As more companies transition to digitally mature, data-centric models of operation, cloud is becoming a major cost driver. Consider this: 75% of businesses that migrate to the cloud end up overspending their budgets! For cloud to realize its true efficiency-improving potential, a change is very obviously needed. Enter FinOps, a concept devised to bring clarity and accountability to cloud spending. With the soft launch of (Rabbit)[https://followrabbit.ai/], Aliz’s very own FinOps tool, we’re now taking a look at the origins, use, and value of this novel concept. Welcome to Part 1 of our series on FinOps!

Large-scale cloud migration – and its challenges

The pandemic has seen a previously unimaginable number of companies flocking to the cloud. Data from Eurostat suggest that the use of cloud computing witnessed a 5% YoY change in 2021. Covid-19 gave digitalization a great push, forcing the hand of late adopters to hop on the cloud bandwagon. However, while cloud adoption empowers tech teams, it also challenges the old methods used to manage IT costs in a company.

As critical as cloud is to every business, it also brings a consumption model that is fundamentally different to what most companies are used to. From a business perspective, cloud represents a threefold challenge:

1. It is decentralized, putting the engineers traditionally sealed off from Finance (and Procurement) in a position to commit company spend.
2. Cloud costs are variable, as opposed to the fixed costs of data centers previously in use, making forecasting difficult.
3. Scalability adds to the challenge: having instant access to cloud resources can spur innovation, but overprovisioning is a real risk.

For so many years, procurement existed in a silo. Cloud adoption were C-level buzzwords. Today, cloud represents very real (and very substantial) costs for many companies, a cost factor that is set to grow further as cloud use expands in breadth and depth across the organization. And with few constraints on cloud spend, engineers don’t have much incentive to save costs – nor do they have the information that would enable them to do so.

Not only is cloud a big-ticket item on procurement’s list, it’s also notoriously difficult to predict. Cloud use changes from month to month, day to day, hour to hour. Traditional forecasting methods just won’t do the trick, leaving Finance teams in the dark when it comes to setting cloud budgets.

The end of walking on clouds?

With the current crises slowing down the global economy and signs of a downturn appearing in Europe and elsewhere, we’re feeling the sword of Damocles hanging over our heads. Already, companies are hitting the brakes. The pressure is on to shave wasteful dollars off crunching budgets.

It’s a time for budget cuts and hiring freezes, rendering the shadow of inefficiency a target on everyone’s back. For IT, that means a need to justify cloud spend, calling for an accurate way to measure and analyze the usefulness of cloud dollars based on precise and timely information. That’s exactly what FinOps can deliver.

Rabbit: FinOps for cloud financial management

The concept of FinOps refers to a discipline of cloud financial management, as well as the related cultural practices that are used to bring accountability to cloud spending. FinOps enables Engineering, Finance, and Business teams to better communicate and to work together on data-driven spending decisions regarding cloud use.

FinOps came about spontaneously as a response to the challenge of cloud’s variable spend model. It’s an evolving movement rather than a very specific product or idea. The term refers to a set of processes and a cultural change that aims to introduce transparency and financial accountability to any company’s cloud use.

Aliz’s own solution, Rabbit, was built with the following FinOps framework key principles in mind:

• Teams collaborate.
• Everyone takes ownership of their cloud usage.
• A centralized team drives FinOps.
• Reports are readily accessible and up-to-date.
• Decisions are driven by the business value of cloud use cases.
• Advantage is taken of the variable cost model of the cloud.

Let’s take a closer look at each of these principles!

Collaboration

Cloud solutions operate on a per-resource, per-second basis. In a joint effort to continuously optimize efficiency and innovation, Finance and Technology teams need to work together in near real time.

Ownership

Each team must take ownership of their cloud use, with Technical teams considering cost as a new efficiency metric. Individual feature and product teams are empowered to autonomously analyze and manage their own cloud usage against their budgets. Thus, FinOps helps decentralize decision-making about resource usage and the optimization of cloud use.

Centralized team

Centralizing FinOps automation reduces the wasteful duplication of effort, and helps provide clear terms around cloud use across the organization. With executive buy-in secured, rate and discount optimization is centralized. Committed Use Discounts, Reserved Instances, and Volume/Custom Discounts are controlled and governed centrally, removing the need for Engineering and Operations to worry about rate negotiations – instead, they can just focus on optimizing cloud usage.

Reports

Transparency and visibility are key stepping stones toward more efficient cloud use. Therefore, across all levels of the organization, consistent visibility is provided, enabling fast feedback loops and real-time financial forecasting and planning. To help understand why costs increase, trending and variance analysis is necessary. Internal team benchmarking promotes the celebration of wins and drives best practices across the company, while industry peer-level benchmarking helps gauge the organization’s overall performance.

Decision-making

Unit economics and value-based metrics demonstrate business impact better than a simple aggregate spend figure. Granular data enables teams to make informed decisions about optimal trade-offs among cost, quality, and speed.

Embracing cloud’s cost variability

In a FinOps environment, the variable cost model of the cloud is viewed as an opportunity rather than a risk. Just-in-time prediction, planning, and a need-based purchasing of capacity help optimize costs. Instead of the static long-term plans of the past, FinOps relies on Agile iterative planning and making small adjustments continuously.

Implementing the FinOps process with Rabbit

Taking these principles into account, the FinOps framework and process is based on three core pillars and phases:

1. Optimize: Provide granular visibility and accountability for cloud cost optimization – all this on an ongoing basis, as opposed to acting on the results of a single audit.

2. Control: Empower teams to take action to continuously track and optimize their cloud use. Implement controls to keep costs at bay.

3. Inform: Provide up-to-date insights into cloud spend to enable continuous adjustments. Refine goals and scale the cloud optimization effort across the company.

Use Rabbit to bridge the cloud cost transparency gap between Management and Engineering, and gain clarity around your cloud spending decisions. Make your teams cost-conscious, optimize cloud use, and stay in control of your cloud costs 24/7/365.