FinOps as a Success Story
- Equipa Lisbon Awards Group
- Nov 29, 2024
- 3 min read
Updated: Feb 14
When we think of "FinOps," cost control and reduction are often the first aspects that come to mind. This is not surprising—adopting public cloud services tends to bring unforeseen financial challenges. Many organizations face rising costs due to poor adoption practices or perpetuating habits inherited from traditional data centers, where capacity was pre-installed and static.
In a cloud environment, where billing often occurs hourly, costs can quickly spiral. However, FinOps is not just about saving money; it’s about ensuring that every cloud investment delivers maximum value.
The First Step
The initial focus of many FinOps initiatives is to achieve savings through workload optimization. This involves identifying inefficiencies, aligning resources with actual needs, and eliminating underutilized instances. Our experience shows that organizations can achieve initial savings of up to 25%, particularly when extensively using virtual machines. McKinsey¹ supports this point, noting that in some cases, savings can be even greater.Another short-term opportunity lies in rate optimization, particularly through the use of reserved instances, which should only be adopted after workload optimization. However, effectively managing these reservations is crucial to avoiding waste. We've observed that poorly aligned reservations can result in the loss of up to 20% of reserved value. Regular audits are essential to mitigate these losses, allowing for the return, exchange, or repurposing of reservations to ensure resources remain aligned with organizational needs.
The Broader FinOps Framework
FinOps extends far beyond mere cost optimization, as outlined by the FinOps Foundation Domains²:
Understanding cloud usage and costs creates transparency, offering organizations a clear view of resource allocation.
Quantifying business value ensures that cloud investments align with organizational goals, turning expenses into measurable outcomes.
Optimizing usage and costs is a continuous effort to reduce expenses without compromising performance.
Managing the FinOps practice integrates these processes into workflows, promoting accountability and ensuring sustainable success.
After the initial cost optimization phase, the focus typically shifts to fostering financial transparency through effective cost allocation. Implementing robust tagging policies is essential to achieving this clarity.
Tagging Policies for Cost Transparency
Tagging policies should initially be flexible to encourage adoption but must eventually become mandatory. Our experience indicates that overly rigid initial policies can hinder adoption and generate resistance. Tags enable a more granular view of costs, empowering technical teams to track expenses and make informed architectural decisions. Additionally, they support show-back and charge-back models, linking costs to specific departments or subsidiaries.
In large organizations, implementing tagging policies is inherently a complex process. This effort requires integration with diverse systems and alignment with constantly evolving cost-center structures, particularly when operating across multiple subsidiaries and countries. As these structures evolve, tagging policies must be adjusted to ensure consistency, provide actionable global insights, and prevent waste.
The Importance of Reporting and Analytics
Reporting and analytics are fundamental in FinOps, offering visibility into costs, financial forecasts, and clarity on the factors driving changes. For example, an increase in costs might result from after-hours testing by a development team, a resource-intensive marketing campaign, or inefficient database storage. Identifying the cause enables targeted corrective actions, such as adjusting configurations or optimizing resource use.
Even minor fluctuations—caused by currency exchange rates or the number of days in a month—may require analysis. Advanced analytics tools eliminate this "noise," delivering clear, actionable data that helps effectively control costs.
Aligning Costs with Revenue
A critical yet often overlooked aspect of FinOps is aligning costs with revenue. Reducing costs in isolation can be counterproductive if revenue is growing. Shouldn’t cost growth align with revenue growth? A mature FinOps approach integrates cost management into broader financial strategies, focusing on value creation rather than merely reducing expenses.
The CFO's Role in FinOps
For CFOs, FinOps is not just a cost-saving tool—it’s a catalyst that promotes financial accountability, maximizes cloud value, and integrates finance into real-time decision-making. This process transforms the finance function from a reactive cost controller to a proactive enabler of growth. While the journey begins with optimization, its true potential lies in fostering transparency, aligning costs with outcomes, and empowering data-driven decisions.The question is not about the necessity of FinOps but rather the organization’s readiness to embrace its full scope.
Ricardo Gameiro – Senior Architect at REDEVAERK
