A skeptic’s guide to FinOps services
“OK, so I might be overpaying for my cloud services, and I agree I need to get that sorted out. But why would I bring in an outside consultant or consider using a managed service? Surely that’s just going to add even more cost…”
If you’re thinking like this, then this blog is for you.
A skeptic’s guide to FinOps services
The main challenge organizations have in dealing with cloud costs is they find it hard to step away from their day-to-day duties and get a total view of their cloud spend and the actions they need to take to optimize it. They particularly need help determining whether or not the spend is performing, i.e., is it producing a return or is it just waste?
In my experience, most organizations can benefit from the assistance of an advisor who combines two crucial qualities: they have a technical understanding of the cloud platforms being used, and they can speak to financial concerns, particularly cost control, cost allocation, and return on investment.
Is it worth paying a consultant to help you fix FinOps?
At this stage in the evolution of cloud usage, cloud spend has reached what finance people call “material levels”. One of my clients was spending €8 million per quarter on cloud and had no idea why it was that much or how much of that was being wasted.
The cost of the consultancy to help them get a handle on that was tiny in comparison. They got a really good return on that spend, as we managed to reduce their cloud costs by about 25% to more like €6 million per quarter. The cost of consultancy was eclipsed by the savings delivered.
The costs involved in cloud are numerous and complex. Everything generates a cost in cloud:
● Developers creating an environment for their applications spin up resources which incur costs.
● Usage of those resources, in development and in production, incur usage costs.
● Unattended resources that people have created and forgotten about can create huge unnecessary costs.
The costs involved in managing cloud spend are, by comparison, small and simple:
● The cost of an initial review of the sources of cost and analysis of the architecture of the cloud environment in relation to the business outcomes it is designed to deliver.
● The cost of ongoing monitoring of resources, their usage, and value to the business. This is key, since getting control of cloud costs is not a one-off exercise but a continuous activity.
What value does an external consultant add?
An external consultant is a trusted advisor who works for the whole organization, not one department. Their goal is to help the organization understand its spend and reduce it.
They speak to and listen to all the different stakeholders as neutral objective observers and facilitators. Because they don’t get involved in internal politics, they stand a better chance of being successful than in-house people working on their own.
Of course, in-house people still need to learn and apply FinOps principles in their day-to-day activities; it’s not a case of abdicating responsibility to an outsider. The advisor’s role is to help those internal people – be they in finance, technology, or lines of business – to accomplish their goals.
Monitoring cloud spend is a full-time job – and everyone within the organization already has a full-time job. What I’ve seen with clients is that when in-house people try to do this on their own, they may get ahead for a while, but then their day job catches up with them and they lose focus on FinOps.
The role of the in-house FinOps lead
The model that I see emerging in the market is one where organizations appoint an internal FinOps lead. This person is responsible for getting their internal colleagues to learn and follow a FinOps culture, and also for acting as the liaison to the external partner.
This model works well. The internal stakeholder manages the external partner, makes sure they’re adding value, and builds confidence that the job is getting done properly. It takes someone internal to do this, as they are best placed to understand the organization’s structure, technology stack, and how it ticks.
The role of the internal FinOps lead evolves as the organization’s practice of cloud financial management matures through the three classic stages of crawl, walk, and run:
● Crawl. Here, the focus is simply on reducing costs. Activities include information gathering, reporting, and understanding reasons for spend and eliminating obvious unnecessary costs.
● Walk. At this stage, the focus is on determining whether spend is appropriate. By analyzing resource tags, the organization can tell who is responsible for a cost and if it is contributing to its business purpose.
● Run. At this level, the organization can perform unit economics analysis which shows whether spend is performing. I had a client that was spending a couple of million dollars on a customer-facing application in Azure and was interested in reducing that cost. But we found that the application was delivering 2-3 million dollars more in revenue than it was costing. The spend was performing, so reducing it would have been a false economy.
The value of an ongoing analytical service
The cloud platform you’re using provides an enormous amount of data. Every resource you create and use generates data and its cost is completely transparent. The difficulty is that it is very complex and takes a lot of time – and a hybrid technological-financial skillset – to interpret all that data.
The value of a FinOps analytical service is in explaining that data to you, in making what is hidden visible. It enables you to understand who is incurring costs and why, determine if they are justifiable or capable of reduction, and eliminate costs that are not producing a return.
An ongoing managed service is necessary because cloud spend is not static, but highly dynamic over time. One of my clients did a one-off exercise and was able to reduce costs considerably. But they didn’t continue the process, and after a while, both the technology and finance teams began getting nasty surprises every time a bill came in.
A managed service would have spotted this trend, alerted those incurring the excessive costs, and given guidance on how to contain or eliminate costs that were not justified. In other words, a managed FinOps service stops nasty surprises.
What’s the financial payback on a FinOps service?
A cloud financial management service might cost you something in the order of 10% of your cloud spend, but it can deliver savings of up to 60%, depending on your environment and how well run it’s been to date.
These cost savings come from three main routes:
1. Tagging. Generally, organizations don’t tag cloud resources according to business purpose, which is a big missed opportunity. If they did, finance could align cloud costs to business performance and, through unit economic analysis, determine if that spend is performing or not.
2. Architecture. Architectural choices can have a material impact on the level of spend. One client’s developers had spun up 3,000 virtual machines and installed SQL Server on all of them, which incurs an extremely high runtime cost compared to deploying a platform database.
3. Negotiation. Improved understanding of what consumption-based costs are being incurred on the cloud platform, combined with detailed knowledge of the cloud provider’s enterprise agreements and commercial offerings, empowers the organization to negotiate better rates.
Now is the time for FinOps
Cloud has passed its Gold Rush stage and entered the phase of maturation. With a recession potentially looming, now is the time for organizations to unblock the value of cloud by optimizing costs.
The next wave of value that comes from cloud will be released by FinOps. This practice of cloud financial management can empower an organization to stop viewing cloud as a cost center and, by relating costs to business value, start seeing cloud as a profit center.
To do FinOps properly, you need a trusted partner for both the initial review and ongoing management. For a deeper dive, read our white paper FinOps 101 – FinOps 101 – Making the most of your cloud technology spend, or, to get in touch with a FinOps advisor, contact firstname.lastname@example.org