Introduction

Part of the power of the cloud is the change it allows in the way we can consume the latest technology at a global scale. It enables technology to be purchased by technical teams, at the variable levels needed to meet their requirements. However, this can also bring challenges in preventing cloud costs from spiraling out of control. So much so that a whole discipline called FinOps has emerged to describe cloud cost management and optimization.

At Strategic Blue our business is all about FinOps so we care passionately about it but we also appreciate that no organization ever moved to the cloud to become FinOps experts. It’s a large area that can be overwhelming, particularly in deciding how to prioritize your next steps. In this article we’ll introduce the concept of FinOps and we’ll provide a practical way of quickly bringing its benefits to your organization.
 

Key Takeaways:

1. Review the FinOps Domains: The structured approach of FinOps helps organizations optimize cloud spending through activities like understanding cloud usage and costs, performance tracking, real-time decision making, and cloud rate and usage optimization. Each of these is important, cannot be ignored and must be worked into day to day processes through a culture of ownership and accountability. They demonstrate what can be done and enable organizations to create their own path to adopting FinOps in a way that works for them.
2. Empower your engineers: In the cloud consumption model it’s easy to pass too much emphasis and responsibility to engineers. The competing priorities, time constraints and breadth of expertise demands of this can be overwhelming. When adding the need to enforce a layer of governance it’s understandable why empowering engineers to take action is regularly cited as a major FinOps pain point (the State of FinOps by the FinOps Foundation). Look for collaborative, cooperative approaches wherever possible to ease this burden and empower engineers to do what they do best.
3. Avoid being a jack of all trades, master of none: The FinOps Domains are broad and the capabilities they need to be delivered effectively require time, tools and culture to deliver. Prioritize carefully what needs your specific internal knowledge and what warrants attention, albeit not necessarily yours.

The FinOps Framework

Organizations are increasingly embracing cloud to drive innovation and streamline their operations. The FinOps Foundation developed the FinOps Framework to offer a structured approach to help organizations do this. They explain it in great detail but to summarize it briefly here we’ll use their overview diagram and “FinOps Domains”.

The FinOps Domains

1. Understanding Cloud Usage and Cost: Organizations work to gather all the information required to perform FinOps. This includes direct and imputed cloud cost, cloud usage, observability, utilization, and sustainability data, and other datasets required by any FinOps Domain. 
2. Quantify Business Value: Organizations map monetary and non-monetary cloud costs to budgets, use historical information and future plans to forecast, establish and measure technical and organizational KPIs, and perform benchmarking across teams, business units and with other organizations.
3. Manage the FinOps Practice: Capabilities here are centered on effective FinOps operation, enablement of the whole organization, improved interaction with all other personas and business functions to support and represent cloud use more effectively.
4. Optimize Cloud Usage & Cost: Organizations will measure efficiency in a variety of ways, including monetary cost, carbon usage, or more traditional IT operational efficiency measures. Capabilities in this Domain allow the organization to manage the types, timing and amounts of cloud resources used, and the rates that are paid for those resources. Capabilities here also address architecture modernization, sustainability considerations for FinOps teams, and the use of licensed and consumption-based SaaS products.

 
As we’ll describe later our expertise is in cloud rate optimization, its tracking & benchmarking and supporting organizational alignment.

The core: usage and rate optimization

We view cost and rate optimization as the core of the FinOps Framework. To a large extent, the other domains exist to ensure this optimization is done and to inform, measure and control it.

We’ve reproduced below an AWS diagram that neatly presents the different cost and rate optimization activities in relation to their technical complexity to implement and the savings impact they can have.

1. Usage: Efficient cloud usage requires technical expertise, ownership and accountability. To optimize your cloud costs, you need to skillfully manage your resource utilization. This includes actions such as identifying and deleting idle resources, scheduling resources to run only when necessary, right-sizing to meet performance requirements, embracing the latest technologies, and leveraging cloud-native architectures. By implementing these strategies, you can improve the efficiency of what you use and ultimately reduce unnecessary expenses, all while ensuring optimal performance of your cloud infrastructure. Realizing savings in this way comes with varying degrees of technical complexity. Typically greater savings come with greater technical complexity but with this often comes greater implementation risk. The engineering skill and time required to design, test and implement and the risk of encountering issues along the way are important factors when accessing and evaluating these savings. Particularly in larger organizations, technical ownership of cloud usage is often split up into groups such as product, service, project or department. These groups are best placed to understand how to optimize their own use of cloud so usage optimization is often distributed across an organization.
2. Rate: To access the best pricing options, it’s important to understand the AWS pricing model and align your usage trends accordingly. AWS provides Savings Plans and Reserved Instances Commitments to optimize rates. Without the need to make any technical changes you can quickly secure discounts that can exceed 70%. Accessing these discount rewards isn’t entirely without its risks though. The risk here is that in making 1 or 3 year commitments you may limit your technical freedom to complete usage optimization, innovation or simply adjust your use of cloud. All of which impact how cost effectively you use the cloud.

Aggregating an entire organization’s usage increases access to volume-based discounts, supports organization-wide pricing agreements and shares cloud provider credits. Most importantly though, it creates more opportunities to access commitment based rewards whilst mitigating their risks and without the need for technical changes to usage. As a result rate optimization is most effective when centralized.

Both of these are an important part of making cost effective use of the cloud. Despite this, and the significant immediate savings it can bring rate optimization through commitments is often neglected. 

In the FinOps Foundation’s 2024 Assessment it found that 68% of organizations were at its lowest “Crawl” level and less than 9% achieved their top “Run” level. The result is that organizations are missing out savings and overspending in the cloud. This matches our experience in analyzing cloud usage through our Free Savings Review and possibly explains why its 2024 update the FinOps Foundation reported an increase in priority given to commitment-based discounts. (State of FinOps by FinOps Foundation)

The FinOps Foundation characterize this Crawl level as:

• having no systematic approach to analysis or purchasing
• purchases are made in a way that misses out of the greatest overall discounts
• commitments are made as a reactive response to the perception that spend is too high
• either executed by technical teams without standard procurement best practices like cost of capital (WACC) and long term value (NPV) or by
• finance teams without an understanding of planned infrastructure changes.

This last point is key. Usage and rate optimization take very different technical and financial skills and perspectives. There is so little overlap that effective communication between these teams forms a barrier to effective optimization. It is really important to establish a collaborative and complementary usage vs rate optimization approach.

Our “Run” approach to commitment management overcomes these issues by enabling financial savings without traditional levels of technical lock in. This overcomes the challenges of bridging the communication gap as it enables usage and rate optimization to be performed relatively independently, without one distracting or impeding the other.

Our speciality

In the FinOps Domains

At Strategic Blue, we specialize in three key FinOps domains: cloud rate optimization, performance tracking and benchmarking, and organizational alignment. 

Our expertise lies in cloud rate optimization, especially when it comes to EC2 and other committable services such as AWS RDS, AWS Fargate and more. Our approach leverages all commitment types, ensuring an optimal balance between savings and flexibility – the risk and reward. With internally developed, purpose built tooling we are able to dynamically adjust your commitment position to your changing cloud needs. You obtain great coverage, at the best discount rates whilst minimizing under-utilization and wastage. Our “run” approach has more frequent purchase cycles, automates processes and KPI reporting and reduces the need for precise matching of usage and forecast information. 

As a result we complement your engineering teams. We release their time to deliver usage optimizations and new innovations. We don’t place limitations on the scope of what they can do through the commitments we’ve made to access those savings. 

Transparency is our priority when it comes to performance tracking and benchmarking. We understand the importance of easily measurable value and full transparency. That’s why we provide an intelligent portal which builds on the metrics we share through our Free Savings Review. It clearly showcases our impact and helps our customers hold us to account for our rate optimization activities. Our Automate service plan places no restrictions on other tools you may wish to use for reporting, tracking or alerting so  you have the flexibility to use the tools that work best for you in your wider FinOps activities.

This transparency and light touch impact on technical freedom means we play our role in organizational alignment in automating and integrating rate optimization with your existing processes. Our expert consultants, including Financial Solutions Architects and customer account teams, are also available to pass on experience from a wider FinOps perspective.

Where this helps you

We help organizations deliver value from FinOps, not only in the savings in money we make but also in enabling them to get more from their internal resources through the savings in time. Combining more money and more time with the technical flexibility to evolve in the cloud creates a very powerful combination to address:

Time & Capacity

Developers often have demanding workloads that revolve around critical operational tasks, ongoing maintenance, and innovation initiatives. Their primary responsibility is to develop and maintain technical solutions, which requires significant time and effort. With these time constraints, it becomes challenging for engineers to allocate sufficient time and attention to cloud rate optimization. FinOps and commitment management require thorough analysis, data gathering, and decision making, which can be time consuming. As a result, engineers may struggle to dedicate the necessary time to understand and optimize cloud costs.

Competing Priorities

In a fast-paced development environment, engineers frequently face competing priorities and pressing deadlines. They are often pulled in different directions, working on multiple projects simultaneously. These competing demands can divert their attention away from financial management of the cloud. The urgency to deliver features, fix bugs, or meet project milestones takes precedence over analyzing and optimizing cloud costs. 

Complexity * Risk

Managing commitments is a specialized skill set that requires specific knowledge and experience. Engineers typically possess expertise in building and developing technical solutions rather than in financial analysis and optimization. Understanding commitments, analyzing pricing models, and effectively managing cloud costs require a deep understanding of cloud pricing structures, and optimization strategies. Engineers often face personal concerns regarding commitment lock-in and may feel uncertain about the potential savings that can be achieved through the various ways to buy commitments. Developing this expertise takes years, and as a result may lead to suboptimal savings results or unintended commitment lock-in resulting in wasting commitments and overspending. 

You can learn more about how we support our customers in addressing common FinOps pain points here.

Conclusion

 Any management activity should provide a return on investment. That certainly applies when considering cloud cost management and optimization and where to focus on building your FinOps practice. Organizations rarely complain that they have too much time or too much money! Making good use of these scant resources is always key.

The 2024 Survey found that 58% of organizations spending under $1 million a year did not have a dedicated FinOps person or team. In organizations spending between $1 million and $10 million per year, the average was 2.5 dedicated FinOps resources.

Getting the large scope of activities described across the FinOps Domains implemented, and continuously executed with the right level of governance with so little resource is a considerable challenge. Inevitably when prioritizing some areas, you will deprioritize others. Ensuring you’re getting the best return on your investment in time and money, particularly against the opportunity cost of not focusing on the areas you chose to deprioritize, is crucial. Our Free Savings Review is a useful tool in helping to set those priorities.

We are constantly amazed at the range of ways our customers use the cloud to deliver amazing outcomes, from research to innovative and disruptive business solutions. We are proud to play our part in enabling them to harness the power of the cloud effectively and believe strongly in creating an ecosystem in which the right people deliver the right value at the right time using their own unique skills.