FinOps Strategy Establishment and Execution

“FinOps is an operational framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making, and creates financial accountability through collaboration between engineering, finance, and business teams.” (FinOps Foundation)

FinOps is an operating framework and cultural practice that establishes financial transparency and accountability, and maximizes the value of cloud business by making timely data-driven decisions through collaboration between engineers, finance, and business teams.

Cost Optimization Process Establishment

FinOps Foundation presents the FinOps Framework, which presents the principles, domains, capabilities, personas, and phases for performing cost optimization as follows in the figure below.

To understand the core concepts and processes of cloud cost optimization, let’s take a look at the elements of the FinOps Framework.

FinOps Framework: Principles

The principles presented in the FinOps Framework are as follows.

• Team Collaboration

• Clouds incur costs per resource, per hour, so finance, engineering, product/service, and business teams must collaborate on a regular basis.
• Each team collaborates continuously to improve efficiency and innovate.

• Based on the business value of the cloud to make decisions

• It represents the impact on the business better than the total expenditure in terms of cost-effectiveness per unit.
• It considers the trade-offs between cost, quality, and speed.
• We think of the cloud as the driving force behind innovation.

• Assign responsibility for cloud usage to all subjects

• The responsibility for usage and cost extends to lower-level organizations or businesses, and engineers take responsibility for costs from architecture design to current operations.
• Each functional team and product team manages cloud usage within the budget scope of each department.
• It distributes decision-making on cost-effective architecture, resource utilization, and optimization to each department.
• The technical team should consider the cost as a new efficiency indicator from the early stages of the software development life cycle.

• Real-time verifiable FinOps Data

• Cost data is processed and shared immediately after creation.
• Ensuring real-time data visibility increases cloud utilization.
• Fast continuous feedback on data contributes to efficient results.
• Information on cloud expenditure costs is provided in real-time to all departments of the organization.
• It creates, monitors, and improves real-time financial forecasts and plans.
• To understand the cause of the cost increase, trend and fluctuation analysis are conducted.
• We foster best practices and celebrate accomplishments through internal team benchmarking.
• It evaluates the company’s performance through benchmarking with industry-level organizations.

• Dedicated team leads FinOps

• Each department has its own area of responsibility, and the dedicated team plays a role in promoting, disseminating, and supporting best practices.
• The management supports FinOps and its practices and processes.
• To utilize the economy of scale, it integrates optimal management of fees, contracts, and discounts.
• Engineers and operations teams focus on optimizing usage in their respective environments and do not participate in discount rate negotiations.

• Using the cloud’s variable cost model

• We view the cloud’s variable cost model as an opportunity to provide greater value, not a risk.
• predicts, plans, and purchases capacity when needed (just-in-time).
• It establishes an agile iterative plan rather than a static long-term plan.
• Do not tidy up the system by being pushed irregularly, but achieve cloud optimization through proactive system design and continuous adjustment.

FinOps Framework: Person

To implement FinOps, various stakeholders, namely personas, within the organization must work with the FinOps team in collaboration.

FinOps activities are not performed by the FinOps team only.

All parties involved in the use, tracking, management, or direction of cloud usage are the subjects of FinOps, and they benefit from it through collaboration within the FinOps Framework.

The following table shows the FinOps core entities and associated organizations and roles.

FinOps Framework: Phase

FinOps performs framework tasks by iteratively performing the three stages of Inform (notification), Optimize (optimization), and Operate (operation).

Inform: Visibility and Assignment

Inform stage includes activities to collect and analyze data on cloud costs, usage, and efficiency.

This step includes identifying the data source, assigning and analyzing the data, and then creating a report.

Through this, each team can secure the ability to develop indicators that can explain the business value of budget setting, trend prediction, KPI construction, and cloud spending.

When cloud spend is accurately assigned by tags, users, or business rules, accurate reporting becomes possible, and business and finance teams can increase ROI within budget and predict spend and carbon costs.

Benchmarking between teams provides useful indicators for evaluating the operational efficiency of an organization.

Additionally, linking cloud cost data with sustainability, efficiency, utilization, and performance benchmarks can help derive key performance indicators (KPIs) and unit metrics for an organization’s cloud usage.

The cloud has characteristics such as on-demand, elasticity, and various price discounts, and based on this, organizations must continuously convey business goals to each department by establishing a data-driven decision-making system and checking the expenditure details in real-time.

Optimize: Fees and Usage

Optimize 단계에서는 Inform 단계에서 수집된 데이터와 역량을 활용하여 클라우드 효율성을 개선할 수 있는 기회를 식별합니다 becomes Optimize step identifies opportunities to improve cloud efficiency by leveraging data and capabilities collected during the Inform step.

In this step, the resource optimization tools provided by the cloud provider are utilized to adjust the underutilized resources to the appropriate size, apply the latest architecture, manage the workload, and remove unnecessary resource waste.

Additionally, it also includes visibility, analytics, and reporting features to enhance the purchase and management of pricing models such as contract discounts, cost savings, etc.

In this stage, areas where cloud performance does not align with the organization’s value objectives are identified, and inter-team collaboration is carried out to optimize reporting and management processes based on unit metrics.

Conflicts may occur between optimization directions, but the ultimate goal is for the organization to create more value through cloud investment.

Operate: continuous improvement and usage

Operate 단계에서는 Inform 및 Optimize 단계에서 확보한 데이터와 역량을 기반으로 FinOps를 조직 내에 정착시키기 위한 변화를 구현합니다 becomes Operate stage implements changes to establish FinOps within the organization based on the data and capabilities secured in the Inform and Optimize stages.

This step includes establishing cloud governance policies, compliance monitoring, developing training programs tailored to organizational goals, setting team guidelines and automation policies, and granting individual permissions.

For FinOps to be successful, engineering, finance, and business teams must take continuous and incremental actions together based on the data created in the Inform stage.

Additionally, in the Optimize stage, the best opportunities identified should be selected, and a culture of accountability for actions taken across the organization must be built.

Operate 단계에서는 반복적으로 전략을 개발하고 워크플로를 개선하는 목표를 설정하며, 필요 시 Inform 및 Optimize 단계로 되돌아가 활동을 성숙시키고 새로운 역량을 도입합니다 becomes Operate stage repeatedly sets goals to develop strategies and improve workflows, and when necessary, returns to Inform and Optimize stages to mature activities and introduce new capabilities.

Through this, you can continuously develop the FinOps operation of the organization.

FinOps domain and activities

FinOps Framework’s domain is the basic business performance that an organization must achieve through FinOps, and FinOps activities mean the work performed in each domain.

The first domain is about understanding cloud usage and costs.

In this area, we collect and analyze cost-related data, detect abnormal signs, and manage them.

The following domain is business value quantification.

In this area, activities are performed to quantify the potential costs and values of the business and analyze the economy through benchmarking.

The third is the domain of cloud usage and cost optimization.

In this area, we measure the usage of cloud workloads being performed and establish and execute measures to optimize costs.

The last one is FinOps execution management.

FinOps strategy and process build a culture and organization within the organization to execute cloud strategy.

FinOps Maturity

FinOps activities are performed iteratively, through which the maturity of processes, domains, and activities is improved.

FinOps maturity approach starts small and gradually expands in scale, scope, and complexity.

In a small, limited scope, take necessary measures quickly, perform FinOps, and then expand FinOps activities in a larger, faster, and more detailed way based on the results of the measures.

The following table shows the maturity of FinOps.

Cost Requirement Analysis

As previously reviewed, tasks for cost requirements can be derived by FinOps execution stages.

The ultimate goal is to reduce the total cost through cost optimization, but for this purpose, tasks and task goals can be set step by step for each execution stage.

The table below presents the requirements by execution step.

Cost modeling

In an on-premises environment, demand is anticipated, and fixed costs are invested in the initial stages to build an information system.

On the other hand, in a cloud environment, resource costs are incurred based on actual demand, and costs can also fluctuate on a monthly, daily, or hourly basis.

Therefore, using the cloud improves efficiency and agility, but the fluctuation range of costs and usage also increases.

When customer demand increases, resources are also expanded, increasing costs, but if efficiency is improved, the increase in costs can be reduced.

The flexible nature of the cloud also affects costs and predictions.

To reflect changing business requirements and demands, plans must be established, and the existing organization’s budget process needs to reflect these fluctuations.

To predict the cost of new workloads, cost modeling should be considered.

Cost modeling is a process of setting goals with FinOps stakeholders through financial analysis based on understanding of cloud costs, and identifying cost optimization opportunities.

There are Business Practice approach and Data Analytics approach for understanding volatility for prediction, and the things to be checked for each approach are as follows.

• Business Practice Approach

• peak season, holidays, etc., understanding the period of periodic increase in users
• Project, marketing events, etc., future plans that can increase users
• Data collection cycle for forecasting

• Data Analytics approach

• Check if past data of periodic user increase is reflected
• Check if past data of business events is reflected
• Analysis of the gap between prediction and actual results
• long-term trend forecast

Next, the data must be granulated in order to define the cost.

The level of granularity may vary depending on the organization’s structure and internal processes, and specific requirements and The level of granularity will be determined according to the organization’s situation.

Through this, cost modeling can be performed based on the following examples.

• All expenses are grouped according to the classification criteria.

• It calculates the average value of the expenditure for the last 3 months by group.

• It calculates the average value of the motive 1 year ago.

• Compare the two average values to understand the trend and reflect the growth rate for each group.

• It reflects all subsequent plans.

• FinOps stakeholders share and adjust opinions.

CiO based cost management

CiO is Samsung SDS’s collaboration platform to support FinOps’ process.

This platform supports real-time information sharing, team communication/collaboration, and immediate execution.

• Platform for Establishing FinOps Across the Enterprise Dimension Hybrid, Multi Cloud execution/operation information/execution guide/process provision

• Real-time cloud information sharing and communication-based collaboration activation Verify what resources are being used for what purpose, how, and on what scale To check how much the development/operation department is working to optimize resources Check how much cloud costs are being reduced from a warrior dimension

• Providing platform value for fare discounts/resource optimization Usage pattern-based fee discount and resource optimization recommendation/execution (Short-term) Integrated resource management through Enterprise Discount Program additional benefit sharing(Long-term)

• Providing and continuously updating the FinOps standard process and execution base Traditional resource management process → Optimal collaboration process settlement for cloud environment

CiO provides a specific execution strategy and collaboration platform to advance FinOps to the ’execution’ stage.

Providing actual usage and fee information alone poses many difficulties in running FinOps.

To this, the CiO defines and performs management indicators and processes for performing FinOps and supports the performance.

Through FinOps management indicators, you can intuitively and quantitatively grasp the current status of cloud resource or cost management.

The results of each indicator item are linked to improvement activities, enabling continuous governance performance.

The organization’s current status should be reflected to define the management level and it is necessary to systematically carry out change management.

For efficient decision-making, a collaboration process between FinOps participants is essential.

The above figure shows the process established by applying the basic process of FinOps, Inform → Optimize → Operate.

In order for the process defined in this way to be continuously executed and managed, systematic systematization is necessary.

Samsung Cloud Platform’s CiO is one of Samsung SDS’s Managed Service offerings, and for more information, please refer to Samsung SDS Cloud in One.