FinOps is a set of services executed in both a centralized and distributed model to operationalize the ongoing management of variable Cloud spend and can have a material impact on the relevant IT spend.
IT cost control is an ongoing challenge for enterprises. Despite the current state of the global economy, worldwide IT spending is projected to total $5.1 trillion in 2024, an increase of 8% from 2023, according to the latest forecast by Gartner, Inc.
A new element of this growth is spend for Cloud services. This spend tends to be variable in nature to give customers the most flexibility on usage. However, dealing with large, variable spend is not something many enterprises are used to, or particularly good at managing.
In addition, when it comes to managing Cloud spend, many of the old cost-reduction tactics don’t have the same impact. Instead, a new capability has appeared and matured – FinOps.
In one example, a large enterprise had already moved their workloads to the Cloud and was running in steady state. Applying a one-time FinOps review identified capacity reductions, contract improvements and uptime scheduling which together saved over $2.5M per year for the customer.
The role of the FinOps consists of three core functions:
Budget Management
Budget management means ensuring that approved changes to usage and consumption of the Cloud are tracked to approved budget numbers. For example, every time a technical person ‘provisions’ a server on the Cloud, they are also actually ‘procuring’ it. There needs to be a clear and easy link between IT Operations and Procurement to be able to manage variable spend.
Further, Budget Management makes consumption visible. This isn’t simply the headline invoice each customer pays per service. Rather, by using tagging, FinOps can generate detailed reporting to allow users of certain IT services running on Cloud to understand exactly what these services are costing the company.
In the case where actual spend varies from the budget, FinOps will raise those exceptions with the IT or Business Owners to either get retrospective approval or reverse the consumption increase.
Capacity Optimisation
Another focus for FinOps is to efficiently measure how well Cloud capacity is mapping to system demand. This involves accurately predicting resource requirements, provisioning the best amount of resources at the right time, and consistently adjusting resource allocation to ensure efficient utilization.
Optimizing resource management is especially critical in SAP on Cloud, where cost control has become a significant business driver. SAP systems on Cloud need to accommodate fluctuating workloads and handle peak demand efficiently. By dynamically adjusting resource allocation based on usage patterns, organizations can scale up or down their infrastructure resources to meet changing requirements. This flexibility allows organizations to respond quickly to business needs, avoid resource shortages during peak periods, and scale back during less demanding periods, ultimately improving operational agility.
Certain operations within SAP can also be resource-heavy and expensive to implement and manage, which, without a proper strategy, can be extremely burdensome for teams. Enterprises seeking solutions to modernize the way that SAP behaves is where the market is experiencing its most rapid maturity. Optimizing resource capacity within this critical infrastructure is therefore vital.
Contracts and Vendor Management
Negotiating contracts with hyperscalers allows organizations to tailor the terms and pricing structures to their specific needs. By optimizing these contracts, organizations can negotiate favorable pricing, obtain cost-effective service-level agreements (SLAs), and secure discounts based on their usage patterns and long-term commitments.
The ultimate aim is for organizations to optimize costs, mitigate risks, and establish a mutually beneficial relationship with Cloud service providers.
When engaging with hyperscalers or other providers, there are several common themes to consider during contract negotiations. For example, it’s essential to negotiate a pricing model that aligns with your organization’s usage patterns.
Contracts should also allow for flexibility in scaling resources up or down based on business needs. Negotiating the ability to easily modify resource allocations can help avoid overprovisioning and unnecessary costs. Equally, contracts should include provisions for an exit strategy, allowing organizations to migrate to another Cloud provider or bring services in-house if needed. Agreeing reasonable termination clauses and ensuring data portability can prevent being locked into unfavourable contracts, and instead provide flexibility for future changes.
Prioritising FinOps
It’s never too early to start learning about FinOps and applying it to your enterprise. Overall cost reduction isn’t always the right answer for each company. Rather, having a clear understanding that you are consuming what you actually need– and are able to purchase it at the best price– is going to give your company the best possible outcome. This is exactly the purpose of FinOps.
Published: Finextra
