An Introduction to Cloud FinOps

With some cloud costs spiraling out of control, grimace-inducing inflation, and a global recession seemingly looming, cloud costs have never been more under the microscope.

Forrester Senior Analyst, Tracy Woo, says that 80% of her cloud conversations involve FinOps in some way, even if cloud cost management cost isn't the central topic.

Cloud professionals, already in high demand, are being drafted in to save money in organizations across the world. Executives are catching wind of a new discipline.

The beating heart of those improvements is a mixture of frameworks and best practices, e.g. AWS-Well Architected, along with one of the newer kids in town - FinOps.

• What is FinOps?

• What is FinOps in the Cloud?

• Why is FinOps important?

• What is the FinOps Framework?

• FinOps team structure

• Measuring FinOps Success Metrics

• How to choose a FinOps tool

What is FinOps?

FinOps is a term coined by the FinOps Foundation.

Finance + DevOps = FinOps.

At its heart, FinOps is a cultural practice designed to bring technology, finance, and business teams together to drive financial accountability.

The framework enables teams to manage their own costs and take ownership of their usage. Cross-functional teams collaborate to improve financial control and predictability without compromising their throughput speed.

In December 2023, the technical board that oversees the FinOps Foundation updated their definition of FinOps:

"FinOps is an operational framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making, and creates financial accountability through collaboration between engineering, finance, and business teams."

Cloud Financial Management, the closely related cornerstone of FinOps, involves the careful management and optimization of financial resources in cloud services. It focuses on monitoring, analyzing, and managing cloud-related costs to guarantee cost efficiency and budget compliance.

Its goal is to couple the advantages of cloud computing, such as scalability and agility, with cost-effective resource distribution and fiscal control. Implementing solid financial management practices allows organizations to streamline cloud expenses, synchronize cloud expenditure with business goals, and bolster financial efficacy in cloud operations

What is Cloud FinOps?

In the context of the cloud, FinOps involves activities such as tracking and allocating cloud expenses, optimizing resource utilization, implementing cost-saving measures, and ensuring financial transparency and accountability. It requires collaboration between finance, operations, and engineering teams to align cloud spending with business objectives and to make informed decisions about resource allocation and provisioning.

FinOps practices typically involve the use of cloud cost management tools, budgeting and forecasting, continuous monitoring of cloud usage and costs, implementing tagging and labeling strategies for cost allocation, and implementing policies and controls to optimize cloud spending.

By adopting FinOps principles and practices, organizations benefit from better visibility into their cloud costs, more informed decisions to optimize spending, and ultimately achieve more cost-effective and efficient cloud operations.

The FinOps Foundation

The FinOps Foundation, a program of The Linux Foundation, is dedicated to helping people who practice cloud financial management.

The foundation has over 5,000 individual members spanning over 1,500 businesses. It provides a wide variety of training and certifications, including FinOps Certified Practitioner.

If you'd like to know more about the FinOps Foundation, including its mission, structure, and staff, visit FinOps.org.

What Else is FinOps Known As?

FinOps as a framework is attributed to the FinOps Foundation, but the high-level concept is often referred to by other names:

• Cloud FinOps
• Cloud Financial Management (CFM)
• Cloud Financial Engineering
• Cloud Optimization
• Cloud Cost Management
• Cloud Cost Optimization
• Cloud Financial Optimization
• Cloud Cost Management & Optimization (CCMO)

In the past, it's also been known as 'Cloud Financial Operations' but, according to FinOps.org, that's fallen out of favor recently because it was commonly confused with 'Financial Operations' (a role that exists in Finance teams).

Why is FinOps Important?

Google Cloud summarize the value as five-fold:

1. FinOps accelerates business value realization & innovation
2. FinOps drives financial accountability & visibility
3. FinOps optimizes cloud usage & cost efficiency
4. FinOps enables cross-organizational trust & collaboration
5. FinOps prevents sprawl of cloud spend

Organizations that follow the processes and best practices can expect to benefit from:

• Improved cost-efficiency
• Renewed focus on infrastructure, support, and implementation
• Enhanced operational resiliency (and service quality)
• Superior cloud security posture
• Reduced time to market by accelerating development throughput

What is the FinOps Framework?

Although other versions exist, e.g. Google Cloud, the official FinOps Foundation Framework is divided in six:

1. Principles
2. Personas
3. Phases
4. Maturity
5. Domains
6. Capabilities

Principles

The FinOps Framework comprises 6 core principles. The principles were intended as north stars to guide all the activity associated with cloud financial management.

Initially, a book announced at CloudyCon in 2019, they were originally put together with AWS FinOps in mind, but over time they have been refined by FinOps Foundation members and now cover multi-cloud setups.

1. Teams need to collaborate
   • Finance moves at the speed and granularity of IT
   • Engineering considers cost as a new efficiency metric
   • Continuously improve your practice to gain efficiency and innovation
   • Define governance and controls for cloud usage
2. Everyone takes ownership of their cloud usage
   • Finance moves at the speed and granularity of IT
   • Engineering considers cost as a new efficiency metric
   • Continuously improve your practice to gain efficiency and innovation
   • Define governance and controls for cloud usage
3. A centralized team drives FinOps
   • Centrally govern and control Committed Use Discounts, Reserved Instances, and Volume/Custom Discounts with Cloud Providers
   • Centralized discount buying process removes rate negotiations from engineering team consideration
   • Granular allocation of all costs, direct or shared, to the teams and cost centers responsible for them
4. Reports should be accessible and timely
   • Fast feedback loops result in more efficient behavior
   • Visibility helps determine if resources are under or over-provisioned
   • Automation of resources drives continuous improvement
5. Decisions are driven by the business value of cloud
   • Trending and variance analysis help to understand why costs increased
   • Internal team benchmarking drives best practices and celebrates wins
   • Industry peer-level benchmarking determines how your company is performing
6. Take advantage of the variable cost model of the cloud
   • Rightsizing instances and services helps drive appropriate resourcing levels
   • Comparing pricing between services and resource types drives better decisions

Personas

The FinOps Framework is designed for these five personas:

1. FinOps Practitioner
2. Executives
3. Business/Product Owner
4. Engineering & Operations
5. Finance/Procurement

Phases

The FinOps Framework has three iterative phases, also known as the lifecycle. Because each team's progress will vary to some degree, it's normal for an organization to be in multiple phases at once.

Inform: The first phase in the FinOps journey is all about empowering organizations and teams with visibility, allocation, benchmarking, budgeting, and forecasting.

Optimize: The second phase. Once empowered, organizations and teams need to optimize their cloud setup utilizing the variety of tools at their disposal. These range from on-demand and reservation planning to rightsizing and automatically stopping wasteful resources from running.

Operate: Phase three. Once optimized, organizations can continuously monitor and evaluate metrics against their business objectives (based around cost, quality and speed).

Maturity

The FinOps Framework categorizes maturity into three levels, defined by their typical characteristics (and example KPIs):

Crawl: An organization with little reporting and measurement. Basic KPIs, processes and policies might be in place. Capability is understood but not followed. Often targeting 'low hanging fruit'.

Walk: Capability is understood and followed, and covered by tools and processes. Edge cases are identified, sometimes estimated, but often not addressed. Medium/high KPIs set.

Run: Capability is understood and followed by everyone. Difficult edge cases are being addressed. High KPIs are set. Automation is the preferred approach.

Maturity runs through the framework into capabilities (see below), with detailed guidance included for assessing capability maturity, and guidance for moving up the ladder.

Domains

The FinOps Framework has six domains. Each domain represents an area of knowledge and activities performed by every organization. Domains all relate directly to Capabilities (see below).

The domains are all related to each other, and provide a high-level overview of the functional tasks and processes that are needed to run a best-in-class FinOps practice.

• Understanding Cloud Usage and Cost
• Performance Tracking & Benchmarking
• Real-Time Decision Making
• Cloud Rate Optimization
• Cloud Usage Optimization
• Organizational Alignment

Capabilities

The FinOps Framework contains a detailed set of capabilities. They represent functional areas, all of which support at least one of the framework domains (see above).

Each capability area contains detailed information, tasks and processes that facilitate the best practice implementation throughout the lifecycle phases - right through to metrics to measure your success. The capabilities also include guidance you can use to assess your maturity.

• Cost Allocation (Metadata & Hierarchy)
• Data Analysis and Showback
• Managing Anomalies
• Managing Shared Cost
• Forecasting
• Budget Management
• Workload Management & Automation
• Managing Commitment Based Discounts
• Resource Utilization & Efficiency
• Measuring Unit Costs
• Data Ingestion & Normalization
• Chargeback & IT Finance Integration
• Onboarding Workload
• Establishing FinOps Culture
• IT Asset Management Integration
• Cloud Policy & Governance
• FinOps Decision & Accountability Structure
• FinOps Education & Enablement

FinOps Team Structure

When operating inside the FinOps Framework, the recommendation is to implement a cross-functional team. This team is referred to as the Cloud Cost Center of Excellence (CCoE).

This team interacts with the business and manages the cloud strategy, governance, and best practices.

FinOps Success Metrics

Each of the framework's capabilities comes with recommended metrics, regardless of your maturity (crawl, walk, run).

In a recent post, Google recommended their own five high-level metrics:

Cloud enablement %

The number of cloud certified/trained business leaders / the number of cloud learners across the organization

• Crawl: Less than 40%
• Walk: 40-70%
• Run: More than 70%

Cloud allocation %

The % of cloud spend being allocated to the responsible business or product owner

• Crawl: Less than 70%
• Walk: 70-90%
• Run: More than 90%

Cost optimization realized savings %

Total cloud services optimized ($) / total cloud services optimizable ($)

• Crawl: Less than 70%
• Walk: 70-90%
• Run: More than 90%

Annual forecast accuracy %

Actual annual cloud spend ($) / forecast annual cloud spend ($)

• Crawl: Less than 70%
• Walk: 70-90%
• Run: More than 90%

FinOps automation %

Number of automated recommendations implemented / total list of automated recommendations that result in cost savings

• Crawl: Less than 20%
• Walk: 20-50%
• Run: More than 50%

Measuring FinOps Success Metrics

By leveraging a Cloud KPI dashboard, organizations can effectively measure FinOps success metrics, gain insights into cloud financial management, and make informed decisions to optimize costs and resource utilization in the cloud environment.

A Cloud Key Performance Indicator (KPI) dashboard is an effective tool for measuring FinOps success metrics for several reasons:

• Centralized Monitoring: A KPI dashboard provides a centralized view of key metrics related to cloud spending, resource utilization, and cost optimization. It consolidates data from various sources and presents it in a visually intuitive format, enabling stakeholders to easily track and monitor FinOps performance.
• Real-time Insights: A dashboard offers real-time, or near real-time, updates on cloud-related metrics, allowing organizations to stay on top of their current financial and operational status. This enables proactive decision-making and timely corrective actions to address any cost overruns or optimization opportunities.
• Data Visualization: Dashboards use visual elements such as charts, graphs, and tables to represent complex data in a concise and understandable manner. This visual representation makes it easier to spot trends, patterns, and anomalies, facilitating quick identification of areas where FinOps initiatives are succeeding, or need improvement.
• Performance Tracking: A dashboard allows for continuous tracking and monitoring of key performance indicators over time. It enables stakeholders to compare current performance against historical data, set benchmarks or targets, and track progress toward FinOps goals. This helps in evaluating the effectiveness of implemented strategies and making data-driven decisions to improve cloud financial management.
• Customization & Drill-down Capabilities: A KPI dashboard can be customized to display the specific metrics and visualizations relevant to an organization's FinOps objectives. It also provides the ability to drill down into detailed data to investigate specific cost drivers or identify opportunities for optimization at a granular level. This flexibility allows stakeholders to tailor the dashboard to their specific needs and gain deeper insights into FinOps performance.
• Communication & Collaboration: A dashboard serves as a communication tool, providing a common visual language for stakeholders across different teams or departments. It facilitates collaboration and fosters a shared understanding of FinOps performance, enabling discussions and actions to drive cost optimization efforts collectively.

How to Choose a FinOps Tool

Firstly, each cloud provider has valuable (mostly) free options, e.g. AWS Cost Explorer.

These tend to be dashboard-style charts and tables that visualize your costs and allow you to dig down into specific areas.

To some degree, these rely on your architecture being well managed (think tagging strategy). To a larger degree, these tools require human effort. Maximizing the value of these tools is challenging.

Azure & AWS FinOps Cost Optimization

Best-in-class cost optimization for AWS & Azure is only possible using third-party tools.

Not only are these tools biased towards lower cloud bills, but they dig far deeper into your costs and save you time.

When looking for third-party tools, e.g. Hyperglance, make sure it includes these features:

• Multi-cloud coverage
• Real-time monitoring & alerting
• Pre-defined, customizable rule-based automations
• Visualization of your costs with the ability to overlay them onto a diagram of your architecture
• Reserved Instance (RI) recommendations (AWS)

Hyperglance & Cloud FinOps

If you're looking for a cost optimization FinOps tool that's got your back, Hyperglance is the perfect place to start.

Hyperglance gives you complete cloud management enabling you to have confidence in your security posture and cost management whilst providing you with enlightening, real-time architecture diagrams.

Monitor your cloud security & compliance, manage costs & reduce your bill, explore interactive diagrams & inventory, and utilize powerful built-in automation. Save time & money and get complete peace of mind.

Experience it all, for free, with a 14-day trial.