Cloud Economics 101: Introduction to Cloud FinOps Best Practices

Ever since cloud computing has become an integral part of modern business operations, organizations have continually sought ways to harness the power of scalable and flexible cloud services while keeping a watchful eye on costs.

Managing cloud spend can be complex and may hinder a company’s digital transformation and growth efforts. Traditional methods to control IT spending, such as CapEx budgets and purchase order processes, are often inadequate for addressing cloud consumption driven by OpEx.

Today’s business leaders (including business owners, CFOs, CIOs, and IT managers) are required to build an understanding of the financial aspect of cloud computing to cope with the new set of financial challenges that have arisen. Only with the right approach to cost optimization companies can maximize the value of their investments.

In this blog post, we will delve into the fundamentals of Cloud Economics and explore key Cloud FinOps best practices that can help organizations manage costs effectively in the cloud.

Understanding Cloud Economics

Before diving into Cloud FinOps, it’s crucial to have a solid understanding of the economic principles that govern cloud computing.

Cloud service providers offer various resource types and pricing models for their services. First, let’s explore some common foundational models and concepts of major cloud service providers.

On-demand resources refer to computing services that are provisioned and utilized in real-time, as needed. Users can access these resources without upfront commitments or long-term contracts. This flexibility is a hallmark of cloud computing, enabling organizations to scale resources instantly in response to changing workloads and demands. It provides a dynamic and adaptable infrastructure, allowing businesses to meet fluctuating demands efficiently.

Pay-as-you-go is a pricing model where users are charged based on their actual usage of resources. In other words, organizations pay for the computing resources, storage, and other services they consume. It allows users to scale resources up or down based on demand, only paying for what is utilized, promoting cost efficiency and flexibility. This model enhances cash flow visibility, improves predictability, and defers cash expenditures.

Reserved instances offer discounted rates for committing to a specific amount of resources over an extended period. This model provides cost predictability for organizations with steady workloads. By committing to reserved instances, users can achieve significant cost savings compared to pay-as-you-go pricing, making it a strategic choice for applications with consistent resource requirements.

Spot instances allow users to bid for unused computing capacity, potentially providing cost savings for flexible workloads. This model is ideal for workloads that can tolerate interruptions and have the flexibility to run during periods of excess capacity. While spot instances offer cost advantages, users must be prepared for the possibility of termination if the capacity is needed elsewhere. It’s a trade-off between cost savings and potential interruptions, making it suitable for certain types of applications and workloads.

Introduction to Cloud FinOps

FinOps, short for Financial Operations, is a set of practices that brings together finance, technology, and business operations to optimize cloud costs. It is a great framework that helps manage cloud spending and foster financial accountability and transparency across organizations.

Having a Cloud FinOps strategy is essential for enterprises that invest significantly in PaaS or IaaS capabilities and aim to strike the right balance between innovation and cost efficiency in the cloud.

Implementing FinOps Best Practices

Cloud FinOps practices require every business stakeholder to take responsibility for their spend, optimize costs, manage consumption, and make sound decisions based on data.

Implementing Cloud FinOps is a continuous journey and discipline marked by iterative growth and maturity across processes, capabilities, and domains. The five FinOps building blocks encompass 50 subprocesses, categorized into the maturity phases: Crawl, Walk, or Run.

Crawl: Organizations in this phase focus on technical problem-solving and cost visibility

Walk: Organizations in this phase emphasize strategic improvements for better business value.

Run: Organizations in this phase prioritize transformational change, integrating cost considerations into processes and cloud architecture.

Using the “Crawl, Walk, Run” maturity model, organizations can evaluate proficiency, establish benchmarks, and create targeted action plans for FinOps adoption. Regardless of maturity level, organizations can take scalable actions for continuous improvement based on insights.

Measuring Cloud FinOps Impact

Businesses relying on cloud investments to boost growth and revenue require excellent communication between the executives in business, finance, and technology teams.

Often, the metrics used for measuring IT operations are not in sync with business metrics. The main challenge is figuring out a way to measure the value of investments in business and technology capabilities.

To bridge this gap, leaders in IT and business require a detailed set of metrics covering both operational and strategic outcomes and a common ground for the associated risks, opportunities, and outcomes.

5 Key Metrics to Measure Cloud FinOps Impact Accountability and Enablement Metric: Adopt Cloud Enablement % as the standard metric, measured by the # of business leaders trained and certified/total # of business leaders in the organization. Measurement and Realization Metric: Adopt Cloud Allocation % as the lead metric, measured as the % of total cloud costs (taggable resources consumed by individual business units, taggable resources shared across multiple business units, and non-taggable resources) allocated to responsible business owners. Cost Optimization Metric: Integrate the Recommendation Hub in FinOps workflows. Recommendation Hub contains a portfolio of intelligent tools and capabilities (i.e., recommenders for idle VMs, idle GKE clusters, Committed Use Discount, VM machine types, BigQuery slots, and many more) to help optimize workloads with minimal effort. In later stages, leverage Cloud Monitoring to create advanced recommendations based on custom business logic. Implementing automated cloud cost optimization policies can save time while ensuring organizations monitor their environments consistently to eliminate waste. Planning and Forecasting Metric: Reimagine traditional approaches to asset depreciation run-outs and trend-based forecasting of maintenance and licensing costs, use workload-specific forecasting models that leverage a combination of trend-based models for steady-state workloads, driver-based models for scaling applications, as well as monthly variance analysis to improve the accuracy of dynamic cloud needs. Tools and Accelerators Metric: Evaluate this metric by the # of automated recommendations implemented as a % of the total list of automated recommendations generated that result in cost savings. Source: Google Cloud

Case Studies: Real-world Applications of Cloud FinOps

Etsy: Doing more with less cost and infrastructure – After moving their data center and e-commerce platform to the cloud, Etsy saved more than 50% on compute energy and used committed use discounts (CUDs) to reduce compute costs by 42%.

Sky: Reimagining their FinOps journey – A few years into their cloud adoption journey, Sky Group saved over $1.5 million and optimized costs with BigQuery, Compute Engine, and Cloud Storage.

OpenX: Reducing per-unit costs by 60% – Established a cost center of excellence via piloting the Google Cloud Cost Optimization program and reduced their per-unit costs by exploring several cost-optimization recommendations.

Cloud FinOps Adoption

Large enterprises worldwide are increasingly recognizing the significance of Cloud FinOps as a discipline. Flexera 2022 State of the Cloud Report reveals optimizing the existing use of the cloud is the top initiative for the sixth year in a row.

Over 40% of organizations have adopted automated policies to shut down workloads after hours and rightsize underutilized instances. These processes have undergone a significant transformation from manual operations to their current automation level over the years.

Yet, many companies out there still haven’t fully embraced Cloud FinOps. Even those who have adopted it are still in the early stages, as it requires robust change management.

⭐⭐⭐

Cloud FinOps success is a dynamic and individualized journey, varying across organizations and evolving through ongoing efforts rather than a one-time fix. Leveraging Cloud FinOps resources and tools empower organizations to achieve success by fostering financial accountability and visibility, optimizing cloud usage and cost efficiency, enabling cross-organizational trust and collaboration, preventing cloud-spend sprawl, breaking down departmental silos, and ultimately accelerating innovation.

The journey of Cloud FinOps excellence is cultivated through a series of small actions, constant refinement, and a commitment to continuous improvement, all harmonizing with the unique dynamics of each organization.

Your journey towards Cloud FinOps success begins with a conversation. If your organization is considering Cloud FinOps adoption, please get in touch with us. Let’s explore how our expertise can help your organization navigate the complexities of Cloud FinOps.

Kartaca is a Google Cloud Premier Partner with approved “Cloud Migration” and “Data Analytics” specializations.