This article was originally published on Forbes.com.
There’s a groundswell of excitement around a strategic framework making it easier to get a handle on cloud costs—it’s called FinOps, and while its approach should be celebrated for establishing a discipline for governing cloud spending, its principles can be applied to far more than just the cloud.
Prices, fees and upcharges are increasing for a variety of IT services, and amid today’s macroeconomic backdrop, it’s time to put cost optimization strategies to work across the entire IT environment. Here’s a look at some of the problems FinOps solves, two key cost-cutting levers highlighted by its core principles and how to apply them for much broader savings.
When the Cloud is Like “Hotel California,” FinOps can be the Escape Route
If you’re familiar with the famous 1976 Eagles song, you know that “Hotel California” is a place where you can “check out any time you like, but you can never leave.” Those decade-defining lyrics have parallels with today’s cloud infrastructure services. Clients have no easy exit strategy. Providers never charge companies to move their data in, but if they want to access their information or pull data out of the cloud, that’s when charges put you on lockdown.
And the quandaries don’t stop there. While most companies invest in cloud, the majority also struggle to recognize value:
- Thirty-six percent of organizations cited the need to control cloud costs as an obstacle to their ongoing use of cloud.
- Companies often invest in the cloud for cost savings, yet one CIO study shows 80% of companies see cost savings as a primary challenge with their existing cloud implementations.
- Gartner found that the majority of CEOs (59%) say digital initiatives take too long, and 52% take too long to realize value.
While sometimes sold as the freedoms of a pay-for-what-you-use system, the cloud’s variable pricing models have tradeoffs—namely, restraining clients with more day-to-day financial oversight than might be expected. Those who aren’t actively rightsizing their cloud assets are typically overspending by 70%, according to Gartner. This can be deceiving as IT leaders trading in-house management for outsourced services often migrate to the cloud thinking they can cut costs while loosening their reins. That’s a big misconception.
A cloud-first strategy calls for a tighter, revised approach to IT financial management. With the highly distributed nature of cloud, IT engineers need visibility that can empower them to think more like financial managers, expanding their network performance optimization initiatives to now optimize cloud spending too. Meanwhile, financial managers need to be savvy about common forms of cloud waste and techniques to control spending when resources automatically scale up. It’s a new mindset.
FinOps: The Program for Just-in-Time Cloud Resources
FinOps can help companies break free from the confinements of the cloud by introducing strategic guidance and structured formulas for controlling IaaS and SaaS spending. With core principles and domains, FinOps is a comprehensive program empowering IT teams to break old on-premises habits and start operating like a just-in-time manufacturer, continuously matching cloud resources to corporate demand with a commitment to reducing waste.
FinOps offers the basics of organizational alignment and ongoing improvement, but its true value comes in coaching clients to monitor their own service consumption. The framework helps companies focus on two critical levers for controlling costs.
Rate Optimization
Rate optimization entails understanding service rates, pricing models, plan options and available discounts, as well as measuring market price indexes and unit costs across multiple providers as a way to lower the starting cost of services before ever signing a contract.
Usage Optimization
Usage optimization entails measuring how efficiently services are being used to identify and reallocate any unused services but also taking advantage of service on/off switches as a means to protect the pool of purchased resources from misuse.
These governance practices are how to deliver just-in-time cloud resources. They’re the new, necessary mindset—the “Hotel California” escape route.
But what’s also interesting about FinOps is that its core tactics can be applied to any technology service, helping companies ensure they get the most value from nearly every innovation investment.
Finding Your Fit: Expanding FinOps Beyond the Cloud
FinOps is gaining popularity because IT and finance leaders have limited visibility and control in overseeing their cloud investments. But it’s not just cloud that needs more supervision. Companies find they need to widen their scope, taking the next steps to broaden savings. In determining additional use cases, leaders are evaluating their complete IT landscape, using these three key characteristics or situation to identify areas with a high potential for technology waste.
1. Areas Where Rapid Change has Caused Services to be Out of Sync with Business Needs
For instance, network infrastructures and telecommunications services can be misaligned after hybrid work has changed operational models and pandemic-era travel restrictions have been lifted. In these cases, FinOps can bring realignment via routine inspections.
2. Areas Where Technologies or Assets are Frequently Exchanged or Transferred
The challenges of employee turnover create waste. For example, mobile devices are abandoned in the same way application licenses are often lost in the ether. FinOps can introduce the necessary guardianship over reassignments.
3. Areas Where Technologies and Solutions are Rapidly Converging
Network and security technologies continue to unite what were previously point solutions into hyper-conglomerate platforms, making companies unaware that they now have redundant tools. FinOps offers checks and balances for this, too.
Challenges to Consider
Expanding the scope of a FinOps strategy can be difficult due to the rapid pace of change, visibility challenges and poor recordkeeping. FinOps at scale doesn’t work in a decentralized environment dominated by spreadsheets and manual processes. Observability is obscured by distributed IT environments with multiple tools and dashboards.
Equally daunting is maintaining an accurate inventory, including the details of all technologies, users, consumption, costs and the allocation of those costs across lines of business. To scale FinOps, a centralized platform is key, as is systems integration and AI-based automation.
In Conclusion
While FinOps has gained recognition for multi-cloud optimization, its principles can be extended to achieve savings and efficiencies in various IT environments. By successfully adopting the core tactics, companies can unlock significant value across their tech stack.
In getting there, decision makers can purchase expense management technologies to gain visibility and govern costs, but as FinOps teaches us, tools alone are not enough. IT cost management is a regular exercise that requires continuous support. When technologies and purchases move at today’s accelerated pace and when prices are as dynamic as market demands, FinOps supplies a new code of conduct for more than just IT engineers. Cloud cost management strategies need to govern sweeping innovation.
Interested in six criteria helping IT and finance decision makers decipher among FinOps technology solutions? Check out this buyer’s guide from ZK Research.
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