Thought Leadership

Cloud Migration
Importance of Financial Operations

Whether your company is moving or already in the cloud, you need to be able to have visibility and control of costs. The earlier you start learning about and planning FinOps, the better.

Some of the key points that need to be considered include:

  • The model for procuring infrastructure changes dramatically
  • Managing your infrastructure becomes much more important
  • How you design and lay out your infrastructure should take advantage of the scalability of the cloud
  • Optimization of your code, processes and ancillary functions is critical to meeting cost savings goals
  • Unobserved systems lead to unknown costs
Financial Operations Background

FinOps is an operation framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making and creates financial accountability through collaboration between engineering, finance and business teams.

It is critical that the business, finance and DevOps teams communicate and collaborate. Moving to the cloud requires companies to manage infrastructure costs differently. In the past, companies projected how much infrastructure they would need based on number of transactions, performance, etc. and then attributed those costs to a particular business unit or IT area and capitalized those costs. Agile processes have started changing this so costs are attributed to product-based development.

As these functions have moved to the cloud, controlling those costs has become particularly challenging. Before, projecting costs translated into physical hardware. If procuring hardware was difficult in a company, even something as basic as adding memory to a server, teams would start overestimating their needs. These cost overruns were extremely impactful if not planned well (or over planned for). This allowed for hardware to offset poorly developed code and for this tech debt to be put off.

Now, when applying this same model to cloud computing, it becomes easy to understand why infrastructure costs are significantly higher than companies initially planned for. Automatic scaling allows for platforms to be able to handle growth quickly and effectively while maintaining uptime if the code is designed correctly. This mindset of “just add more infrastructure” no longer works. The need for FinOps becomes more apparent at this juncture.

Other parameters, such as how to differentiate and apply costs, add to these everyday challenges. When teams are siloed, it is easy to say how much each product is costing. However, many of these products are cross functional for business needs. For instance, if you are using a chargeback model or are housing several products under the same area, these costs become muddled and not as easy to break out.

Need for FinOps

FinOps is a set of principles and practices focused on managing and optimizing the financial aspects of cloud. It involves collaboration between IT, finance and the business to provide transparency, enable accountability and deliver business value to your organization.

Considerations may include:

Learning

Make sure you have an education path for different personas and track how many employees have received cloud and FinOps certification

Governance

Shift to real-time monitoring, reporting and taking action

Forecasting

Determine the team’s potential spend by using cost calculators to set budgets and monitoring the workload until it normalizes

Allocation Transparency

Articulate consumption in terms the business understands such as through dashboards and reviewing cost by line of business, product and most consumed services

Planning

Ideally FinOps discussions and design are a part of the initial setup of the cloud environment. This takes some of these concerns directly into account, and the infrastructure planning quickly falls into practices that are far easier to break out. Not doing so will require FinOps to partner with other advanced, modern concepts to unlock these functionalities which will delay your ability to manage costs effectively for a time. Maturity in other areas like DevOps must be present to fully implement these items.

Implementation

No matter how your company progresses their infrastructure cost model, ultimately, a way to accurately predict your usage (and in some cases, restrict usage) will need to be developed. To do so, you need to produce and implement a framework.

Steps Include:

  1. Cloud Cost Monitoring and Management: continuous real-time monitoring and management involves a combination of education, governance, usage forecasting, and software tools
  2. Tagging Strategy: track expenses to how your organization aligned (product, line of business, application, etc.)
  3. Alerting: set thresholds for upper limits on budgets and consumption with escalations
  4. Showback Model: first step for aligning business and departments around the need for FinOps
  5. Cost Optimization Reviews: integrate cloud reporting into management reviews
  6. KPIs: define base set of metrics to be refined
Splitting Costs

Now, you have addressed efficiencies, and even if you are not implementing a standard chargeback model, IT teams will need to account for how to split costs, especially where a service may support critical and non-critical functions. Most companies drive this off rough percentages based on environment tagging, and in a non-chargeback model without a shared container environment, this may be enough. However, if you fall under the other categories or this is not detailed enough, how do you manage this aspect? Making these distinctions can drive how the application should be scaling and prioritizing workloads.

Once again, we’ll derive this off the specifics supporting the KPI monitoring. Even better, when planning products, having a pattern that allows specific transactions to be identified and associated with specific FinOps parameters is a huge help in this regard. This can potentially drive savings by suggesting splitting the workload to prioritize some transactions and minimalizing others, allowing that workload to potentially be driven by different KPIs.

AWS: FinOps Case Study in the Technology Space

A multi-cloud, enterprise team needed to provide chargeback reporting to internal teams and manage the cost for reporting. The Daugherty team implemented data pipelines from each cloud provider to centralize all the data into a common repository in AWS S3. Since the client already leveraged the Databricks Lakehouse Platform, the team leveraged pipelines to transform the data into the FinOps Cost and Usage Specification (FOCUS) standard. Reports were developed in the client’s BI Toolset to make all data available to the right teams, including finance, business, DevOps, governance, risk and compliance, for chargeback/showback. By actively monitoring the dashboards we quickly identified expensive resources leveraged during POCs that were not removed at the end of the project, thus saving thousands of dollars by identifying cloud waste.

Conclusion

Managing a FinOps practice is built around the following capabilities: operations, assessments, cloud policy and governance, tools and services, education and enablement, intersecting disciplines and chargeback and invoicing.

It is critical that you understand your daily cloud spend, know where your cloud spend is going and where the cloud waste is, as most companies have 30% cloud waste, according to Forbes.

Alignment between business, technology and finance with shared insights and actionable data allows us to set clear objectives and makes sure you build awareness and knowledge of well-managed and fiscally responsible cloud solutions.

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