#07. I hope you are doing FinOps the right Way?

Saving costs by optimizing cloud rates and usage. Is that really what FinOps about?

As a FinOps Advisor, I've repeatedly observed organizations hiring FinOps practitioners and investing heavily in tools and structures solely to reduce cloud costs through cost-saving recommendations or special cloud rates. After all, if the formula Cloud cost = Cloud Usage x Cloud Rate holds true, then optimizing cloud rates and usage should yield the desired outcome of FinOps, right? Well, it's not that simple. Let's explore why.

TL;DR

FinOps isn't about cost optimization—it's about increasing business value.
Take a proactive approach by investigating the business value of a cloud resource before deployment, rather than running resources and then trying to optimize their usage for cost reduction.

Why did you move to the cloud?

I often ask CIOs or other individuals responsible for cloud infrastructure and strategy about their reasons for moving to the cloud. The answers vary, but typically involve improving costs, speeding up product delivery, or enhancing resilience (e.g., banks or insurance companies often need multiple data centers for backups).

While these are valid reasons, many organizations end up treating the cloud just like a data center. One telltale sign is when your cloud bill shows steady usage every single day. This lack of elasticity in cloud resource usage indicates that you're missing out on the cloud's key advantages.

Another red flag is migrating to the cloud using a "lift-and-shift" strategy without subsequently modernizing your applications. This could involve moving to serverless or containerized environments, or at least relying more on native cloud resources (e.g., cloud databases).

If you can't clearly articulate why you moved to the cloud, you're likely not working towards business value. In such cases, you might as well return to the data center. Surprisingly, companies often spend more on cloud services than they did on traditional data centers.

If you understand your reasons for moving to the cloud, it's time to implement FinOps correctly.

Is FinOps all about Cost Optimizations?

Think for a moment about the the formula in the offset. Optimizing the rates cost is relatively straight forward since its a centralized action conducted by one entity, typically FinOps practitioners. However, that about the cost usage optimization? can this be also done centrally by someone using a tool? No!

If you ask cloud engineers to carry out these usage optimization tasks, they might claim that the resources are necessary as they are. This can lead to a deadlock where Business and Finance demand tighter budgets for cloud use, while engineers continue using the cloud as they see fit.

So FinOps is not about optimizing cost, rather, its about aligning cloud usage to a business value.

FinOps is about “Maximizing the Business Value of the Cloud”

So, what does "Maximizing the business value of the cloud" mean? It means getting the maximum bang for your buck. This could involve many things, including paying less for a resource (e.g., through a better rate) or using fewer resources. That's why FinOps practices include optimizing cloud rates, usage, architectures, and licenses. However, here's the simplest and most important question we should always ask in FinOps: "What business value is a cloud resource delivering?"

To illustrate, while cloud usage optimization might focus on rightsizing a resource to make it cheaper, FinOps aims to raise the question, "Do we need that resource at all?" This approach could save the entire cost of the resource. For example, do you need a premium HD disk in a non-production environment? Do you need 2GB of lambda memory for a simple database write operation? Or do you need a multi-regional deployment for a database containing non-essential business data?

If your answer is yes—we need an HD premium disk in a dev environment to emulate production performance—then that's the business value it provides. Otherwise, downgrading to a standard disk is what FinOps dictates.

Unfortunately, many companies introduce FinOps as a reactive measure to cut costs when they spiral out of control, instead of proactively preventing them by questioning their needs from the start. This approach is akin to taking a pill every time you have a headache rather than addressing the root cause of the problem.

Alright, so how do you do this in an organization that runs thousands of cloud resources?

How to do FinOps the Right Way?

Here is the simple strategy:

Adopt the FInOps culture in the organization: Ensure that people know the responsibilities and how to carry them. This requires training the different stakeholders and then define an operating model that governs who, how and when are FinOps processes carried out. This includes decentralizing the responsibility and accountability for all cost usage optimizations by assigning them to the DevOps teams.
Understand Cost Accountability: Every cloud resource should be allocated to an entity, team, or a business unit to understand its business value.
Associate Costs with a Business Outcome: Ensure that each application or service owner oversee that each cloud resource provides a business value. There are multiple techniques used to ensure the alignment to business including measuring the cloud unit cost (i.e., Cloud unit economics)
Create Spend Guardrails through Governance & Policy: Ensure that automations enforce the alignment of resource to business, and the avoidance or cloud waste. If you carry our this step correctly to all your applications, there will be little room left for cloud optimization.

As a final note, cost optimization should be an automatic outcome of FinOps, but not the goal.

Summary

Cloud cost optimization is not FinOps, its just a small integral part of it. FinOps should be about moving the responsibility to the application teams to align their own cloud cost to a business value and set guardrails to avoid cloud waste in the first place.