The way businesses operate has undergone a massive transformation since cloud inception. Today, we’re generating more data in one hour than all of 2000s and earlier. While this gives us a fair idea of the massive transformation the cloud era has brought, a common question hangs in the air. “Are businesses utilizing cloud computing capabilities to the fullest?”.
A common misconception that underlies specific topics in technology is that when something is not known, it is taken for granted until it is stressed upon later. In the context of all the services and expenses occurring due to cloud services, one may argue that their cloud spending is under control. Their profits may suppress the need to go the extra mile and discover the unknown.
However, being on the safe side doesn’t necessarily ensure constant profits for your business. In a world of technological development by the second, diving into topics that help your business grow is essential. And in this article, we encounter one such topic, FinOps.
What is FinOps?
Besides the textbook definitions, what is FinOps all about? Most strategies help businesses save money. However, FinOps allows businesses generate revenue. Where does the difference lay between other strategies and FinOps?
Cloud Financial Management, in short, FinOps, is an operating modal for the cloud. In this sense, an operational modal – a combination of systems, best practices, and culture- increases an organization’s ability to understand cloud costs and make tradeoffs.
To put forth in a more straightforward sense, here’s an example. For instance, if you’re a business owner, here are some of the issues you may face: How do you plan on solving your computing needs? How do you cope up with the scale as you move on? And is it possible to predict your computing spend relating to your demand in advance?
There may be instances of a festive backed sale and other occasions where you could encounter a sudden boost in engagement. You wouldn’t know the number of people who might find your website via search and the number that might buy your product. At the same time, if your resource failed to satisfy the end-user experience considering a considerable surge, does it sound feasible for your business?
Customers do not visualize a businesses’ scale/cloud spend. While a smooth user experience guarantees customer satisfaction, companies should deliver the same via the cloud. However, the problem is that the DevOps team often realizes the gaps in the cloud spend too late. And more often than not, they are left with no options to monetize.
Here is where FinOps fits. In short,
FinOps = Real time reporting + just-in-time processes + teams working together
It’s interesting to note that FinOps is not something that one person or company came up with. It is a movement that evolved spontaneously worldwide due to the environment created by on-demand cloud resources. This surged amidst companies encountering a no-longer-relevant technology management methodology.
Pricing methods of public cloud
Public cloud platforms have modified the way companies purchase, manage, and operate on the infrastructure end. With flexibility and newer approaches come their own set of issues. One such problem associated with the distributed approach is the confusing pricing model. It can get in the way of finding the perfect plan for your specific needs.
Cost models form the fundamental building blocks for cloud computing. Based on research & practice over the years, experts have arrived at four essential pillars to grasp the cloud pricing models and control cloud costs.
- Pillar #1 – Right-sizing – This is an ongoing process in an organization. The purpose of this exercise is to identify idle and underutilized resources to avoid wasted expenditure.
- Pillar #2 – Reserved Instances – It’s good to ensure payment options, terms, Instance type, scope, tenancy, platform when choosing RI based on your needs.
- Pillar #3 – Elasticity – There is a fine line between not having the resources to run your application and wasting money on infrastructure you don’t require. The goal is to find an efficient architecture that finds a balance between “not enough” and “too much.”
- Pillar #4 – Measure, Monitor, and Improve – This is an ongoing process in an organization to provide real-time insights into services and look for opportunities to save revenue.
There are many pricing models used in the cloud system. These arose concerning the massive surge in usage. They are broadly classified as dynamic & fixed.
Fixed pricing model
Also known as static pricing models, here, the price doesn’t change over time. The cloud provider decides the cost to the resource type, based on the requirement, in advance.
Dynamic pricing model
They are also known as pay-per-use models, where users only have to pay for the services they use.
How can FinOps benefit your company?
Let’s drill a little deeper and understand why it’s essential for organizations to adapt.
As explained, the idea is to bring finance and IT together. You are more likely to encounter a hefty cloud bill every month if you are a cloud organization. Some even range to a million dollars a month.
Is that amount reasonable? If so, where is the money spent?
The days of all cloud capabilities being centralized in data centres are no longer valid. Legacy ways of managing IT infrastructure aren’t just ineffective in the cloud; they are irrelevant. If you look back at the traditional silos of those days, development wanted to deliver new functions as quickly as possible, and operations wanted stability. It took no longer to realize security also should be a concern here.
Predictably, this gave rise to DevSecOps (with variations in the term). As IT organizations increasingly employ multiple cloud platforms to run different workloads, understanding the cost of choosing one cloud over another will become necessary. Likewise, they should have greater flexibility towards the need to move workloads between platforms as prices rise. These gave rise to finance in IT.
According to Gartner, the market for public cloud services is projected to grow at a compound annual growth rate of 16.6% by 2023 and is estimated to top $360 billion. Although cloud systems offer businesses scalable services that help optimize their resources, they are mostly unaware of the overspent amount.
A similar report from Gartner confirms through 2022, in any given month, over 30% of the growing expenditure on software and cloud services will be unused. How can these be justified? To understand these, we need to look at how we’ve evolved with IT management & operations.
On an overview, finance teams are mostly inclined to traditional IT projects often struggle with the opaque and variable costs associated with the cloud infrastructure. On the other hand, application teams may not understand the budgeting and fiduciary responsibility of the finance team. Here comes the role of FinOps, where everyone takes ownership of their cloud usage supported by a central group of best practices. Cross-functional teams work together to enable faster delivery while gaining more financial and operational freedom.
With FinOps, each entity of an operational team would get exclusive access to near-real-time data that leverages spending. This gradually helps them make intelligent decisions that ultimately result in efficient cloud costs, balanced against services’ speed/performance and quality/availability.
How can one adapt to FinOps framework?
While the cloud can unlock innovation and agility, one of the issues is the loss of visibility and control of costs along the way. The role of a cross-functional FinOps team in an organization is to enable a series of procurement best practices that eventually help in levelling technology, business, and finance. This helps optimize cloud vendor management, rate, and discounts.
Source: FinOps Foundation
You can broadly visualize the process of adopting FinOps in an organization in three phases as below,
- Inform: FinOps should eventually start with people who have expertise in assigning visibility and allocating cloud costs. It also provides a detailed comparison with budgets, forecasts, and the business value being delivered.
- Optimize: The process is continued. It is more aligned to identifying the potential actions based on the business goals, such as purchasing savings plans or reducing waste by turning off unused dev resources.
- Operate: In the end, incorporate technology to take the agreed actions, focusing on seamless improvements and qualifying goals.
In layman terms, give your team transparency into the costs associated with its code. In addition to this, get the right skills onto the team. In the end, one can establish aggregate reporting of expenses, set priorities and incentives for managing costs within the code.
Why choose FinOps?
At its core, FinOps is a cultural shift. Gartner estimates worldwide cloud spending will reach $360 billion by 2022, five times the compound annual growth rate for overall IT spending. This cultural shift would enable finance and business teams to make informed decisions that drive continual optimization.
As emphasized earlier, FinOps is not just about saving money. It’s more about making revenue and removing blockers. This helps companies empower engineering teams to deliver better features, apps, and migrations faster, enabling a cross-functional conversation about where to invest and when.
Ultimately it’s up to businesses to decide whether to tighten the belt or invest more. This article might make you aware of the reasons you might be facing issues with this technology. However, it also brings forth the answers to various problems with companies taking part in the cloud paradigm shift.
Businesses that make enough revenue do not always necessarily have a surge in sales. When companies cut down costs, they elicit a higher profit. There are two steps involving financial cost management in any enterprise. They include cost transparency and cost optimization.
Defining FinOps for Cloud Services
Currently, organizations do not dive deeper into analyzing cloud processes and platforms before adopting them. Businesses have transformed into a dynamic process where consumers only pay for what they use – not more, nor less.
This investing model in cloud resources and tools is the ‘Pay-As-You-Go’ model or the PAYG model. Financial processes of on-premise enterprises are now archaic and delimited with the drain of revenue.
With cloud financial aspects, there is a revolution of systems, processes, and organizations’ functions. The three phases of FinOps – inform, optimize, and operate have converted the sluggish, static on-premise business model to the live financial cloud architecture.
Tagging and labelling in Cloud
In drastic situations or unforeseen circumstances, a business needs to stick to a budget. There are not a lot of options to check costs without affecting efficiency, quality, and services.
The finance department can go through the project requirements and scale down the cloud infrastructure wherever it proves to be non-essential. A comprehensive and well-listed tagging of cloud resources to the project it belongs to is thus essential.
It helps officers identify the resources which remain unallocated to projects but impose a cost. It helps make tagging and labeling a consistent practice in cloud services. Most importantly, it gives the business leadership and transparency of cloud-related expenditure.
Healthy FinOps activities revamp the cloud infrastructure tagging when cost management and operating expenses fall into scrutiny.
Is Tagging and labelling necessary?
Optimization of costs in any business is essential. Even if the organization runs smoothly and the revenue generation is noteworthy, a thrifty hand at the expenditure helps reserve money for unpredictable circumstances.
The reserves act as the backbone and keep the company running during such unpredictable durations of crisis. Businesses should be better be on the lookout beforehand than pay a hefty price later. Since the cloud offers the advantage of a PAYG model, organizations implementing cloud infrastructure are now conscious of their expenditure.
Traditional cost management has evolved into next-generation cost savings with FinOps. The implementation of FinOps provides a clear picture of the expenses and helps minimize the following challenges.
- Unavailability of invoices – Labelling and tagging help to allocate and utilize all cloud resources in an organization.
- Track unused services – It helps identify IT services that the company does not require for its processes.
- Compare cost and performance – Finance officers and accountants can analyze the cost, performance, and throughput by activating or inactivating a service whenever required.
- Accountability of Consumption – It gives transparency to the expenses incurred. It identifies the team member and the reason for consumption. It minimizes misuse of resources in the overall consumption of the business.
- Transparency – It helps avoid high costs and hidden costs that affect the cash flow in the business. Systematic control of cloud-related spendings helps generate greater profits.
How tagging and labelling takes place in Cloud?
In the public cloud, to achieve cost transparency, every resource has to be labeled/tagged to a project or purpose. Cloud service providers have certain tagging and labeling methods. But the problem of cost management still haunts business analysts.
Most companies do not follow the FinOps methods of cloud cost management which involves labeling and tagging. They end up with zero transparency and strive to propose a cost breakdown remedy to keep the business alive.
If the labeling and tagging process is broken down into some simple objectives, it proves to be easier to manage. Companies that provide cloud services have developed tools that help financial officers establish a cost allocation structure. Conducting a maturity assessment by measuring the effectiveness rate of your FinOps Domains and Capabilities is a great way to get started.
The following discussion discusses how automation helps AWS, GCP, and Azure tagging and labeling cloud services.
Amazon Web Services
Amazon Web Services resources remain attached to their metadata using tags. These tags assist business users in managing, ordering, classifying, and filtering resources.
A tag in AWS is of two parts – a tag key and a tag value. Together, they create a unique representation. The administrator can attach these tags to accounts.
Business users create organizational groups called accounts so that business users can add permissions to them. Further, they can control the resources and segregate them based on their purpose.
One can restrict this task to authorized users by adding permissions to those accounts. Here are a few easy steps to follow while adding tags in AWS:
- Open the Amazon EC2 Console
- Open the navigation bar and choose the Region that meets your needs.
- In the navigation pane, go through and select a resource type (for example, Instances).
- Choose the resource from the resource list and select the Tags tab.
- Select Manage tags and add tags.
- Enter the key and value for the tag.
- Once you are done adding tags, save it.
For more information, click here.
Google Cloud Platform
Projects in the Google Compute Platform are the key to organizing the Google Cloud. Google terms this allocation of resources into projects as labeling. Labels are handy when the need is to group resources having a similar or associated purpose together.
Labels have a common purpose. So when a business user adds a label, they categorize the resources as staging, production, development, etc. Google also offer cloud tags, an alternative to labels. This helps professionals understand which services are active and can help them stop using the inactive ones to reduce expenditure.
A business user can note the points described below to set up labeling for Google cloud resources:
- Download and install the latest Google Command Line tool
- Configure API access.
- Do Not exceed 64 labels for each resource.
- Follow the regex rule while naming labels and values.
- Create resources and anchor them with the labels.
- Adding or Updating existing resources with new labels.
- Drill-down to search results and narrow them with labels.
- Create a tag for the labels and establish their relationship.
For more information, click here.
You need tags if your objective is to arrange the resources in the Microsoft Azure cloud environment hierarchically. Interestingly, due to millions of subscriptions, Azure users find it challenging to manage the cost of so many cloud resources.
FinOps officers solve this problem by employing a tagging strategy. There is a commendable way to create a cost management group using Azure Cost Management (ACM). This group helps the accounts department to economize the cost. Here’s how it is done.
The admin with authority to access ACM can implement role-based access control (RBAC), tagging strategies, breaking down and analyzing costs, and drafting a budget. These groups have shared access across the Azure domain along with security services.
The know-how for Azure Cost Management and tagging of resources is given below:
- The administrator needs to have access to Microsoft Resources and tags.
- Apply tags to Azure resources using commands as per Azure Resource Module.
- Add the tagging commands following the Azure syntax in the PowerShell. Run the commands to employ the tags in the resources.
- One can update tags already present on a resource using the Update-Az Tag.
- Each tag is unique in its value.
- One can replace an existing set of tags with a new set of them.
One can create, update, revoke, and replace tags added to a resource with each command. But is it a cause of worry if one does not have the right to apply tags?
If that’s the case, someone with access to applying tags can add a Tag Contributor role to a new user. That user then can assign tags.
The whole crux of this tagging process is to keep track of the billing. Tags can help business users identify usage of Azure resources and their associated billing.
For more information, click here.
Tagging best practices
Tags are created in an orderly fashion. The FinOps officer who creates and assigns tags needs to follow the best practices stated below:
- The taggings should not have personal, sensitive, identifiable, or confidential information that cannot be shared.
- Be uniform with your tagging pattern. Use the alphanumeric scheme and case-sensitive format.
- For GCP, you cannot exceed more than 64 labels for one resource.
- Observe the regex expression for GCP labels.
- Implement tags with various features – managing user and device access, expense tracking, automation, etc.
- While using Azure cloud services, make sure that the concerned cloud resource supports tagging.
- For Azure users, the tag name and tag value should not exceed 512 and 256 characters, respectively.
- Processing tags is easy if we categorically add the tags into technical, business, automation, and security.
- Use AWS tagging plugins to control the tags through automation. Users can control the tagging of cloud resources using programs.
- No one can add tags to classic resources such as Cloud Services.
- Another error-free practice is avoiding the use of certain characters in Azure tagging. These are space,
- If you use Azure Automation and Azure CDN, you can only tag a maximum of 15 resources.
This proves why Cost Management teams are adopting various financial management platforms to optimize cloud expenses.
Using the tagging/labeling systems, it becomes easier to keep, find, track, calculate, and optimize expenditure efficiently and effectively, ultimately bringing down the overall operating costs associated with the cloud to a minimum and helps generate more revenue.
If you want to learn more about FinOps, cloud financial management, and cost optimization, we highly recommend going through these pages:
- Understanding the FinOps Lifecycle
- Top 7 FinOps Strategies for Optimizing Cloud Costs
- FinOps Performance Benchmarking: Measuring Cost and Efficiency
- Mastering FinOps Accountability
- 5 Steps of Implementing FinOps Culture in your Organization
- FinOps Focus: Common Billing Specs for all Cloud Services
We hope this article has been helpful in understanding the concept of FinOps and cloud tagging.