In this initial blog post, I want to briefly delve into the concept of FinOps and explain why it’s not just about cost savings. Subsequently, I will discuss the savings you can expect to achieve by implementing FinOps. Over the coming period, I will regularly publish new blog posts with practical examples of how you can better manage your cloud expenses with FinOps, ultimately aiming for optimization.
Since we started our managed Azure FinOps service in August, we have received many inquiries. These inquiries primarily revolve around how companies can save costs by implementing FinOps.
FinOps is not synonymous with reducing cloud costs
Similar to procurement, FinOps is often misconceived as solely focused on cost reduction. Procurement departments are often brought into the process late, only to negotiate prices after decisions have already been made regarding which solution and vendor to select. This happens because many companies still believe that procurement is solely responsible for price negotiations. Fortunately, most companies now understand that procurement encompasses more than just price negotiations and that it’s a process to acquire the right products at the right price. Various aspects, including functionality, security, risk, and the price of both the product and the vendor, are weighed against each other to ultimately choose the most suitable solution. In FinOps, it’s not much different; it’s about determining the best way to consume cloud products. Here too, various aspects such as performance, security, functionality, and price are weighed against each other to make the cloud configuration as optimal as possible.
The aim of FinOps is to optimize the cloud configuration from various perspectives: internal customers (business), technology (IT), budget (Finance), and costs (Procurement). Optimal does not automatically mean as cheap as possible, and it also doesn’t necessarily mean the very best performance, but rather the optimal balance among all aspects.
For more information on FinOps and the FinOps framework, you can visit www.finops.org.
In practice, we observe that when configuring cloud environments, choices are primarily made from an IT technical perspective. The emphasis is often on functionality and performance. The principle “the more, the better” often applies without investigating the actual functionality and performance needed. Since developers and cloud engineers are rarely held accountable for costs, expenses often play a subordinate role in decision-making.
As the use of the cloud increases, costs often rise as well. In many cases, expenses are much higher than anticipated, and controlling them becomes challenging.
This is the moment when companies start looking into how they can reduce cloud costs. This explains why the terms “cloud cost management” and “FinOps” have become synonymous with reducing cloud costs.
Of course, cost reduction plays a significant role, both in procurement and in FinOps. This, combined with the fact that costs are spiraling out of control in many organizations, explains why there are many questions about how much can be saved.
The answer to this question is not straightforward. It depends on the configuration of the cloud environment and, above all, the extent to which costs have already played a role in the choices made. The knowledge and skills of engineers in the field of cloud (costs) are essential for optimizing the current configuration from a cost perspective. Systems that can effectively utilize the flexible capabilities of the cloud or are designed to be cloud-native will have less room for savings. We see that customers who have moved on-premises systems to the cloud without optimization have the most potential for savings, often up to 50% of total cloud costs. For companies that already make greater use of the flexibility of the cloud but have not yet implemented a FinOps practice, there are usually still savings opportunities of between 20% and 30% on total cloud costs.
In broad strokes, there are the following possibilities for savings:
As can be derived from the picture above, looking critically at the Quantity of the use (Q) in general yields the most costsaving. In addition to savings by adjusting the quantity (in hours and / or capacity), costs can be further reduced by influencing the Price (P).
Why is an 80% saving not realistic?
We also frequently receive the question of why we cannot achieve the savings that Microsoft advertises (https://azure.microsoft.com/nl-nl/pricing/reserved-vm-instances/), namely 80%. The answer to this is quite simple: we look at savings on the total cloud costs. Savings of 80% are indeed possible on some components (or even more!). However, on other components, much less or even no savings can be achieved, resulting in a lower average savings percentage on total costs. The percentage of savings depends on the composition of different types of cloud services.