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February 9, 2024
4 Min Read
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Across the enterprise technology landscape, organizations are being forced to answer some difficult questions around spending. Leaders are asking their IT departments: What are we paying for and why are paying this much? While the benefits that cloud brings to businesses are undeniable, the monetary value of these services is often challenging to quantify -- making cost optimization a tall task for organizations lacking a proper approach.
The solution is FinOps, a collaborative way of working that resolves the obscurity of IT spending, helping enterprises streamline their budgets through an ongoing cycle of optimization. But it’s more than just a matter of accounting. With greater clarity and accountability, FinOps can elevate IT from a cost center into a bona fide business driver in the eyes of the rest of the C-suite -- and give CIOs a better seat at the decision-making table in the process.
The difficulty in optimizing cloud spending lies in its multiple layers of complexity, beginning with systems architecture: Many companies utilize hybrid clouds, with a mix of on-premises infrastructure, as well as public and private clouds. On top of this, there can often be vendor complexity, with some parts of a business running on potentially competing cloud and technology providers. Then there’s individual components: Each SaaS product may have different cost parameters in the form of access fees or usage-based billing models.
On top of all that, the cloud IT spending structure is much more decentralized. For developers and operations team members, having the ability to purchase cloud services solutions on demand as part of committed spend contracts provides agility and the latitude to innovate. But the flexibility of this billing structure can come at the expense of visibility into detailed spending information.
FinOps removes this tradeoff, preserving IT’s ability to be nimble and innovative in a hybrid/multi-cloud environment while giving finance complete visibility of spending.
Getting in Motion
The first step in the FinOps cycle of “inform–optimize–operate” is the most straightforward. It involves the creation of the connective tissue between cloud costs and business units to provide the visibility needed for better decision making.
Empowered by these insights, teams can begin to take the guesswork out of ROI and identify areas for improvement, which leads into the next phase: optimize. There are many facets of cloud use and spending that can be adjusted. To manage this, organizations must develop rate reduction and cost avoidance practices, and IT operations and finance should partner closely to oversee their administration.
While these methods can be much more affordable than buying capacity on demand, they also require advanced analysis in the form of cloud financial forecasting, which demands close collaboration between IT and finance -- and a lot of calculations. For example, one provider may charge 10% less for a particular aspect of hosting than a competitor, but they might charge more for their network. Given the sheer number of services and providers, committing to contracts, and reserving usage in advance will typically necessitate the use of specialized software.
This stage of the FinOps cycle can greatly benefit from performance-aware optimization: an automation-driven process to take advantage of cloud elasticity and reduce waste. By analyzing usage patterns for things like virtual machines, organizations can benchmark and conduct performance comparisons -- such as waste percentages and commitment coverage -- between internal teams and against industry cohorts. This automated optimization can also dramatically ease the processes of rightsizing and rearchitecting workloads to best fit their cloud resources. For example, if one application is running out of space in the cloud, the software can automatically de-prioritize space from another one.
It’s important to note that the goal of the optimization phase of the FinOps cycle isn’t to simply reduce costs, but to maximize value. With software running performance-aware optimization, enterprises will often find that they can increase their cloud spend -- but with the confidence that their capital is contributing directly to business goals.
Completing the Cycle
The third phase of the FinOps cycle – operate -- is all about solidifying cultural and collaboration dynamics to keep things advancing. Working hand in hand, IT operations and finance teams will evaluate how well they’re meeting their business objectives and where further improvement might lie. Just like in optimization, the operate phase can greatly benefit from the use of specialized software to automate processes and create real-time visibility into budgets. It’s also advisable to establish a central FinOps team to formulate and enact best practices, encourage the continued collaboration of the involved parties, and to oversee the ongoing optimization process.
Ultimately, however, FinOps is bigger than just cloud spending. Indeed, it’s a crucial measure that must be taken sooner than later as cloud reliance continues to rise along with the cost of services -- but it’s also a matter of preparing for the increasingly central role of IT as a driver of business. By establishing the interdisciplinary alignment, insight mechanisms, and optimization processes at the heart of FinOps, savvy organizations will be better prepared to cost-effectively deploy platforms like AI -- and whatever else the future brings.
About the Author(s)
Vice President, Product Management, IT Automation
Bill Lobig is responsible for product management and strategy of IBM's Automation portfolio. This includes a range of technologies covering business automation, application integration, IT Automation, and application runtimes all focused on increasing personal and business productivity with automation technology.
Bill has been in the software product management and engineering space for over 20 years holding various roles in IBM engineering & product management ranging from unstructured data/content management, information life cycle governance, business process management, machine learning & AI, as well as cross product disciplines such as performance analysis and capacity planning.
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