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Understanding the Basic of FinOps

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The term FinOps refers to any practices that help optimize cloud spending. While the definition may seem straightforward, it actually encompasses a wide range of processes and strategies that differ from one organization to another. To make the most out of FinOps, it’s important to understand different approaches to it. In this article, we’ll discuss the four stages of FinOps maturity and how companies can progress their FinOps even when they already have cloud cost optimization practices in place.

Defining FinOps

FinOps is generally known as a practice or discipline dedicated to optimizing costs in the cloud. However, we believe that it’s more accurate to view it as the practice of procurement in the cloud. Its goal is to help organizations procure cloud resources in a cost-effective manner. This is different from on-premises cost management, which involves acquiring large amounts of infrastructure on a regular basis. In contrast, cloud platforms offer virtually unlimited resources, so their spending capacity is limitless. Engineers who make decisions that have significant financial impact on the business usually make these decisions, which is why FinOps is crucial in ensuring that procurement decisions are sound from a cost management perspective.

Towards a FinOps Maturity Model

Different businesses are likely to encounter varying levels of FinOps maturity. The four stages of FinOps maturity are:

FinOps Stage 1: Forecasting Cloud Costs

The most fundamental aspect of FinOps is obtaining the data needed to predict the cost of cloud resources. Engineers cannot make smart cloud procurement decisions without information about the cost of VM instances or serverless functions. This level of maturity is easy to achieve since cloud providers offer cost calculators and forecasting tools.

FinOps Stage 2: Tracking Chargebacks

This stage involves managing chargebacks and understanding which parts of the organization are spending what amounts in the cloud. To do this, companies need to collect cloud cost monitoring data in detail by workload and assign it to various business units. Achieving this level of maturity is easy as long as you monitor your cloud spending and tag or label your cloud resources with enough detail to know which business unit or team they belong to.

FinOps Stage 3: Cost Optimization

Once companies have achieved visibility into their cloud spend, they can move on to the next stage of FinOps, which is identifying and addressing opportunities to optimize costs. This involves evaluating many variables, such as workload configurations, cloud services availability, performance and reliability requirements for each workload duration, among others. This requires automated predictive analytics to provide actionable, real-time cost insights.

FinOps Stage 4: Optimization Beyond Cost

At this stage, organizations can use FinOps to support initiatives beyond cost optimization, such as reducing energy consumption and supporting ESG goals by changing VM instance types. This is the most mature level of FinOps, which involves optimizing not just costs, but also other objectives.

Continuous Improvement with FinOps

FinOps is a never-ending journey that requires continuous improvement. It’s more than just implementing FinOps capabilities in your business or deploying cost monitoring tools. To achieve true optimization, it’s crucial never to settle for standards and always look for ways to improve cloud cost optimization tools and practices.

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