In today’s competitive market, companies are looking for ways to optimize the management of critical cloud systems, a practice known as FinOps. This term is short for “Financial Operations,” and it’s an emerging practice that combines financial management with operational management, especially in the context of cloud computing.
Indeed, its main goal is to help organizations manage and optimize the costs associated with cloud systems, such as Azure, GCP, or AWS, especially when hosting critical applications like SAP or others.
At Novis, as a leader in managed cloud services (see ENTI results from CetiUC), we understand the importance of this topic for the success of our clients. Therefore, we have developed this guide as a reference for implementing effective FinOps strategies in AWS, Azure, or GCP.
FinOps in Cloud: A Guide to Implementing Effective Strategies
This comprehensive guide will provide you with the knowledge and tools necessary to implement FinOps in GCP, AWS, or Azure with critical applications, like SAP and others.
Tabla de contenidos
- Introduction and Key FinOps Concepts
- Planning and Implementing FinOps
- Novis Tools and Solutions for FinOps
- Best FinOps Practices in GCP, Azure, and AWS
- Current Trends in FinOps
1. Introduction and Key FinOps Concepts
A. What is FinOps
FinOps, short for “Finance Operations,” is a recent practice that redefines financial management in the field of technology.
The term FinOps emerged in the early 2010s, as the need to more effectively manage the costs associated with technological infrastructure became apparent.
Currently, the key challenge in cloud management is the need to optimize costs, as there are high and unexpected overcosts due to resource over-provisioning, lack of visibility, and control. All this adds to the high complexity involved in optimizing them.
FinOps addresses this challenge by providing a framework that combines the best practices of IT, finance, and operations to optimize the use and costs of technological resources.
B. What is the Goal of FinOps?
FinOps enables companies to make informed and strategic decisions about their technology spending, promoting a culture of responsibility and continuous optimization. Through FinOps, organizations can achieve greater cost transparency, optimize resource utilization, and ensure that technology investments align with business objectives.
C. Difference Between Cost Management and FinOps
Cloud cost management and FinOps are terms that are often confused but represent significantly different approaches to cloud cost management.
⇒ Cloud Cost Management
Cloud cost management focuses on identifying and reducing expenses through analysis and recommendations. This approach is typically handled by a small IT team that performs analyses, generates reports on what to optimize, and then attempts to implement these recommendations to reduce the cloud bill. However, in practice, the IT team can only implement about 20% to 30% of the recommendations on its own. This is because the rest depends on collaboration with resource owners (engineers, R&D teams).
On the other hand, engineers are often busy with their own tasks, so cost optimization is not always a priority. This leads to limited implementation of recommendations and, consequently, suboptimal savings.
⇒ FinOps
Moreover, it’s important to note that FinOps involves a multidisciplinary team that includes engineering leaders, financial teams, and developers and system administrators themselves. These profiles are precisely the main cost drivers due to their automation activities and use of virtual machines.
In the FinOps model, developers and system administrators are not only aware of their resources but are also responsible for their lifecycle.
To address this issue, there are FinOps tools that generate specific recommendations for these professionals. This facilitates the implementation of “low-hanging fruit” cost optimizations and ensures that developers and system administrators receive notifications about their resources, making the process transparent and easy to execute regularly.
FinOps not only solves immediate problems but also establishes a long-term process for cost optimization. It involves and educates the entire team in shared responsibility for expenses.
While cloud cost management can provide a useful short-term report, cost issues often reappear in a few months. FinOps, by building a continuous optimization process, provides a more sustainable and effective solution.
This fundamental difference between the two approaches highlights the importance of adopting FinOps for more effective and sustained cloud cost management, promoting a culture of collaboration and shared responsibility that translates into significant savings and optimized resource use.
D. Key Principles of FinOps
FinOps represents an evolution in financial technology management, integrating financial and operational practices to maximize the value of technology investments. By adopting the principles of expense transparency, cost optimization, control and management, and executive commitment, organizations can significantly improve their operational and financial efficiency.
1. Shared Responsibility
In the cloud computing model, the responsibility for optimizing costs is shared between the provider and the customer. The cloud provider (AWS, MS Azure, or GCP) provides the infrastructure and necessary tools to operate in it, while the customer is responsible for how those resources are used.
Cloud Provider Responsibilities:
- Offer reliable and secure infrastructure and tools.
- Provide transparent information about pricing and costs.
- Offer tools for resource management and optimization.
- Publish documentation and educational resources on FinOps.
Customer Responsibilities:
- Understand their application environment, like SAP or others, and resource usage patterns.
- Implement resource tagging and categorization practices.
- Establish budgets and cloud spending policies.
- Monitor and analyze resource usage and costs.
- Optimize resource usage to eliminate unnecessary expenses.
- Adopt a culture of shared responsibility across the organization.
2. Tagging
Tagging is a fundamental practice in FinOps that allows for organizing and categorizing cloud resources. This facilitates tracking their usage, allocating costs to different departments or projects, and identifying optimization opportunities.
Types of Tags:
- Identification Tags: Identify the resource based on the instance type, region, or project it belongs to.
- Classification Tags: Classify resources based on criteria such as department, environment (development, testing, production), or function (application servers, databases, storage).
- Cost Tags: Assign costs to resources, allowing for granular cost analysis.
3. Budgeting
Creating budgets for cloud expenses is essential for controlling costs and avoiding overspending. These budgets should be based on an analysis of historical resource usage and projections of future needs.
Steps to Create a FinOps Budget:
- Set Cost Objectives: Define cost optimization goals for the cloud environment.
- Analyze Historical Resource Usage: Review resource usage in the cloud over a defined period.
- Identify Spending Patterns: Identify spending patterns and trends that may affect future costs.
- Project Future Needs: Estimate resource needs for the upcoming months or years.
- Establish Budgets by Department or Project: Assign specific budgets to different departments or projects.
- Monitor and Adjust Budgets: Track cloud spending and adjust budgets as necessary.
4. Monitoring
Continuous monitoring of cloud resource usage and costs is crucial for identifying optimization opportunities and taking corrective actions. It is important to note that monitoring should be conducted both at the individual resource level and at the department or project level.
Key Metrics for FinOps Monitoring:
- CPU, Memory, and Storage Usage: Monitor the usage of computing resources to identify potential bottlenecks and optimization opportunities.
- Network Traffic: Monitor network traffic to identify usage patterns and potential excessive costs.
- Cloud Costs: Monitor cloud costs in real-time to detect anomalies and take corrective action.
5. Automation
Automating manual tasks related to cloud cost management can free up time and resources for more strategic activities. Various tools and platforms can help automate tasks such as:
- Resource provisioning
- Resource tagging
- Resource optimization
- Report generation
- Anomaly detection
Benefits of FinOps Automation:
- Increased Efficiency: Frees up time and resources for more strategic activities.
- Error Reduction: Reduces the likelihood of human errors.
- Improved Visibility: Provides a more comprehensive view of resource usage and costs.
- Faster Decision-Making: Enables quicker and more accurate decisions regarding cost optimization.
6. Governance
It is important to establish governance policies and procedures to ensure that cloud resources are used responsibly and within budget. These policies should address aspects such as:
- Resource provisioning
- Resource usage
- Resource decommissioning
- Security
- Compliance
Benefits of FinOps Governance:
- Improved Cost Control: Prevents excessive and unnecessary spending.
- Increased Security: Reduces the risk of security breaches and data loss.
- Enhanced Compliance: Ensures adherence to applicable regulations and standards.
- Improved Transparency: Provides a clear view of how resources are being used.
7. Cost Transparency
Cost transparency is fundamental in FinOps. This principle is based on the idea that all costs should be visible and understandable to all stakeholders within the organization. Transparency allows finance, business, and technology teams to work together more effectively, identifying opportunities to reduce costs and optimize resource usage.
To achieve transparency, it is essential to implement tools and processes that provide a clear and detailed view of all expenses. This includes the ability to track costs by department, project, or business unit, enabling better allocation and management of financial resources.
Transparency also facilitates the identification of unnecessary expenses and the implementation of corrective measures to avoid future waste.
Below are the key components of cloud transparency:
- Detailed Invoices: Cloud providers offer access to invoices that break down costs by services, resources, and consumption. This level of detail allows financial and operational teams to understand exactly where expenses are being incurred and how resources are being used.
- Monitoring and Measurement: Cloud providers offer tools and processes that allow tracking of resource usage in real-time and measuring performance in relation to costs.
- Alerts and Notifications: Cloud providers offer tools that allow setting up alerts to notify teams when costs exceed certain thresholds or when unusual usage patterns are detected.
- Interactive Reports and Dashboards: Cloud providers offer tools that allow generating customized reports that analyze resource usage and costs, and adjust them to each customer’s needs.
- Automated Analysis: Tools can be used to process large volumes of data in real-time and provide actionable insights.
8. Cost Optimization
Cost optimization involves continuously evaluating resource usage and adjusting investments to achieve the highest possible return.
Key Strategies for Cost Optimization:
- Right-Sizing: Right-sizing refers to the proper allocation of resources to meet the specific needs of workloads at any given time, avoiding excessive costs from idle resources. This involves constant evaluation of resource demands and adjustments. Some available cloud tools include convertible virtual machines.
- Elasticity: Elasticity is the ability to scale resources efficiently and dynamically in response to changing demands. This allows organizations to handle fluctuating workloads without incurring unnecessary costs during periods of low demand. Some tools used in the cloud include autoscaling and the ability to turn off machines that are not in constant use.
- Pricing Model: Adopting the appropriate pricing model is crucial for optimizing cloud costs. Cloud service providers offer a variety of pricing models that can be leveraged to maximize spending efficiency. For example, it is possible to reserve resources for use in intervals of one or three years.
- Storage Optimization: This involves using the appropriate type of storage for the type of load used, based on performance and availability demands. A disk that requires low performance and low availability is considerably more economical. Cloud providers offer a wide variety of storage alternatives with various performance and availability ranges.
9. Control and Management
Effective control and management are essential for the success of FinOps. This principle is based on implementing policies and processes that ensure technology resources are used efficiently and that costs are kept under control. In this sense, good control and management allow organizations to better predict and plan their technology expenses, avoiding unpleasant surprises and ensuring optimal resource utilization.
Some recommended practices for control and management include:
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- Establishing Clear Resource Usage Policies: Define and communicate clear policies on how technology resources should be used.
- Assigning Responsibilities: Assign clear responsibilities to specific teams and individuals for cost management, ensuring that everyone understands their role in optimizing expenses.
- Using Metrics and KPIs: Implement metrics and KPIs (key performance indicators) to measure the efficiency and effectiveness of cost management strategies.
- Resource Tagging: Tag all resources to help filter costs based on predefined criteria, such as cost centers, work teams, environment type, and more.
- Cloud-Native Design: Cloud-native design involves creating architectures that take full advantage of the unique features and capabilities of cloud environments.
Some cloud-native elements that can be used include:
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- Microservices: Adopt a microservices architecture that allows independent development and deployment of components, improving scalability and resource management.
- Containers and Orchestration: Use containers to package applications and orchestrators to manage the automatic deployment and scaling of resources.
- Serverless Functions: Leverage serverless solutions to run code in response to events without the need to manage underlying infrastructure, optimizing costs and operational efficiency.
- Cost-Focused Architecture Teams: Collaboration between technical and financial teams is crucial for building efficient and cost-optimized architectures. Teams should be aligned in their goals and work together to implement solutions that maximize value and minimize expenses.
- Training and Awareness: Provide continuous training to teams on FinOps best practices and how to build cost-efficient architectures.
- Interdepartmental Collaboration: Encourage collaboration between development, operations, and finance teams to ensure a unified vision and common objectives.
- Periodic Architecture Reviews: Regularly review architectures to identify optimization opportunities and adjust strategies as necessary.
- Executive Commitment: Executive support is crucial for the success of any FinOps initiative. Without the active involvement and support of senior management, it is difficult to implement significant and sustainable changes within the organization.
- Cloud Center of Excellence: A Cloud Center of Excellence (CCoE) is a dedicated unit responsible for leading the adoption and optimization of cloud practices within the organization. The CCoE plays a key role in implementing FinOps, ensuring that best practices are followed, and maximizing the value of cloud investments.
- Policy and Procedure Development: Create and maintain policies and procedures that guide efficient cloud usage.
- Advice and Support: Provide advice and support to teams for implementing FinOps practices and optimizing resources.
- Use of Cloud-Native Tools: The use of native tools provided by cloud service providers can simplify resource management and optimization. These tools seamlessly integrate with cloud environments and provide advanced functionalities for monitoring, automation, and cost optimization.
- Automation: Automation is a key component for efficient cloud resource management. Implementing automated processes allows organizations to reduce manual intervention, increase accuracy, and improve operational efficiency.
- Human Error Reduction: Minimizes the likelihood of manual errors in resource management.
- Operational Efficiency: Accelerates task execution and allows teams to focus on strategic activities.
- Dynamic Adjustments: Enables real-time adjustments in response to changes in demand and resource usage.
10. Collaboration
As previously mentioned, proper cloud usage is a complex task that requires collaboration between different functions within a company. The decisions and actions taken by one team can have a significant impact on other teams and the business overall. For example, if an R&D team initiates a new project and provisions hundreds of new virtual machines without proper budget planning or without notifying the finance team, it could result in an unexpectedly high cloud bill. Similarly, if the executive team decides to cut costs without proper planning with engineers, there could be negative consequences for cloud project development and operations.
Steps to Build Collaboration in FinOps:
- Define a cloud usage strategy: Establish how cloud resources will be used efficiently.
- Define and adjust cloud budgets: Create and modify budgets as needed to control costs.
- Establish cloud usage practices: Implement policies and procedures for efficient cloud use.
- Review and adjust results: Monitor results and make adjustments to continuously improve.
2. Planning and Implementation of FinOps
The journey to FinOps is a transformation process that spans from initial chaos to the final evolution of an organization in terms of cost optimization. This journey can be divided into three key stages: chaos, change, and evolution.
A. Stage 1: Chaos
In the chaos phase, organizations often have minimal visibility and governance over their costs. This leads to ineffective resource management and significant financial problems. Typical characteristics of this stage include:
- Lack of cost visibility: Without a clear view of costs, organizations may face a constant need to adjust or redistribute budgets to cover unforeseen expenses. This phenomenon is known as “cost firefighting.”
- Price shock: The lack of foresight and cost justification leads to unpleasant surprises when new cloud initiative costs are revealed.
- Unnecessary operational work: The lack of standardization, governance, and sometimes lack of cloud function knowledge leads to increased operational burden and inefficiency in resource management.
- Increased security risk: The absence of proper cost management practices increases security risks due to unmanaged and oversized resources.
Identifying and addressing these initial problems is crucial to move towards more effective and controlled cost management.
B. Stage 2: Change
The change phase involves the adoption and expansion of more structured and concrete cost containment practices. This change typically starts in one area of the organization and expands to others. Key steps in this stage include:
- Automation: Start by manually identifying the necessary steps for cost control. Then automate these steps to optimize cost management and recommend pricing aligned with workload demand.
- Cost filtering: Improve visibility and cost tracking across the entire value chain by implementing cost allocation tags.
- Optimized resource management: Plan demand using native cloud services. Apply scaling policies and elastic services to provide a more resilient and cost-effective architecture.
Implementing these steps will help organizations move from reactive cost management to a more proactive and efficient approach
C. Stage 3: Evolution
The evolution phase focuses on establishing sustainable and continuous improvement practices that foster a cost-awareness culture. At this stage, organizations become adept at using their knowledge to reinvest the savings achieved. Key practices include:
- Adoption of service launches: Typically, new cloud services have better pricing. It is relevant for the organization to quickly utilize these new services to benefit from cost advantages.
- Center of Excellence: Implement a Center of Excellence (CoE) to drive continuous cost optimization through continuous improvement practices and organizational change management.
- Cost assurance: Focus cost management on transparency and data-driven decision-making to secure current and future cloud investments.
In this final stage, organizations achieve autonomous and sustainable cost management, ensuring that savings and optimizations are continuous and aligned with changing business needs.
3. Novis Tools and Solutions for FinOps
At Novis, we have developed tools to meet the key FinOps principles detailed in point 1.4 of this guide. Additionally, we offer a support service for companies seeking to optimize their cloud operations. We provide specialized assistance to guide them from Stage 1 (Chaos) to Stages 2 (Change) and 3 (Evolution) described above.
We have a multidisciplinary team of expert consultants who, periodically, can interpret the information from the tools and define an action plan. This way, we determine priorities based on criteria indicated by the client, subsequently monitor results, and restart the cycle.
We also build a continuous optimization process, providing a more sustainable and effective solution that ensures proper management of Amazon Web Services, Microsoft Azure, and Google Cloud Platform. This allows our clients to maximize the performance of their cloud investments.
The following are the tools on which our service is based:
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⇒ Novis Cloud Manager
Novis Cloud Manager (NCM) is a software platform designed to automate public cloud operations with high standards of security, agility, and efficiency. It is a multicloud tool, supporting AWS, Azure, GCP, or multicloud environments. More details on the benefits for critical cloud applications using Novis Cloud Manager can be found in “What are the benefits for critical cloud applications using Novis Cloud Manager?”
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⇒ Novis CloudController
Novis CloudController (NCC) is a software platform designed to provide comprehensive control of costs, usage, and security across major cloud providers like AWS, Azure, and GCP. It facilitates the management of multiple simultaneous cloud environments, allowing organizations to achieve the maximum return on their cloud investments. More details on FinOps, infrastructure optimization, and multicloud security with Novis Cloud Controller can be found in “FinOps, infrastructure optimization, and multicloud security with Novis Cloud Controller.”
If you have SAP solutions, we recommend reviewing this article: “How to gain visibility and control of SAP solution costs in the cloud.”
4. Best Practices for FinOps in GCP, Azure, and AWS
The adoption of FinOps has become essential for companies managing multi-cloud environments, especially on popular platforms such as Google Cloud Platform (GCP), Microsoft Azure, and Amazon Web Services (AWS). Below, we will explore how to implement and optimize FinOps on each of these platforms to maximize the value of cloud investments.
A. FinOps in GCP
Google Cloud Platform (GCP) offers a variety of tools that facilitate cost management and resource optimization. To implement FinOps in GCP, it is crucial to leverage Google Cloud Billing and Cost Management. These tools allow for real-time resource consumption monitoring, budget alerts, and service usage analysis to identify optimization opportunities.
A recommended FinOps practice for GCP is resource categorization and tagging. This helps in identifying consumption patterns by department or project, allowing for more accurate cost allocation and better financial planning. Additionally, periodic audits of running instances and leveraging predefined pricing offers and reserved instances are recommended to reduce long-term costs.
B. FinOps in Azure
Microsoft Azure provides robust tools for implementing FinOps, such as Azure Cost Management and Azure Advisor. These tools are essential for monitoring spending, optimizing resource usage, and obtaining personalized recommendations to improve operational efficiency.
In FinOps for Azure, it is vital to implement governance policies that include automating the shutdown of unused resources and defining spending limits. Using Azure Policy to control and limit the types of resources that can be deployed based on business needs is also a key strategy. Additionally, utilizing Azure Reserved Instances and discounts for dedicated instance usage are effective methods for significantly reducing cloud costs.
C. FinOps in AWS
Amazon Web Services (AWS) is one of the most popular cloud platforms and also has a broad ecosystem of FinOps tools, such as AWS Cost Explorer and AWS Budgets. These tools provide detailed cost control, offering visibility into expenses and recommendations for resource optimization.
To effectively implement FinOps in AWS, it is essential to use Savings Plans and Reserved Instances. These options offer substantial discounts when committing to long-term usage. Another key practice is automating resource scaling based on demand, allowing adjustment of consumption according to actual needs, thus avoiding resource wastage.
Additionally, implementing detailed tagging and using AWS Cost Categories are recommended strategies for segmenting and analyzing costs by business unit or team, which facilitates informed decision-making and continuous operational efficiency improvement.
By optimizing FinOps in GCP, Azure, and AWS, organizations can ensure they are getting the maximum value from their cloud investments, aligning costs with business objectives, and promoting a culture of financial responsibility across the company.
5. Current Trends in FinOps
In this chapter, we analyze current trends in FinOps and how companies can leverage these technologies to further optimize their cloud costs.
A. Emerging Trends in FinOps
El panorama de FinOps está en constante evolución, con nuevas tecnologías y tendencias que surgen constantemente. Algunas de las tendencias emergentes más importantes en FinOps, que ya están incluidas en las soluciones Novis son:
- Artificial Intelligence (AI) and Machine Learning (ML): AI and ML are being used to automate FinOps tasks, such as cost analysis, resource optimization, and anomaly detection.
- Predictive Analytics: Predictive analytics are being used to forecast future cloud spending and help companies plan their budgets more effectively.
- Multicloud: Companies are adopting multicloud environments, which requires new approaches to cloud cost management.
- Hybrid Cloud: Hybrid cloud is gaining popularity, presenting unique challenges for cost optimization.
- DevOps: Integrating FinOps with DevOps helps companies optimize cloud costs from the early stages of software development.
B. The Impact of New Technologies on FinOps
New technologies such as AI, ML, and predictive analytics are having a significant impact on FinOps. These technologies help companies:
- Automate manual tasks: Free up time for FinOps teams to focus on more strategic tasks.
- Gain better visibility into cloud spending: Allows companies to make more informed decisions on cost optimization.
- Predict future cloud expenses: Helps companies plan their budgets more effectively.
- Optimize costs in multicloud and hybrid cloud environments: Helps companies make the most of their cloud investments.
- Integrate FinOps with DevOps: Enables cost optimization in the cloud from the early stages of software development.
C. Best Practices for Incorporating FinOps
To make the most of new technologies and trends in FinOps, companies should follow these best practices:
- Adopt a proactive approach: Don’t wait for cloud costs to spiral out of control. Be proactive in optimizing your costs from the start.
- Invest in tools and technology: The right tools and technology can help automate tasks, gain visibility into expenses, and make more informed decisions.
- Train your team: Ensure your team has the skills and knowledge needed to implement and manage an effective FinOps strategy.
- Monitor and measure: Regularly monitor your cloud costs and measure the impact of your FinOps initiatives.
- Be flexible: The FinOps landscape is continually evolving. Be flexible and willing to adapt your strategy as needed.
Conclusion
FinOps is an evolving discipline that helps companies optimize their cloud costs. By leveraging new technologies and trends and following best practices, companies can maximize the value of their cloud investments and reduce their total IT costs.
If you want to know how Novis can help you, we invite you to contact us.
Note from Jorge Porro Borjabad, Novis Architecture Leader, and Gilda Valderrama Martínez, Novis Newsletter Editor.
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