What is FinOps

The urgent need to monitor, contain, and maximize the effectiveness of cloud spending is creating opportunities for disruptive venture capital-backed startups to compete against underwhelming offerings in the cloud market. Tools, such as the Maturity Model, are emerging to guide companies, but there are still other challenges to overcome

What is FinOps?

FinOps (financial operations), also known as cloud financial management, is a framework for managing operating expenditures (OPEX) in the cloud to extract maximum value from cloud spending. An important objective of FinOps is to help cross-functional teams within the same organization maintain financial accountability for cloud services. It is designed to address the growing demand for cost control solutions in the burgeoning cloud services market [1].

This is a long-standing problem, as according to a report by Densify, only 22% of respondents reported that their cloud spending was within budget, while 46% exceeded budget.

Cloud Spend Is Out of Control

Just as importantly, nearly a third of respondents didn’t know whether or not their cloud spending was under control. As it becomes ubiquitous, the cloud is consuming larger and larger amounts of resources, but there are insufficient tools and services available to track and monitor those costs. FinOps seeks to provide those tools. It is especially important since one cannot manage what one cannot measure, and this is a huge business constraint. The monitoring and reduction of cloud costs will be central to maximizing business value going forward. FinOps requires a special combination of both financial knowledge and technological acumen. However, the financial impact of a robust regime of FinOps can be profound—generating savings of up to 50%.

Annual AWS Spend

Why it's important?

The need to facilitate cost control in the cloud is increasingly evident, as many of the top cloud initiatives in the Flexera 2022 State of the Cloud Report are related to cost control. According to the Flexera 2021 State of the Cloud Report, 30% of cloud spending in 2021 was wasted or inefficient. Reducing the cost of using the cloud and improving financial reporting on cloud costs are important enterprise-wide strategic priorities for organizations.

Source: Flexera 2022 State of the Cloud Report

Although its benefits are immense, the challenges of effectively implementing FinOps practices are significant. According to Info-Tech’s “Take Control of Cloud Costs on AWS” study, among those management challenges are:

Roles and responsibilities relating to cloud cost management are not well-defined.
The organization lacks dedicated resources for cloud cost management.
Staff are not allocated enough time, or incentivized appropriately, to perform cloud cost management effectively.
Complex pricing varies based on the service and is rapidly changing, making it difficult for teams to understand.
Lack of Transparency: Inconsistent tagging and reporting of practices make it difficult to see what teams are spending on and what is driving spending.
Overprovisioning of resources to deal with spikes in demand results in leaving money on the table during slower times.
Unpredictable spend makes it difficult to budget.
Feedback loops on cloud cost management are slow or ineffective, preventing teams and individuals from acting to optimize costs.
Ineffective governance makes it difficult to hold the appropriate parties accountable for cost optimization.
Unestablished or ineffective means of measuring the business value of each workload make it impossible to report on cost efficiency.