Many organizations understand the importance of cloud financial management; however, they do not know how to start the practice. This article provides a high-level summary on how to start Cost management practice in medium to large enterprises. This summary is an extract of recommendations from FinOps org, Gartner, and industry experts.
Cloud FinOps or Cloud Financial Management (CFM) is a practice to manage and optimize public cloud costs. It is a continuous process just like business operations.
Service Charter is the first step in starting a new project or service, it provides scope and objectives of the initiative. They should be aligning with the organization’s strategy and business goals.
Following are examples for scope and objectives,
- FinOps will be a central team for cloud financial management, which serves entire company (or specific entities of org)
- Which Cloud Service Providers (CSP) are included in the practice include like AWS, Azure and GCP.
- Establish Cost conscious culture across organization
- Create financial visibility and drive accountability across groups
- Define governance and control usage of cloud
- Improve efficient use of cloud services for tangible financial benefits
Any executive, who has authority to commission organization wide projects or practice like COO or CIO. This practice has to be approved by an executive to avoid any conflicts in future.
Any personnel, who will be impacted by this practice, typically head of business units, product owners, business managers and finance managers.
4 Establish FinOps Governance
Governance is a structure of policies, processes and products by which FinOps is directed and managed.
4.1 Build a team
FinOps should be a central team in IT organization, led by a manager with matrix team structure. Team members should be from Cross organization like IT, engineering and finance. It is recommended to have advisory members from security and procurement.
Note: If Cloud Center of Excellence (CCoE) team exists in the organization, FinOps can be part of that team.
4.2 Build policies
Policies are guidelines for customers to follow and what they can expect out of the FinOps team.
Some of general policies are
- All the public cloud accounts should be onboard only through Cloud Finops team
- Account owners are “accountable” for their account’s spend
- All the resources should have mandatory tags like createdby, owner and Purpose.
- Root credentials are centralized with FinOps team
- Complex password should be enabled for local IAM users
4.3 Establish Central onboarding process
All the account creation and termination should be processed with the FinOps Team to avoid shadow IT and control the cost. If there are multiple accounts, consolidate all the accounts or subscriptions under one payer account or enrollment.
Following is sample for onboarding process
- Single portal to request for new accounts or termination, it can be ticketing system or simple workflow in SharePoint.
- Request processing should have approval flow with following fields
- Business case
- Monthly budget
- Finance or business approver
- Cost center (to which spend is cross charged the monthly bill)
- Deploy central account provisioning and guardrail deployment tool like AWS Control Tower
4.4 Cloud cost management tool
It is important to have a tool, which can consolidate all the bills from different accounts and providers.
It simplifies reporting, provides cost visibility and valuable cost savings recommendations. Top vendors currently are Cloudhealth from Vmware, Apptio’s Cloudability and CloudCheckr.
Following are recommended steps,
- Build custom dashboards for executives, stake holders
- Provide access to end users to their account spend
- Build custom reports using Tags or custom rules for business owners
5 Build Show / charge back model
Objective of this model is to make sure every dollar spent has accountability. Show/ Charge back model has two components,
Show back: Invoices are paid by one department, cost is reported back to departments who are spending, aim is to provide visibility and acknowledgement of the spend.
e.g., Four friends had dinner in a restaurant, one of the friends pay’s the bill, shows the cost of each person’s items to them.
Charge back: Invoices are paid by one department; cost is charged to other departments who are spending. It is like an internal bill.
e.g., Four friends had dinner in a restaurant, one of the friends pays the bill, shows the cost of each person’s items to them and ask’s them to pay their share.
Following are recommendation steps,
- Create a report with consolidated spend of public cloud
- Add any shared costs like FinOps Services cost, Cloud management tool or Support costs
- Organize the “final report” according business units or functions
- Final report will be used for show/charge purpose (publish this report in business reporting tool like Tableau).
- Meet with stakeholders to review spend, performance and forecasting the spend.
6 Optimization Strategy
Most glorious topic of the FinOps, there are many ways to reduce the cost and people run in all directions to reduce the cost, but ending up with low yields. How do we approach the cost savings is the key and it can save lot of time and energy. High level approach is summarized here rather than operational items like terminate resources.
Approach can be divided into three components,
Collaborate with procurement & business groups to optimize Vendor management & discounts by signing up contracts for enterprise discount program (EDP) and Migration Assistance Program (MAP)
- Org level optimization
Bulk purchase compute or third-party licenses at payer account level to reduce the unit costs
E.g. Purchasing savings plan, RI or software license at payer account level and share with all linked accounts
- Individual level Optimization
Optimization is at individual account or product level, reduce spend by right sizing the resources like compute and storage. Recommending architectural changes to each application
Following is the approach or strategy
- List out all the cost optimization opportunities like RI, disconnected volumes etc
- Find out the potential cost savings for each opportunity
- Assign ease implementation score as easy, hard or very hard.
e.g. Purchase compute savings plan is easy to implement, so it will get high.
Following is an example of ranking table for savings opportunities,
|Purchase Compute Saving||$100,000 (High)||Easy||1|
|Right Sizing Compute instance||$25,00 (Low)||Hard||2|
|Re-architecture Application||$ 50,00 (Medium)||Very hard||3|