Is FinOps fit for purpose in the fight against ‘cloudflation’?

Businesses need strategies to mitigate soaring cloud costs, more than ever. But are their financial operation practices strong enough?

Large cumulonimbus cloud over a blue sky

The cost of everything is going up – and cloud computing is no exception. Last year, Google announced price hikes of up to 50% on core services. Amazon Web Services (AWS) put up the average price for on-demand compute capacity by 23% in the year to February, according to market research company Liftr Insights.

The ‘cloudflation’ – inflated cloud costs – issue has come at a bad time for UK companies that are already struggling with rising wage, input and borrowing costs. It has also underlined the importance of a good financial operation, or FinOps, strategy to optimise cloud usage and cut waste. 

The idea is that by getting better visibility of their usage and encouraging all departments to take responsibility for improving efficiency, firms can mitigate those cost pressures. 

Yet there are concerns about the efficacy of FinOps strategies in today’s inflationary environment. There are also genuine questions over what difference FinOps practices can make when prices are rising so quickly. 

So what can firms do to ensure that FinOps does the job it is supposed to?

Are bundled services a good deal when costs are rising?

A big part of the problem for companies is that the cloud market is dominated by a handful of big players and business customers are typically nervous about jumping ship to smaller, less well-known vendors. As such, the providers are following “well-established playbooks” on pricing, says Richard Palmer, a senior managing director at FTI Consulting.

All levels of the business need to understand what their costs are, and how their decisions impact cloud costs

“Strategies include bundling of services and features and periodic price increases. Additionally, as organisations’ data footprints grow and they tap into the extended features and capabilities within their cloud platform, costs will rise, with or without price increases.” 

It is no secret that many companies struggle to use the cloud efficiently or in a disciplined way, leaving some locked into a high-cost service or one that is not suitable for their purposes. This can cause costs to spiral and this is when a sound FinOps strategy should come into play. Yet getting these practices right is no easy feat. 

Where do FinOps strategies usually fail?

One challenge is that a successful FinOps policy requires a cross-functional approach, meaning a company needs to get every department on board with the change. But too many firms take a top-down approach or leave the job of cost control to the finance department. So says Nick Durkin, field chief technology officer at Harness, which is a platform that streamlines software delivery for business.

“Finance teams don’t have the expertise or resources needed to continuously monitor spend,” he says. “So, changes in resource allocation have the potential to cost thousands in unmanageable cloud spend before anyone realises what is happening.”

Instead, he says, organisations must involve the DevOps and engineering teams as early as possible, making sure they can gain a “real-time view of cloud costs from the offset”.

FinOps strategies must also get to grips with the complexities of cloud billing, which is key to gaining visibility over your usage costs. Companies often use multiple services from a single provider, each of which has different units to determine pricing. 

Additionally, many organisations will be paying for cloud services wrapped inside software-as-a-service fees for other corporate tools such as CRM or finance management systems, which can make it harder to delineate specific underlying cloud costs. 

Does your FinOps strategy need an update for a high-inflation environment?

But while it is easy to be cynical about the impact of FinOps strategies, experts agree that not having one in place risks making a bad situation much worse in the current climate. 

Jon Chan, another senior manager at FTI, adds that prices are unlikely to rise so dramatically as to make FinOps practices ineffective. Instead, he and other experts agree that companies should be focusing on updating their strategies for a high-inflation environment. 

The key is to understand why costs are increasing and to ensure that the rate of increase is proportional to overall business growth

DoiT is a partner of AWS and Google Cloud and provides cloud technology and consulting services in almost 70 countries. The firm helps clients optimise their cloud use through processes such as deep inspection, trend analysis and automation. 

Chief product officer John Purcell says that while nearly all companies have now adopted the cloud, many have yet to fully streamline their infrastructure and commercial agreements in a way that optimises their spending. Doing so is vital not just in a period of high inflation, but all year round, because price rises occur in repeated cycles. 

“In any growing business, we expect cloud costs to increase as it serves more customers – this is one of the most obvious elements of elastic infrastructure,” he adds. “As always, though, the key is to understand why [costs are] increasing, and to ensure that the rate of increase is proportional to overall business growth.” 

Minding the FinOps fundamentals

Purcell says that reaching optimisation involves understanding what exactly your business is paying for, what is driving the cost, whether you are spending the “right amount at the right time” and avoiding waste.

Matt Barker is global head of cloud native services at Venafi, a cybersecurity company in the machine identity space. He thinks that firms will make FinOps savings on their cloud spend by going back to basics such as accurate provisioning, right-sizing instances – and something as simple as turning the cloud off when it isn’t in use. 

“I’m also seeing opportunities to save money by migrating to cheaper environments. For example, companies explore new cloud vendors when moving into a new territory, as a test, instead of expanding their existing footprint with a major provider.”

Meanwhile, Durkin says successful FinOps strategies are not a “one-time event” but about ongoing monitoring. The most important principle is to build cost management into everyday processes. 

“All levels of the business need to understand what their costs are, and how their decisions impact cloud costs. This will reduce the chances of unexpected cloud spend later down the line.”

FTI’s Palmer says firms should break down FinOps strategies into supply- and demand-side categories. On the supply side – the approach firms take to cloud suppliers – organisations need to unbundle services and spread expenditure across multiple providers. On the demand side – the way that firms use services – he says there are numerous levers that can be pulled to reduce overall compute and storage needs, including data minimisation, end-user licence optimisations and storage tiering. 

“A detailed strategy can help organisations to contain costs – even amid price inflation,” he says.