In this article, we want to share our view on the appropriate FinOps strategy and why a dedicated FinOps team is a waste of money and time, especially if you are an enterprise company.
What is FinOps?
First, let’s start with the definition of FinOps. FinOps, short for Financial Operations, is a term used to describe the practices and processes involved in managing the financial aspects of cloud infrastructure. This can include budgeting, forecasting, and analyzing financial data to make informed decisions about allocating IT resources and optimizing the use of financial resources within an organization.
FinOps professionals ensure the business’s financial operations are running smoothly and efficiently and provide financial insights and analysis to support decision-making.
General approach to FinOps adoption
I’ve been curious about what various foundations and communities suggest doing in terms of FinOps for a while. From what I see, their proposals are either useless or even harmful as some companies may follow them, wasting time and money not getting finally what they aimed for.
The general approach, in short, is to:
- Build a dedicated FinOps team of people from IT, finance, and executives;
- Establish a FinOps process – who is responsible for what, the action items, etc.
- Run regular meetings and review how the process works.
Sounds fair at first sight. But there are a few questions that arise:
- How many companies are really interested in building a process but not just an instant cost reduction and reflection of that in their P&L?
- What is the right size for the FinOps team?
How many companies are really interested in building a process but not just an instant cost reduction and reflection of that in their P&L?
From my experience, only a few, and in most cases, are doing the right thing.
If you run a startup, you probably, avoided this topic for a long time, transferring your IT infrastructure cost to your customers. But if you feel that it is the right time to improve your P&L, you should do a few things to reduce your cloud bill and establish a process:
- Get a discount directly from your cloud provider. It’s easy, and generally, they will give it to you.
- Depending on your business size, assign the task to a CTO or a senior DevOps engineer (probably, you don’t have a cloud capacity position at this stage).
- They should find a tool or use well-defined tips to find orphaned resources, rightsize instances and define a tagging policy. This point should easily give another 20-40% cloud cost reduction.
- Ask them to report once a quarter or six months.
The persons interested in cost reduction are the CEO and CFO/CRO, and CFO/CRO doesn’t care about how it will be done – with a discount, a process, or whatever. The main pattern here is that the main cost generator is your R&D; decisions are made quicker, and if a responsible person has enough power, they can easily communicate with teams and act. Period. Forget about FinOps and other things until you see that the responsible person is busy full-time with cost saving and you need to hire another.
This is the time you need to build the process I’ll describe below, which is relevant for any business.
If you are an enterprise, you probably have multiple clouds and dozens of cloud accounts, your production has a high cloud cost, and R&D is the most significant chunk. Every R&D team has a director or a senior director position. In most cases, they are P&L owners with their budget, and, surprise; the teams don’t care about infrastructure costs. The first thing they will do when they exceed the budget, they will go to their manager to approve some extra funds.
Cost-saving initiatives are coming from the finance department and are also focused on some immediate results.
What is the right size of the FinOps team?
The general approach is to have a CEO, CIO/CTO, CFO, some finance people, and some IT guys as a team. C-level executives, of course, are supervisors with limited engagement, but a few people from IT and finance are full-time. Let’s calculate the cost of this team:
- I’ll intentionally skip the cost/time of C-level people
- You can put your numbers later, but I’ll assume that we have a company in the SF Bay Area with an IT guy’s salary of $300,000/ann and a finance guy of $200,000/ann.
- One IT guy can adequately work with 3-4 teams. Let’s assume that one finance guy can cover unlimited IT teams, which is a rough assumption.
That gives a minimal FinOps team of $500,000/year which can serve 4 R&D teams, so even considering building the team, you should expect to save at least $15 mln during three years.
Calculation details: I multiplied $500K by 10 as I assume that you consider the cost of the team at least 10% of the expected savings and multiplied by three years as I doubt that you will change your procedures for one year only.
Assuming your team performs excellently and will save you up to 40%, you should consider building a minimal FinOps team only if your cloud bill for 3-4 teams is higher than $12 mln/ann ($4 mln/ann for a team) which is a substantial amount.
The calculation above is based on our experience, and you need to put your numbers to get it right for your business. I intentionally skip the cost of establishing a new team and process as it is peculiar for every company, but you should think about that too.
What is the right FinOps strategy?
- Yes, it would be best if you had the initiative coming from the company’s top level. CFO and CIO/SVP, in general, should drive it.
- There should be a clear understanding of immediate goals (what will be saved in the short term) and the necessity of an established process not to get back to the mess in 6+ months.
- Adopt a FinOps tool (I am not proposing our solution, you can pick any, the central aspect is that it should help you with the next point) to bring immediate savings and give transparency across teams/projects and applications. With a tool, one IT guy can cover dozens of teams.
- Make/motivate teams to be responsible not for cloud budget but for wastage. For example, if the tool identifies unused resources that belong to a specific group, they should review it and either remove or explain why the resource consumes funds.
- Make R&D budget independent of cloud budget – there is a rule that if you have a budget and don’t entirely consume it during a year, you will get less next year. So move cloud bills out of this under another budget or not being considered in the director’s budget. Or they will not be motivated.
- Engage engineering teams in the process; they should understand the goal and why they should care.
You can see that I don’t have a dedicated FinOps team in the bullets above. I firmly believe that a dedicated FinOps team is more an indicator of a broken process than a necessity. In the era of automation and AI building a team that will chase engineers and makes them remove unused VMs is wrong. Some minor tuning of the existing processes, the right motivation, and a smooth tool can make more than 10 people work in a bad IT environment.
Free cloud cost optimization for a lifetime
As I said above there are a few nice tools that can help you notwithstanding whether you are a startup or an enterprise. We build an open source solution, OptScale, that solves a few issues:
- It gives immediate cloud cost-savings by identifying unused resources and with one of the best VM rightsizing engines;
- It gives complete transparency – you can see budgets, how teams are performing, why and on what you waste money;
- It engages engineers – OptScale provides IT environment management and application profiling for ML/AI, Big Data, CI/CD, and regular workloads – that improves not only cost but also performance and helps identify bottlenecks;
- It is open-source and distributed under Apache 2.0; we also provide it as a SaaS. You can find a live demo here.
Hystax cloud experts
Hystax OptScale offers the first-ever open source FinOps & multi-cloud cost management solution that is fully available under Apache 2.0 on GitHub → https://github.com/hystax/optscale
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