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What is the best FinOps strategy or why having a FinOps team is a waste of money?

In this article, I want to share my 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?

What-is-the-best-FinOps-strategy-Hystax

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 tasks such as budgeting, forecasting, and analyzing financial data to make informed decisions about how to allocate IT resources and optimize the use of financial resources within an organization.

FinOps professionals are responsible for ensuring that business’s financial operations are running smoothly and efficiently, and for providing financial insights and analysis to support decision-making.

General approach to FinOps adoption

I’ve been gazing with curiosity at what various foundations and communities suggest doing in terms of FinOps for a while and, from what I see, their proposals are either useless or even harmful as some companies may follow it, waste time and money and not get finally what they aimed.

The general approach, in short, is to:

  1. Build a dedicated FinOps team of people from IT, finance, and executives;
  2. Establish a FinOps process – who is responsible for what, the action items, etc.
  3. Run regular meetings and review how the process works.

Sounds fair from the first sight. But there are a few questions that arise:

  1. 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?
  2. What is the right size of 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 the majority of the cases they 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:

  1. Get a discount directly from your cloud provider. It’s easy and generally they will give it to you.
  2. 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).
  3. They should find a tool or use some 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.
  4. Ask them to report once a quarter or six months.

The persons interested in cost reduction are 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 and 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 significant cloud cost, and R&D is the biggest chunk. Every R&D team has a director or a senior director position. They are, in the majority of cases, P&L owners with their budget, and, surprise-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 part of the team. C-level executives, of course, as supervisors with a limited engagement but a few people from IT and finance on a full-time basis. Let’s calculate the cost of this team:

  1. I’ll intentionally skip the cost/time of C-level people
  2. You can put your numbers later but I’ll give an assumption as if 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
  3. One IT guy can adequately work with 3-4 teams. Let’s assume that one finance guy can cover unlimited IT teams which is, of course, a rough assumption.

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That gives a minimal FinOps team of $500,000/year which can serve 4 R&D teams so, even to consider building the team, you should expect to save, at least, $15 mln during a three-year period.

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 very specific for every company but you should think about that too.

What is the right FinOps strategy?

  1. Yes, you need the initiative coming from the top level of the company. CFO and CIO/SVP, in general, should drive it.
  2. There should be a clear understanding of immediate goals (what will be saved in a short-term) and the necessity of an established process not to get back to mess in 6+ months.
  3. Adopt a FinOps tool (I am not proposing our solution, you can pick any, the main 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.
  4. Make/motivate teams to be responsible not for cloud budget but for wastage. If the tool identifies unused resources that belong to a specific team, they should review it and either remove or explain why the resource consumes funds.
  5. Make R&D budget independent of cloud budget – there is a rule that if you have a budget and you don’t entirely consume it during a year, next year you will get less. Move cloud bills out of this either under another budget or not being considered in the director’s budget. Or they will not be motivated. 
  6. Engage engineering teams in the process; they should understand what the goal is and why they should care.

 

You can see that I don’t have a dedicated FinOps team in the bullets above as 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 make them remove unused VMs is wrong. Some small tuning of the existing processes, the right motivation and a smooth tool can make more than 10 people working in a bad IT environment.

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OptScale

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:

  1. It gives immediate cloud cost-savings by identifying unused resources and with one of the best VM rightsizing engines;
  2. It gives complete transparency – you can see budgets, how teams are performing, why and on what you waste money;
  3. 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;
  4. 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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