Scott Sellers is the co-founder and CEO of Azul, with 30 years of experience as an entrepreneur and executive in the technology industry.
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For the first time in a decade, controlling cloud costs has surpassed security as the top cloud management challenge facing IT professionals, according to a survey by Flexera. An Andreessen Horowitz study also said that up to $1 trillion in market capitalization is weighed down by overspending in the cloud. Today, challenging economic conditions, rising costs, increasingly stringent performance SLAs and the need for more resources are squeezing organizations that want to remain in the cloud without overspending.
Many organizations still struggle to connect the dots between the value they deliver via the cloud and the costs required to deliver that value. Without a clear understanding of that basic relationship, it is difficult for teams to hold productive conversations about costs. Engineering departments don’t know what to prioritize; cloud architects lack a direction on designing, developing and managing solutions; product managers face difficulties pricing their solutions; and executives wonder where all the money is going.
How Cloud Costs Got Out Of Control
Cloud usage has grown organically—and exponentially—spurring companies to create new teams to manage spending along the way. But with no consensus around ownership, technology and business teams often play hot potato around roles and responsibilities. Everyone loves to spin up cloud workloads to achieve their business objectives but shrinks in their seats when the CEO asks whose job it is to optimize spending. To paraphrase the famous aphorism, "Cloud transformation has a thousand fathers, but cost management is an orphan."
Rising cloud costs are resistant to traditional cost-saving tactics because they are just that—tactics. Renegotiating with cloud service providers, eliminating unused instances, choosing the right storage types, etc., are all important approaches to mitigating cloud spend. But true value-optimized cloud transformation requires a strategic, cross-functional approach backed by executive support.
In short, it requires a robust FinOps practice where technical and business teams work together to continually monitor and optimize cloud cost based on the business requirements and drivers (feature, function, performance, availability, etc.).
FinOps: Both A Framework And A Cultural Shift
Financial operations (FinOps) is both a cloud financial management discipline and a shift in how teams think about and address cloud infrastructure, support and implementation. It begins by uniting stakeholders from IT, finance and business to manage cloud costs through governance frameworks that align cloud spending with business objectives.
Each part of the organization contributes to the overall FinOps approach, with IT deploying and managing cloud resources, finance keeping an eye on the cloud bill and lines of business defining objectives and priorities. Depending on the organization, a FinOps approach might solely be a method of organizing cross-functional stakeholders, or it may be led by a dedicated FinOps practitioner.
FinOps In Practice
Some of today's most successful SaaS companies use FinOps practices to reduce costs and buttress themselves against an uncertain economy.
As the Wall Street Journal noted, Airbnb began investigating its cloud costs in 2019 ahead of its IPO in December 2020. The $63.5 million in savings the company achieved in 2020 may have helped it survive that year's economic downturn. In a blog post titled, "Our Journey Towards Cloud Efficiency," Airbnb engineers Jen Rice and Anna Matlin said: "Our approach to consumption attribution was to give the teams the necessary information to make tradeoffs between cost and other business drivers to maintain their spend within a certain growth threshold. With visibility into cost drivers, we incentivize engineers to identify architectural design changes to reduce costs, and also to identify potential cost headwinds."
Every engineering decision comes with a choice, and FinOps enables companies to make smart choices aimed at delivering value, not merely cutting costs. Rather than engineering teams using whatever resources are available to accomplish their objectives and finance organizations scrutinizing every expenditure, FinOps brings these different sides together. The organization undergoes a culture shift by creating a new connection between cost and value. A shared consciousness of cloud economics begins to find its way into meetings, training sessions, KPIs and more.
With the finance and operational experts determining how much each application and service costs the business ("cost to serve") and the engineers re-optimizing, re-architecting or sometimes even eliminating certain costly components or services, companies gain a more accurate picture of how the company's cloud spend delivers value, along with a shared responsibility for managing costs.
This best-of-both-worlds approach allows companies to improve the performance of their applications to drive better customer experience and higher revenue while reducing the percentage of revenue they're spending in the cloud (i.e., improve gross margins). They can tune how they use the cloud to drive more revenue, reduce cloud costs and optimize their ROI. Topline growth combined with cloud-cost efficiencies? That's the real sweet spot.
Overcoming FinOps Challenges
Even when the benefits are obvious, getting started with a FinOps model can be overwhelming. There are many decisions to make, beginning with determining who does what, which cloud workloads to address first and what tools to adopt. Cultural issues can prove a major hurdle, depending on whether the FinOps approach is yet another siloed approach to cloud costs or whether it carries a true executive mandate.
Finance teams and technical teams typically have different mindsets and approach problems differently, so keeping lines of communication open and encouraging collaborative solutions (often framed in terms that each team understands) is key to success. Most contributors to a FinOps approach know what actions to take—the challenge lies in coordinating those actions and establishing new operating guardrails that guide future decision-making.
Conclusion
Out-of-control cloud costs result from myriad decisions: ad hoc cloud adoption without an underlying strategy, cloud sprawl from developers self-serving their infrastructure needs, lack of clear cost reporting to cloud users and a lack of cloud cost awareness and culture of accountability.
FinOps, though not a panacea, should lie at the heart of all relevant business and product plans, pulling from the best advice the finance, operations and technical teams have to offer.
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