Unveiling FINOPS

Discover how to optimize IT budget by reducing Cloud costs

By Luciano Osorio – Scrum Master at Zappts

FinOps is an operational model for the Cloud that enables regaining financial control over IT infrastructure, so that the operational and financial departments work together with the same goals.

FINOPS – Cloud Advantages and Challenges

Let’s start by talking about the advantages of the Cloud.

It brings a lot of flexibility, it is extremely elastic when it is necessary to increase or decrease its usage.

In the Cloud, it is possible to perform various types of processing and different activities within a single environment, with the ease of a single click to hire each of these services.

However, the Cloud brings some situations that need to be observed and addressed, and I will explain more about these challenges from now on.

Cloud Challenges

Traditionally, the IT department was responsible for defining which servers would be purchased, the available storage and processing power. All of this was defined in advance within the company’s annual financial planning.

However, with the advent of the Cloud, some things changed and the programmer started to have decision-making power over the resources needed to innovate in what they are working on.

This creates a problem: the financial department loses visibility of what is being spent on IT, which can bring a very big control problem for the company.

Lack of IT cost control can generate enormous budget shortfalls, when, for example, the company has an application that has resources and clients, but costs much more compared to the financial return obtained from it.

How to avoid this lack of control?

To avoid this lack of cost control, a consortium formed by major Cloud users proposed an operational model that, when applied, enables regaining financial control over infrastructure by establishing a common language between the financial and IT departments.

Thus, FinOps was created with the objective of:

• Establishing control of what is being used with IT resources;
• Revealing how much money is being spent on infrastructure;
• Indicating which departments and applications consume the most resources and IT budget.

From reading these indicators, the company can adequately provision the budget to make necessary purchases and limit the infrastructure of those parts of the company that rarely use the Cloud.

The idea of FinOps is simple: bring together technology and finance areas so that both speak the same language and are aligned with the same goals.

The FINOPS Phases

FinOps was structured in three phases.

The first phase is the information phase, which will provide visibility into which company areas are spending the most, how this money is being invested, which resources are actually used and which can be changed.

The information area will generate this visibility for the business area, which enables informed decision-making about what is happening in the Cloud.

The second phase is optimization.

Based on the information that was collected, it is time to propose ways to optimize the cost of the service, according to the purposes for which the Cloud is being used.

After the optimization process, the third phase of FinOps begins: operations.

Here, costs will be formalized within the company’s financial planning, generating budgets and money reserves for the purchase of necessary Cloud resources, with customized reports that will bring information on how much of each contracted Cloud service is being used.

Who is using these services? Which applications use these services? How much of the service is being physically used?

Issues that we can solve assertively through the use of FinOps as an operational model for the Cloud.

Reducing Cloud Costs with FINOPS

From now on, you will learn about the strategic actions of the FinOps model to reduce Cloud costs, starting with tagging.

FINOPS – Phase 1 – Information

Tagging works as follows: you will tell each of the microservices running in the Cloud which department, application and company area is using the service.

It is possible to use different combinations of information to do the tagging, and when it is ready, it needs to be run for a while to capture Cloud consumption data attributed to each of the major areas within the company or the applications being used.

This helps segregate and direct the cost, as well as make a correct cost allocation, from identifying which company areas are spending more of the budget.

Next comes the measurement of how much of each service is being used.

At this point, there are two possible situations: hiring a service and using it for a fraction of the time it is available or hiring a service and generating an instance of it, which will remain active for a considerable time and will be used occasionally.

After a few weeks of doing this measurement, it is possible to generate information and predict how much of a given resource will be used over time, which will help a lot in the operations phase, when the budget will be estimated.

Still in the information phase, reports will be essential to carry all collected information in different formats to different audiences: technical, financial, management.

Thus, the information chain necessary to operate FinOps is structured.

FINOPS – Phase 2 – Optimization

It is in the optimization phase that all information about Cloud resources being used is worked on, starting by considering those that are above or below what the company really needs: that is, over and under-provisioned resources.

Services in disuse can be removed from the Cloud plan, which helps reduce cost.

Another strategy is to work with automation, using robots to identify and remove less used services. This way, you can trigger more robust services when needed.

With the prediction of how much of each Cloud service will be used, it is possible to purchase reserved instances up to three years in advance, which can cost up to 43% cheaper than an on-demand instance.

In addition to all these actions, right sizing will be a great differentiator for adequate service sizing for each type of application used, as well as price comparison, considering similar services with different costs.

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FINOPS – Phase 3 – Operations

In the operations phase, “we take the business into the Cloud”, through a long-term business vision. Let me explain.

At this point in FinOps, we set growth goals, performance improvements and define future access quantities.

With budgets defined, it is necessary to align Cloud costs with objectives to reach a conclusion about how much has already been achieved and what the appropriate investment pace is to fully achieve them.

It is essential to have governance in this phase, through periodic reports on the consumption of the budget reserved for the Cloud, indicating the growth in application usage and the return it is bringing to the business.

Important: increasing Cloud costs does not necessarily mean the existence of a problem.

Let’s think about the use of an online service, for example, Uber.

When it was launched, Uber had low usage density. Over time, the business gained scalability, many people started using the service, and therefore, many more Cloud resources were needed to meet demand.

In other words, the increase in Cloud cost in itself is not necessarily a problem, however, it is necessary to have some type of indicator that shows the Cloud cost per user and this value must be constant or a value that decreases over time, unless a new technology or functionality is being implemented, which will present cost oscillation.

And concluding the operations phase, improvements must be constant, considering everything I have mentioned so far, such as improvements in the way applications are built and in tagging.

Applications that are not being tagged fail to generate visibility of how the cost is being consumed. Thus, a “slice” of the Cloud cost becomes unclear for decision-making and the departments involved (IT and financial).

So, it is very important to periodically monitor the various indicators that will be created at the visibility moment and invest in improving the performance of these indicators.

FINOPS – Nubank Case

Nubank, founded in 2013, is the world’s largest independent digital bank, with more than 20 million customers throughout Brazil.

When it started its FinOps journey, it had no visibility at all into how much it was spending on the Cloud, with a tendency for costs to explode in the coming months of usage. So, Nubank adopted a strategy.

First, the bank went through the visibility phase and established a very important indicator: Cloud cost per customer.

This index considers a mass of customers to divide the Cloud cost.

In this way, Nubank was able to monitor over time how the Cloud cost was growing for each “x” number of customers they obtained, and also, they were able to have visibility of what the trend would be for the coming months.

Objective: Nubank established a very aggressive tagging strategy so that in the next three months after applying the strategy, they would reach, at most, 10% of applications without tagging, and this was strongly demanded from all teams.

At that time, Nubank had approximately 90 online services, 50 squads working on creating and updating services.

Costs were growing in an uncontrolled manner, and without visibility, the bank had no defined strategy, with an extremely long delay between one deploy of a new part of the application and the other.

Three years after applying the FinOps strategy, Nubank maintained and even managed to reduce the Cloud cost per customer, even with the increase in the number of active services to more than 250, with more than 50 squads in operation.

As a result, Nubank started working with predictable Cloud costs, through very good visibility of how the bank would grow its Cloud services used, following the main strategies of the FinOps model: tagging, purchasing reserved instances and right sizing.

Thus, Nubank became a well-applied FinOps case, reaching more than 50 deploys of fixes or new features per day in a practically instantaneous way, without pain and without having significant balances in Cloud costs.

Conclusion

This article aims to present the concept of FinOps, the operational model for the Cloud that enables regaining financial control over IT infrastructure.

Controlling the resources used and identifying the departments that consume the most Cloud services are strategic differentials, aimed at cost reduction in a scenario of joint work between IT and finance.

If you have any questions or need help implementing FinOps in your company, get in touch by clicking here!

And before I say goodbye, I’ll leave a video with more information about Cloud cost management and FinOps. Hugs and see you in the next article! 👋👋👋