FinOps Book

three parts to a successful FinOps practice

- Real-time reporting - Just-in-time processes - Teams working together =FinOps

Responsibilities of a centralized team driving FinOps

-Central team promotes best practices; all have shared accountability, similar to security. -Executive support is essential for FinOps. -Centralize rate and discount optimization for scale benefits. -Engineers focus on usage optimization, not rate negotiations.

The Essence of FinOps

-Data-Driven Decisions -Using unit economic metrics for informed decision-making -Understanding the business value of cloud expenditures and acting accordingly

How does everyone take ownership of their cloud usage?

-Engineers own cost management from design to operations. -Product teams control their cloud usage and budget. -Decision-making on cost-effective architecture is decentralized. -Technical teams view cost as an efficiency metric from the start.

Ho should FinOps reports be accebile and timely?

-Share cost data immediately upon availability. -Real-time insights enhance cloud utilization. -Quick feedback fosters efficiency. -Ensure cloud spend visibility across the organization. -Enhance real-time financial forecasting. -Analyze trends to understand cost changes. -Promote best practices through internal benchmarking. -Compare performance with industry benchmarks.

How does a Finops team take advantage of the variable cost model of the cloud?

-View cloud's variable cost as an opportunity, not a risk. -Prioritize just-in-time capacity planning and buying. -Favor agile planning over static long-term strategies. -Design systems for ongoing cloud optimization, not sporadic fixes.

impacts of not adopting finops

-limitation to data centers -not taking the cloud advantage -unchecked cloud costs

two typical times to start adopting FinOps

1. when things went off the rails 2.The FinOps practice needs to develop at a pace that matches the company's position in the FinOps maturity cycle

Cloud spend in 2022

500 billion CloudHealth manages 22 billion not cool when it's 4%

Motivation for Finance

Accurately forecast chargeback or allocate at 100% amortize cost appropriately

pros of centralized team

Authority, expertise, economics of scale

Data engineering

Builds systems that collect, manage, and normalize raw data into usable information for data scientists and business analysts to analyze and report on

Commitment-based discounts

By precommitting to a cloud service provider a set amount of resource usage using SPs, RIs, or CUDs, you receive a reduction in the rate normally paid for those resources

Cost avoidance

By reducing resource usage, either by removing a resource altogether or by rightsizing it, you can avoid paying for resources that would have incurred a charge

Cost savings

By reducing the rate you pay for resources, you generate savings

Cost of goods sold (COGS)

COGS measures how many dollars of outlay it takes to generate revenues in a specific period For a software company, the COGS would be the monthly cloud bill to operate its software, salesperson commissions, and support costs

Cloud gridlock

Cloud initiatives are stuck due to a lack of necessary automation or infrastructure.

Core FinOps Values

Collaboration Continuous Improvement Business-Driven Decisions Ownership and Accountability Real-time Visibility Variable Cost Model Educate and Evolve

Engineering

Considers the costs of architectural decisions and assists in automation of billing data, optimizations, reporting of budgets and forecasts, and governance.

Cost of capital

Cost of capital refers to the cost to an enterprise to deploy their money toward an investment In cloud, cost of capital is an important consideration when looking at paying up front for additional discounts on commitments like RIs. weighted average cost of capital (WACC)

Executives role in finops

Driving accountability, building transparency, not exceeding budget and being efficient

EBITDA

Earnings before interest, taxes, depreciation, and amortization

detractors from action

Effort and time process Risk

Trad cost process data center

Equipment had excess capacity to handle growth Upfront investment covered most costs - predicability Cost reviews were periodic (Static

Importance of FinOps

FinOps enhances the business benefits from the cloud. It's not just about saving money but maximizing value from cloud services. Analogy: If using the cloud is like getting a high-performance sports car, then FinOps is the driving instructor ensuring you get the most out of that car.

What is FinOps

FinOps is a practice that brings financial accountability in the public cloud that unites sectors like engineering, finance, and procurement to enhance cloud cost management.t

What is Finops collaboration

Finance and technology teams work together in near real time as the cloud operates on a per-resource, per-second basis. Teams work together to continuously improve for efficiency and innovation

Commitments unused/unutilized

For every hour you've committed to a resource usage that you don't use, that reservation goes unused, or unutilized. Another term for this is reservation vacancy.

Fully loaded costs

Fully loaded costs are amortized, reflect the actual discounted rates a company is paying for cloud resources, equitably factor in shared costs, and are mapped to the business's organizational structure

Commitment waste

Having a reservation with some amount of underutilization isn't an issue as long as the discount you're receiving is larger than the cost of the unused reservation.

Hourly data

Higher-level FinOps functions, such as planning for commitment-based discounts, depend on evaluating the usage of resources over time against the break-even point of reserving those resources.

Measuring unit costs

Identify teams that can start measuring a business value metric for a set of products and tie it back to their reporting to use in their value conversations.

The "Prius Effect"

Immediate feedback on actions can automatically modify behavior for better outcomes, as observed with electric car drivers adjusting their driving based on real-time energy consumption data.

Cost allocation

Improve the percentage of costs being correctly allocated to teams

Cloud Value for business

Improved business outcomes Increase cloud use More IT innovation Better products

Forecasting

Increase reliability and predictability

Pilot stall

Initial cloud initiatives failing to show value

Benifits of starting FInOps Early

Introducing FinOps early on provides more robust informed decisions on cloud spend. Scalability with maturity, learn as you grow

How companies reap value from cloud platforms

Invest in business areas where cloud boosts revenue and margins. Choose cloud technologies and models that match business goals and risks. Establish a cloud-centric operating model.

FinOps value fly wheel

Investment in finops stronger finops capability value improvement initiatives more IT innovation

Pros of Hub and Spoke

Key BU's have dedicated embedded resources in the spokes and central hub finops focuses on maximizing rates and enabling more spokes

Cloud cost process

No upfront equipment resources can be purchased for appropriate size capacity management isn't a thing resource consumption variability simple billing micro amounts

Lack of value from "lift and shift"

Not leveraging cloud-optimized strategies results in subpar ROI.

OSSM meaning.

On-demand Scalable Self-service Measurable

Stage 3 Planning finops

Org prep for finops Start the flywheel Assess finops readiness - define tags, configure tooling, usage thresholds, Finalize KPI's, dashboards, forecast model Engage stakeholders - commitment level appetite, optimization wins, governance wins, start cadence for regular meetings

Finops adoption roadmap for the firvier

Plan Socialize Prepare Launch

stage 1 planning for finops

Planning Do your research - seek out stakeholders, identify pain group impacts Create a plan - identify tooling, find a home, KPI's, early adopters Gather support - present pain and roadmap Perform initial resourcing - sponsorship, budget, tooling

Matching principle

Record expenses when value is received, not when invoiced or paid. In IaaS, monthly invoices may include up-front payments for long-term discounts; recognize the expense aligned with the period of benefit, not just the invoicing period.

Stage 2 planning finops

Socializing Communicate value - high level roadmap, future vision Gather feedback - KPI's, establish interaction, understand issues Define model - IOO custom to org, identify the team, define KPI's

Amortized costs

Some cloud resources and commitment-based discounts can be purchased with an up-front fee. The amortized cost of a resource takes this initial payment into account and divides it out, attributing the prorated cost for each hour (or second, or millisecond) of billing.

Unblended rates (AWS specific)

Some resources are charged in decreasing rates the more you use them.

FinOps Principle: Data-Driven Decision Making

Teams use real-time data to balance cloud costs with service speed and quality, focusing on generating revenue rather than just saving money.

On-demand rate

The normal or base rate paid for a cloud resource. This is the public pricing for a cloud resource.

Workload management

The practice of ensuring that resources running in the cloud are only running at times when they are needed. It is one of the practices that allows engineers to optimize usage.

Blended rates (AWS specific)

This blended rate standardizes the rate you pay for the same type of resource by evenly distributing the charges to each resource, except when the usage is covered by commitment-based discounts

Comparison of Traditional Data Centers and Cloud

Traditional data centers have fixed costs and inflexible structures. In contrast, the cloud offers flexibility, cost variability, and real-time adaptability.

in FinOps, How are decisions driven by the business value of cloud?

Unit economic and value-based metrics demonstrate business impact better than aggregate spend. Make conscious trade-off decisions among cost, quality, and speed. Think of cloud as a driver of innovation.

Variable Spend Model of Cloud

Unlike fixed traditional IT costs, cloud billing is dynamic and varies with usage, resource choice, and pricing models like on-demand or spot pricing.

Rate reduction

Using commitment-based discounts such as Savings Plans (SPs), Reserved Instances (RIs), Committed Use Discounts (CUDs), Flexible CUDs, or commercial agreements between an organization and a cloud service provider to receive a lower rate for the resources used.

Pros of decentralized teams

Very agile, embedded with engineering teams

Covered usage

When a resource charge is discounted by a reservation, you call it covered. The usage is being covered by the reservation, and the result is a lower rate of charge.

Coverable usage

When covering usage with a commitment would result in savings, classify it as coverable

Cloud chaos

Without proper leadership guidance, engineers might misuse cloud services, leading to cost and security issues.

FinOps language barrier solution with finance and engineering

abstract cloud specific terminology away for those who understand dollars and cents and simplify finance requirements for engineering

Finance role in finops

accounting and forecasting engage in rate negotiations with cloud providers

Automation engineering

automating cloud tooling, either automating the management of cloud billing mechanisms like budget alerts and commitments, or automating optimization recommendations.

Engineering and Developers role in finops

building and supporting services for org rightsizing, allocating costs, finding unused storage

key components of success

business agility and speed to innovation

Why is unit economics important?

changes the conversation from total dollars spent to cloud efficiency "It costs $X to serve customers who bring in $Y in revenue"

FinOps Practitioners

cloud-savvy financial leaders or cost-conscious engineers

informed ignoring

consciously watching the costs increase, forecasting their growth, and analyzing saving opportunities to see when they hit a point where the comfort level of the business forces action to adopt additional domains of the FinOps practice such as usage or rate optimization

two levers to affect your bill

cost avoidance rate reduction

Technical writing

creates finops doc helps socialize tagging standards and sends budget alerts

Policy governance

creates policy documents Kpis's Objectives and key results goverance framework for cost allocation

DAU

daily active users

Analysis

digs into cost anomolies learns cloud cost model explains to engineers and finance reports to executives

motivation for executives

drive shared accountability digital bussines transformation shorten time for new services competitive advantage prove value and KPI

central FinOps

evangelizing best practices for incorporating cost considerations into development plans facilitation conversations across teams to establish trust defines what the organization uses as a business metric

informed ignoring

focus on understanding and monitoring costs but no action to reduce

Deming's key principles.

foster long-term thinking and constantly implement continuous improvement. all teams need to work as a unit indaviduals

how to cause action

instil intrest, motivation and understanding use language that will explore the cause rather than direct to find the cause

Three ways a cloud provider offers access to billing data

invoice - sucks Cloud native cost tools - great for single cloud service Detailed cost usage billing data - CUR and Big Query, complex to use

decentralized finops

make decisions on infrastructure based on value and level of effort

Cons of centralized team

many stakeholders, education and enablement, persuasion requires executive buy in

top issue companies have with cost optimization

motivating engineers to be be more cost efficient minded

Cons of decentralized teams

not maximizing rates,, duplication of effort, susceptible to loss of key talent

create automatic behavioral changes for the better.

provide engineers with feedback on the impacts of their actions as close as possible to the time those actions occur.

IaaS benefit

provides computing resources at speed and scale never before possible

Using Cloud for the Right Reasons

scalability innovation not merely cost savings. Analogy: Viewing the cloud is like seeing a multi-tool. While some might just use it as a screwdriver (for savings), it has many other functions (scalability, innovation) that make it invaluable.

New norm of purchasing

small units of resources

Formula for cloud bill

spend = usage x rate usage - amount the resource is used Rate - hourly amount paid for the usage of that resource

Rate reduction

taking advantage of cloud billing constructs such as Savings Plans (AWS or Azure), Reserved Instances (AWS or Azure) and Committed Use Discounts (GCP).

cost avoidance

terminating idle resources, rightsizing oversized ones, scaling down the number of resources running during off-peak times, or shutting things down completely over nights and weekends

Product or Business Teams role in FinOps

use FinOps-provided data to understand product profitability, direct cost efficiency efforts, and more accurately forecast costs based on new feature releases.

Cloud as a Business Driver

view cloud not just as an IT solution but as a primary driver for innovation and business transformation.

When to Implement FinOps

when cloud expenditures surged unexpectedly. currently Companies are starting FinOps practices earlier in their cloud adoption journey, driven by clearer understanding and better tools from leading cloud providers.

Ignoring

when you're not doing any measurement of spend efficiency

Motivation for engineers

work on hard problems deliver software fast and reliable hate inefficiency stay up to date with tech metric based performance deliver, fix and improve