The Promise of FinOps
Cloudability’s Cloud Economic Summit put the spotlight on the importance of accountability and cloud cost management.
Our partner, Cloudability, recently hosted the Cloud Economic Summit in San Francisco, providing a look into the current and future state of cloud cost management. Cloudability CEO Mat Ellis, CTO Erik Onnen, Co-founder J.R. Storment, 451 Research Director Owen Rogers, and AWS Worldwide Business Development lead Keith Jarrett, presented alongside speakers from Autodesk and OLX Group, addressing the need for FinOps – a disciplined approach to managing cloud costs. Supporting the event, Cloudability published a press release, “FinOps Operating Model Codifies Best Practices of the World’s Largest Cloud Spenders, Enabling Enterprises to Bring Financial Accountability to the Variable Spend of Cloud.”
“Celebrate achievement, get better every day – this is FinOps.”—Mat Ellis, CEO of Cloudability
Introducing the day, Mat set the stage that public cloud adoption is part of a much bigger trend seen in many industries throughout history – managing a supply chain. Milestone innovations disrupt at an astronomical scale; from the printing press, to rubber, to the internet, and now cloud computing. We’ve all felt the disruption created by cloud computing and many of us have been part of the 21st Century IT revolution. As seen at AWS re:Invent last year, the adoption of DevOps culture to foster innovation and enable competitive advantage has been embraced by large insurance organizations like Guardian and the world famous guitar manufacturer Fender.
However, with AWS now 13 years old, many cloud technology buying decisions are still based on an outdated model. There is a need for iterative, ongoing monitoring and accounting for cloud spend. Enter Cloudability. Analyzing hundreds of millions in cloud spend per month, and billions per year, Cloudability’s platform delivers keen insights and benchmarking tools that enable a clear path to cloud cost diligence and FinOps success.
Cost Management in The Cloud Age
Digging into the data behind the mission of FinOps, Owen Rogers, Research Director, 451 Research presented some stark realities about the current state of cloud cost management (Full report available here). The study found that more than half of large enterprises worry about cloud costs on a daily basis and 80% believe that poor cloud financial management has a negative impact on their business. These enterprises need a comprehensive platform to manage multi-million-dollar cloud budgets.
Another eye-opening data point presented was that 85% of respondents overspend their budgets, with nearly 10% spending two to four times their allocated budget. Pair this with 18% of respondents that were unaware they were overspending, and the picture is not pretty. The biggest reasons cited for not addressing this issue were “too small of an overspend to resolve” and “not wanting to hinder innovation.”
While well-intentioned, the study showed that “not wanting to hinder innovation” and pushing off a responsible approach to cloud cost management does exactly what the respondents are trying to avoid: halts cloud adoption, cripples innovation, lowers quality of service, increases cost, and creates a sprawling underutilized cloud footprint.
Cloud Cost Management Directly Impacts Company Culture and Business Bottom Line
The reality is that cloud cost management directly impacts business. Thankfully, there are steps to take to mitigate the commonplace inefficiencies identified by Owen. For example, 33% of respondents are manually extracting and aggregating cloud costs in a spreadsheet – this is the epitome of anti-agile. Only 52% of instances are rightsized for their workload and, beyond that, only 52% of respondents are taking advantage of Reserved Instance discounts.
The tools and opportunities to improve the health and efficiency of your cloud environments are readily available. In fact, the 451 Research report shows average savings of 27% were achieved through the use of a cost management platform. With an expected CAGR of 17% between 2017-2022, now is the time to implement the behavioral changes that instill a culture of FinOps within your organization.
The problem is shared accountability – The solution is a FinOps culture
What became apparent in the research presented by Owen Rogers is a distinct need for IT and Finance teams to come to the table together to discuss the path forward. The good news is there are companies that are pushing the envelope and leading the way in diligent and responsible cloud cost management. Those who have embraced a FinOps culture are utilizing performance benchmarking and have a clear understanding of the fully-loaded costs of their cloud infrastructure. This is the promise that we can aspire to and it starts with collaboration between IT, finance, and individual lines of business.
FinOps high performers have near real-time visibility of all cloud spend. Individual teams understand their portion of total spend, are enabled to budget and track against targets, and utilize Reserved Instances for 80-95% of their cloud services.
Similar to having a clear understanding of household finances, this level of diligence affords more benefits than just cost savings. A remarkable side effect of FinOps culture is a 10-40% improvement in operational efficiency within your organization.
In addition to the information presented at the Cloud Economic Summit, Cloudability launched the FinOps Foundation. Comprised of founding members from Atlassian, Nationwide, Spotify, Autodesk, letgo, and many others, the FinOps Foundation is a non-profit trade organization bringing people together to create best practices around cloud spend.
J.R. Storment, Cloudability Co-founder, takes on the role of President of The FinOps Foundation. J.R. describes the need for the organization here.
“…Why is the Foundation needed? At many companies I talk with, engineering teams spend more than needed with little understanding of cost efficiency.”J.R. Storment, Cloudability
We are excited to see our partner defining this space and eager to participate in the FinOps Foundation. We are also looking forward to reading “Cloud Financial Management Strategies, Creating a Culture of FinOps,” their O’Reilly Media book which is slated to be published later this year.
Thanks again to Cloudability for hosting us at the event, we are looking forward to an exciting year together.
Robb Allen is the CEO of effectual, Inc.