A new surge of enthusiasm surrounds a strategic framework poised to simplify the management of cloud expenses and help companies lower their IT costs — it’s called FinOps, a portmanteau of the words Financial and DevOps. While this methodology is praised for instilling financial governance, its principles can be extended far beyond just cloud infrastructure and applications. CIOs, CTOs, and CFOs can use its teachings to curb all types of IT expenditures.
With prices escalating, it’s imperative to implement cost optimization strategies more broadly. This article delves into how FinOps tackles common spending problems and identifies cost-saving mechanisms that can be used for wider financial gains.
The cloud trap: Cost overruns are common, fees are steep
In the realm of cloud computing, exit strategies can seem elusive — much like the famous lyrics from the Eagles song “Hotel California.” Public cloud infrastructure seems to be a place where you can “check out any time you like, but you can never leave.”
Just as hotel guests can check in but struggle to check out, cloud clients feel trapped by the hefty charges that apply when clients try to remove data all together – not to mention the ongoing fees for data access. Additionally, while many invest in the cloud for its cost-saving potential, realizing those savings poses a significant challenge.
The allure of simple pay-as-you-go services comes with a catch—the need for vigilant financial oversight. Those neglecting to right-size their cloud assets often overspend significantly. Gartner reports cloud overspending by 70% is commonplace, and 60% of CIOs experience cloud cost overruns that negatively impact their business.
FinOps offers a way out.
FinOps: Two critical levers can reach beyond the cloud
Designed to liberate companies from cloud constraints, FinOps offers structured frameworks for managing Infrastructure as a Service (IaaS) and Software as a Service (SaaS) expenditures.
Two critical levers control cloud costs:
- Rate Optimization involves understanding service rates, pricing models, and available discounts to lower starting costs.
- Usage Optimization focuses on efficiently utilizing services and reallocating unused or underused resources.
However, these two primary levers aren’t just for the cloud. FinOps principles can be applied across various technology services to maximize value from innovation investments.
Use Cases: Applying FinOps across the broader IT environment
In expanding FinOps to optimize their entire IT landscape, business leaders often seek out areas with a high potential for technology waste. The following criteria can help pinpoint common areas of overspending.
Rapid changes lead to misalignment with business needs
Anytime IT assets are changing quickly or shifting in ownership at a high frequency, there is an increased potential for waste. In many cases, overspending occurs because assets drift out of sync with business needs. Consider the shift to hybrid work models and the lifting of pandemic-related restrictions. Companies often have a glut of network and telecommunications resources that are no longer used. FinOps intervenes, through regular inspections, facilitating the realignment necessary to address these discrepancies.
A rotating roster of employees presents challenges as well, often resulting in the abandonment of mobile devices and unused cloud application licenses. Turnover leads to technological waste as resources go underutilized, creating unnecessary spending that can easily be avoided. FinOps principles provide oversight and control over the reassignment of these assets, mitigating waste through tighter management.
Converging technologies and solution decoupling create waste
Acquisitions are an everyday occurrence in the tech industry, and merged solutions can make for overlapping, redundant tools. For example, the convergence of network and security technologies can unknowingly render existing tools unnecessary. Convergence, while aimed at efficiency, can inadvertently contribute to overspending.
But IT and finance leaders should also consider this scenario in the reverse.
Sometimes solutions are unbundled or decoupled. For instance, as of April 2024, Microsoft Teams® is no longer sold as part of larger Microsoft 365® solution suites. When solutions are sold separately, it often means they are no longer free. IT leaders now need to budget separately for them and keep a tighter grip on management to control any negative financial impacts. FinOps mechanisms can be used to ensure all IT tools are identified and optimized effectively.
Overcoming challenges to widen FinOps success
Expanding the scope of a FinOps strategy comes with challenges, including the rapid pace of change, visibility issues, but also data analysis, and turning insights into savings. One key prerequisite is maintaining an accurate inventory of all IT assets and related details like users, providers, contracts, invoices, and costs. To scale FinOps effectively, a centralized platform, systems integration, AI analytics, and automation are all essential.
In conclusion, while FinOps initially gained traction for multi-cloud optimization, its principles can drive savings and efficiency across diverse IT environments. By embracing FinOps tactics, companies can unlock significant value ensuring that cloud cost management strategies govern sweeping innovation.
