The cloud offers limitless scalability and flexibility, powering digital transformation across every industry. But when not managed strategically in the long run, cloud spending can quickly escalate and impact margins, cost of goods sold (COGS), and cost of revenue (COR).
To optimize cloud investments, C-level executives are increasingly adopting cloud financial optimization (FinOps). This framework positions organizations to manage their cloud investments more effectively, driving increased accountability to maximize business value. In this article, I’ll explore common cloud optimization and FinOps challenges and strategies for overcoming them.
1. Cloud usage & costs
Most enterprise companies have shared infrastructure, and managing cost allocation across marketing, HR, accounting, and other departments can be tricky. How they handle this depends upon the business-unit driver and the organization’s culture, typically defined at the C-level.
The business unit must tie back to the key performance indicators (KPIs) associated with the domain and the objectives and key results (OKRs). Managing and aligning cost allocation to the business unit requires real-time visibility and reporting around cloud costs and usage, with cost allocation constructs aligned to departmental needs. Organizations must examine shared resources, storage costs, network costs, platform services, monitoring, logging, and licensing. Then they must choose a financial model, whether an even split, fixed, or proportional model.
From a strategic perspective, some organizations set up executive sponsorship focusing on the FinOps maturity model and decision framework. Others start with a FinOps maturity assessment, establishing an actionable roadmap that defines the FinOps domain and organization roles and objectives, all aligned to business spending, efficiency, transparency, and compliance.
2. Performance tracking and benchmarking
When it comes to performance tracking and benchmarking, organizations frequently face challenges around resource utilization and efficiency. Utilization and efficiency provide vital insights for understanding the business value of expenses incurred. However, it can be challenging to measure the business value associated with each type of cloud resource based on performance, availability, and other factors.
Overcoming these challenges goes back to KPIs and OKRs. Organizations must define and track KPIs that meet efficiency and utilization objectives and deliver value-creation. For example, if the goal is to reduce hot storage, a KPI must be defined to meet the efficiency objective and deliver value creation—and it must be measured. This requires adopting the right FinOps tools, processes, and people.
3. Real-time decision making
A framework and accountability structure form the foundation for real-time decisions around usage, costs, and performance to meet organizational goals. However, establishing a FinOps decision framework and accountability structure can pose a challenge, particularly for those organizations with low FinOps maturity.
The organization must first perform a maturity assessment to understand the role of FinOps within the context of the overall organization. Once in place, the organization can develop and assign a repeatable process that enables real-time decision-making to a center of excellence, steering committee, or governance structure, depending upon the organization.
4. Cloud rate optimization
In this domain, organizations define and adjust pricing model goals based on historical data and make purchase decisions based on goals and discounts being offered—all to optimize cloud spending. Cloud service providers provide slightly different offerings with unique embedded discounts – some providers have computer unit discounts, and some have utilization-based pricing.
As a result, organizations often face challenges around data analysis, show-back, and managing commitment-based discounts. To address this, many enterprises use a KPI-driven, hybrid-cloud purchasing strategy to align their commitment period with infrastructure workload characteristics and lifecycle. This strategy aligns well with the concept of a smart cloud.
5. Cloud usage optimization
Dynamically matching cloud resources to demand to optimize cloud usage and ensure sufficient business value can also pose challenges.
That’s why organizations increasingly implement automated workload management solutions that match running resources to workload demand, scaling, de-scaling, and even turning off unused resources in real-time to maximize ROI while minimizing the TCO. Business-driven KPIs and OKRs help organizations define outliers and set the thresholds that inform alerts and actions.
6. Organizational alignment
FinOps capabilities are embedded within organizational processes and units, and often, this is where companies fail at FinOps. Unfortunately, many start with technology (tools) instead of organizational alignment, creating conflicts and challenges around policies, governance, and areas of responsibility.
Organizations must establish a FinOps framework at the C-level, complete with policies, processes, best practices, and a playbook that help ensure organizational alignment and buy-in. Once aligned, organizations can harvest the benefits of FinOps including:
- Centralized smart-cloud cost management
- Alignment to and accountability of cloud roles and users
- Improved confidence and accuracy around budgets and forecasts
- Advanced communication throughout the organization, creating a FinOps culture
Improve cloud optimization and FinOps maturity
As data volumes and usage grow, cloud FinOps enables organizations to manage cloud investments more strategically, efficiently, and cost-effectively. Understanding FinOps maturity can help organizations identify and resolve trouble areas to improve cloud optimization and accelerate business outcomes.
GDT can help your organization improve cloud optimization and FinOps maturity. By engaging with GDT, you’ll get a portfolio-level analysis of your FinOps maturity, along with cloud service optimization opportunities and recommendations to help you maximize spend efficiency, reduce cloud costs, and develop strategies for proactively and dynamically managing future expenses and utilization.
Contact the experts at GDT to learn more about improving cloud optimization and FinOps maturity.