit."

FinOps is understood but not followed by all core teams within the organization. 

Walk

At this second level of maturity FinOps It is understood and followed as a framework within the organization. This is where organizations identify difficult cases (those that threaten the financial well-being of the organization), document them, estimate how much effort is needed to resolve them, but make the decision not to address them for now.

In addition, they ensure that automation and/or processes cover most of the requirements that were raised in the first stage at the organizational level. And medium to high goals/KPIs are established to measure success.

Run

At this last level of maturity, FinOps It is understood and followed by all teams within the organization. Here, organizations already have space and time to address the difficult cases that were documented at the previous level.

On the other hand, goals/KPIs are established at high levels to measure organizational success. At this last level, automation of what is possible, and where it makes sense, is the focus.

5. Personas

Their main goal is to promote best practices in the organization through education, standardization and cultural growth and support. They are responsible for connecting business, IT and Finance teams by enabling evidence-based decisions in near real time to help optimize cloud use and increase efficiency. They focus on establishing a FinOps culture and empowering interested teams by demonstrating a working knowledge of the FinOps Framework Principles and Capabilities.

They are the ones who focus on driving accountability and building transparency, ensuring teams are efficient and don't exceed budgets. They facilitate organizational alignment to prioritize FinOps initiatives. They seek to connect cloud technology decisions with business objectives.

Their primary goal is to quickly bring new products and features to market with a precise price point. They seek to quickly bring new products and features to solve pain points and generate positive business results. Additionally, they drive business value by defining requirements and prioritizing initiatives that align FinOps with business objectives, engaging stakeholders, and articulating the value proposition of cloud technology decisions.

Their primary goal is to accurately budget, forecast, and report cloud costs. Finance uses reports provided by the FinOps team for cost allocation, showback allocation, and forecasting. Additionally, they work closely with FinOps practitioners to understand historical billing data so they can collaborate and build accurate forecasting models used for planning and budgeting.

Its main goal is to manage the relationship with the cloud platform. The procurement team uses information provided by the FinOps team to identify the procurement and purchase of products and services within a cloud platform provider. They must work closely with FinOps to ensure that the prices and terms negotiated in the contract are met and to simplify the procurement process.

Their main goal is to deliver faster, high-quality services to the organization, while maintaining normal business operations. They focus on building and supporting services for the organization They consider the efficient design and use of resources through activities such as right-sizing (the process of resizing cloud resources to better match workload requirements), allocating container costs, searching for unused storage and compute capacity, and identifying whether spending anomalies are expected.

They are the teams responsible for designing, managing and optimizing the cloud infrastructure to achieve profitability, performance, reliability, in the right time.

Why do FinOps? 

The reasons why to do FinOps It depends on which role you have, below we detail the main reasons for each of the participants in the framework. 

For Leadership:

• Acquire visibility, granularity and precision in cost management.
• Predictability of cloud spending growth along with business expansion.
• Guide organizational leaders to make sound decisions in cloud services investments.
• Fosters an environment where engineering teams can explore and leverage the most advanced cloud technologies, accelerating the delivery of solutions to market.
• Drives results that align with broader business objectives. 

For Finance:

• Identify unallocated expenses that align perfectly with the principle of FinOps: Everyone takes responsibility for their cloud use.
• Drive budget and forecast accuracy. With more accessible and timely reporting, detailed allocation of all costs, and greater collaboration, stakeholders are empowered to manage their own cloud usage against budget and have greater visibility into their own cloud spend.
• Increased financial responsibility by facilitating showback and chargebacks. This will allow you to use the reporting ecosystem to develop a cost allocation model that accurately reflects the total cost of business capabilities, ensure cloud cost models allocate dollars at the organization's desired level, and ensure integration with existing financial processes.

For Procurement:

• Get the best cloud cost rates available. The FinOps team will work with engineers, finance members, and leaders to collect forecasting and consumption data that will help procurement professionals make informed decisions during negotiations and contracting.
• Collaboration between FinOps, purchasing and finance to establish limits, thresholds and governance around purchasing, workflows and business decisions in the cloud.

For Product:

• Cost efficiency, visibility, labeling and CI/CD (continuous integration and continuous delivery/deployment).

For Engineering:

• Cost efficiency. Ultimately, cost is just another metric you can use to optimize the value of your systems to the business.
• Incorporating cost efficiency not only gives you tools to save the company money, but it also allows you to free up funds that you can use for innovation, experimentation, automation, etc.

How we at ixpantia help our clients

At ixpantia we help organizations develop their FinOps from different angles, according to the priorities of each organization when working together. We have defined 4 different ways to do it:

Cost Optimization of Architecture

During this service we focus on creating an inventory and additional artifacts to record the current situation of the organization and immediately, on immediate optimization or rationalization. Besides during this exercise we register symptoms for a future  implementation of best practices in the medium and long term.

Implementation of FinOps Practices in Cloud Platforms

Under this service we are in charge of establishing mechanics in the platforms of the different Cloud providers (GCP, Azure, AWS, etc.) for the management of resources in an orderly manner. We take advantage of the native functionalities of each platform and incorporate our own automation methods if necessary.

Comprehensive FinOps implementation

Incorporate FinOps in current practices of the organization, for example Governance, Architecture, Engineering, to establish processes (human, technical and administrative) for the predictable management of budgets and expenses.

FinOps as a service

Modular operational implementation of the above under a team extension and support model.

Conclusion

At ixpantia we are convinced that ambitious analytics and data science programs have high business value, adopting robust FinOps Maximizes impact, optimizing investment and focusing on the best opportunities.

References

Based in https://www.finops.org/framework/