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The role of FinOps: Cloud spend transformation requires a new approach

The role of FinOps: Cloud spend transformation requires a new approach

Global cloud spending has reached its peak over its history. According to Gartner, the total amount of investments in the industry will reach $830 billion by 2025.

The actual figures could be even higher and so there are reasons to reflect and change your thinking – writes Abay Serkebayev, Chief Product Officer, CFPS.

As practice shows, many companies underestimate the potential of cloud spending, while it is often massive and exceeds millions of dollars within one company, which directly affects its further development.

The dilemma concerns not only mid-sized and large organisations. Start-ups should also pay attention to this when planning their budget for the next 5-7 years.

Cloud spending is rapidly occupying a leading position in the budget of organisations. These figures affect profit and loss. The time has come to tackle this problem.

Given that industry forecasts are constantly shifting upwards, and there are few FinOps specialists on the market, a real crisis is coming.

However, there is hope that the situation will change over time. For instance, it was difficult to find UX/UI designers until recently, but the trends have changed. Demand always creates its own supply.

An important fact: the correlation between the speed of innovation and the growth of cloud spending tends to be high.

Stuffing the business with new technology, we often do not include cloud services in the major expenses, and, as a result, they drag all innovations down to the bottom like a stone due to their high cost.

However, when we try to reduce costs, it also results in failure: reduced innovation alongside declining competitiveness.

The dilemma leads us to ask whether we should try to reduce costs or we should still innovate. The FinOps methodology helps us strike the right balance.

Technological revolution made by DevOps creators who eliminated inconsistency and improved business agility is still fresh in our minds. FinOps took it a step further and created a fully-fledged cloud having tied all complex processes into a bundle. However, it is all nothing if we do not take into account principles honed over the years for data processing centres. The best way to evaluate the benefits of the cloud is the before/after comparison.

Before: 

  1. Huge computing equipment was used to improve performance.
  2. Organisations with a lot of departments failed to share the storage. Each department tried to grab the biggest piece of the pie. Since resources were limited, some teams still had to give up their ideas in favour of other priorities.
  3. The reduced use of resources did not lead to savings. Services consuming free capacity were often even more expensive.
  4. The main method of cost control was the transfer of capacity between departments. When capacity dwindled, the allocation of resources and services was reviewed and adjusted.
  5. The cost of bulky equipment was high and was often paid in advance. The total amount included data centre fees, software licensing, and more. Companies that did not budget well enough could simply be left without the required storage capacity.
  6. Expenses had to be manually reported on and reviewed on a monthly or even quarterly basis. Occasional reporting became a problem as the day-to-day costs of the data centre did not change.

After:

  1. You no longer need to purchase physical hardware.
  2. Everything is based on the principle, “The higher the capacity, the higher the price. The lower the capacity, the lower the price.” Overpayments are impossible.
  3. Storage management is no longer a problem. There are more than enough cloud service providers to cover the needs of the worlds businesses. There are no artificial constraints.
  4. Periods of high and low utilisation of resources can be controlled. The variable demand model leads to lower operating costs, but also makes cost prediction more difficult.
  5. Resources are paid for individually in small amounts (with four zeros after the decimal point), which is confusing and leads to poor accuracy of planning.

Cloud storage is very convenient, but you should be able to control it. Therefore, FinOps is about blending financial reporting and cloud resource management with cloud operations, just like DevOps includes a set of practices and tools connecting development and IT operations.

While DevOps improves the speed of service, FinOps works on the transparency of organisations, cost-effectiveness and profitability of cloud resources.

FinOps allows teams to compromise on speed, cost and quality. This is not about saving money, but about earning it and using it effectively.

In the past, and in some companies still today, the relationship between technical and financial teams was mostly transactional.

Centralised procurement groups had to find suitable suppliers and approve requests, i. e. do extra work.

These approvals often took a few weeks, which significantly reduced the performance of technical teams. The long wait for the hardware itself was even more agonising.

With cloud storage, things are easier. Engineering teams can now get unlimited IT resources at the click of a button. On-demand cloud computing enables rapid innovation.

The acquisition of new resources takes just a minute, while testing and long-term storage of all ideas do not require excessive financial burden. All developments are easy to promote, and then just as easy to delete when everything is ready, so you do not have to overpay.

Cloud storage technology has made life much easier forall companies. However, we have unlimited expenses along with unlimited opportunities. It turns out that we need specialists to control the budget. And these are not traditional accountants at all, they are simply not competent in such matters.

To work with FinOps, you have to be versed in DevOps, finance and development of the IT industry at the same time. If we consider FinOps as a separate profession, we will immediately see that there are no such vacancies on the market.

This is a new position, so it is difficult to find a specialist for it. The way around this is to create a cloud monster consisting of several people like Frankenstein.

Currently FinOps is more suitable for teamwork. Effective communication can be achieved by combining a product owner, a DevOps engineer, a financial officer and a С-Level executive.

For example, engineers like to work on something meaningful and interesting. At the same time, they are used to delivering software quickly and hate wasting time.

They are also always up to date with the latest trends in the tech world, work hard and appreciate good results. Another distinctive feature is that they prefer not to worry about costs, but they are responsible for them.

On the contrary, financial officers are very fond of counting money and predicting expenses. Their distinctive features are control and reduction of expenses, assistance in the development of a cloud strategy, identification of budget risks.

С-Level executives, in turn, are able to take responsibility for teams and manage KPIs. Their distinctive features are the understanding of business digital transformation, the desire to reduce the time to market for new services and prove the value of investments, the search for a competitive advantage, and the creation of a successful cloud strategy.

Leaders look at things from a top-level perspective without going into too much detail.

Perfect FinOps involves rethinking existing paradigms for the consumption of technological resources.

Imagine you come to a home appliance store to buy a drill because you decided to make repairs in your house. The shop assistant offers you a couple of great items to choose from.

You choose option А, a drill that can drill through even the thickest wall, or option В, a whole set of useful tools that you also need, but of course at a higher price.

Given that the renovation is in full swing – you still have to change floor skirting and plumbing fixtures – you will obviously lean towards the latter option.

On the one hand, you can check the prices of each tool in the set, and you may be able to find much cheaper pliers. On the other hand, when you buy all the necessary tools at once, you save yourself from having to spend time on a painful choice.

This example perfectly describes the way of thinking when you move from option A to option B: there is more cloud spending, therefore the purchase of a single package is more advantageous.

A successful background in cloud spend management makes you change your mindset and move away from traditional IT procurement processes.

Successful FinOps practices will always depend on teamwork.

All team members should combine their efforts to ensure reasonable consumption of resources, and to control and optimise costs.

Today many organisations communicate these principles to individual groups of employees, but a centralised team will be able to better manage processes and help the business achieve its goals.

A good case is when all team members take part in FinOps, clearly understand their role in this complex chain and communicate with each other. Responsibility for processes allows you to accurately evaluate the performance and be with a gain.

In this difficult matter, it is better to associate FinOps methods with the right indicators. Clear metrics that every employee involved can look into will help make life easier for the entire department.

Such tools already exist, for example, Kubecost and Cost Estimation in Terraform Cloud services. Their functionality is still far from perfect, but it is a good help to achieve the goal.

The main thing is to make sure that all teams speak the same language and understand each other, since similar terms can mean completely different things.

To avoid misunderstandings, it is worth getting a DevOps/FinOps certification and making it clear in everyone’s mind what they are in charge of and what they are working on.

FinOps is about constant practice. A single attempt to cut costs will not get you anywhere in the long run.

First, product managers should get involved in the work. They are in direct contact with FinOps at the moment of introducing new features to the market, and they strive to use advanced technology.

This process should be continuous. Yes, it is a long and winding road, but it is the only way to make the most of the cloud and not be mired in losses in the future.

 

About the author

Abay Serkebayev has worked in the product management and fintech industries for over 10 years. He graduated with an Executive MBA degree from London Business School, which has helped him shape and promote a vision of how to provide the market with simple and straightforward solutions that can really work for people to improve their financial future.

He is a dynamic, result-oriented leader in evaluation, sourcing, project development for start-ups, medium-sized companies and large corporations. He has extensive experience in finance and technology. Managed successful cross-selling of products, working closely with various partners around the world. Abay has impressively implemented marketing strategies in large corporations such as ABN-AMRO and Orix Corporation.

 

The post The role of FinOps: Cloud spend transformation requires a new approach appeared first on Payments Cards & Mobile.

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