One of the most frequently mentioned benefits of migrating to the cloud is a reduction in costs, but, as many organizations have found out, the cloud can quickly become more expensive than on-premises solutions due to unexpected cloud costs and investments.
The cloud offers businesses increased agility and flexibility, which lets them innovate at a faster rate and scale to meet the demands of users more easily. However, this on-demand consumption model makes it more difficult for businesses to scrutinize costs per month and if their cloud operations are optimized efficiently. The wide variety of add-on services offered by cloud service providers adds further complexity, as services may be utilized and understood only by individual business units.
FinOps is one of the main ways leading companies are getting a handle on cloud spend. It is a set of industry-wide practices to get the maximum value out of cloud services, which also fosters better communication and collaboration between business and engineering teams.
To begin, organizations need to get a complete overview of their cloud ecosystem, down to each business unit, project, and even team level. With this, business leaders can be aware of any inconsistencies in the amount of resources being dedicated to a project or team, alongside more effectively aligning resources to business outcomes and goals. This assessment can also provide organizations with clear metrics to compare with industry benchmarking and performance, helping to identify if costs are similar to the industry average.
Once the assessment has been completed, organizations should create a set of goals and strategies aimed at cost optimization. The use of KPIs and governance rules should enable teams to easily track costs and performance-related metrics either weekly, monthly, or quarterly and be able to report any fluctuations in cost with reasons as to why that has happened. With this real-time data being shared across multiple teams, business leaders can make more informed decisions to optimize costs further, such as moving to multi-cloud or hybrid cloud architecture.
After establishing the KPIs and governance rules, organizations should look to automate for cost avoidance and reduction, through the use of solutions that can interpret the business goals set out in the assessment stage and provide continuous cost optimization. Autonomous services, which, when coupled with artificial intelligence and machine learning, provide actionable insights, can utilize all of the data collected in KPIs to reduce the amount of risk involved in cloud budgets.
While this sounds straightforward, there can be a lot of roadblocks in the FinOps journey. Like DevOps and other subdivisions of this practice, it needs high-level buy-in from multiple team leaders alongside C-Suite executives. Without this, organizations cannot get a clear picture of cloud spend and will not be able to optimize cost reduction effectively. Organizations also need to make a decision early on whether to utilize a dedicated FinOps platform, utilize a larger operations platform, or build one themselves.
According to IDC, cloud infrastructure spending in 2022 grew 19.6% year over year to $88.1 billion – a noticeable increase from 8.6% annual growth in 2021. And cloud costs are expected to increase at a compound annual growth rate of 10.5 to 13.1 percent to 2025.
Early investment in cloud cost management solutions can ensure that organizations do not feel this increase in cloud costs by improving the efficiency of cloud services and reducing the amount of cloud waste. That can also provide focus to organizations looking for more control over costs. That was a major theme for technology companies in 2022 when many companies had to switch from a growth-first to a profitability model to keep investors and shareholders happy. That mode of operation is still in effect now.