TAKE CONTROL OF CLOUD COST MANAGEMENT

Now is the time for the financial services industry to better understand, influence, and ensure that costs for cloud capacity and related services are aligned with business priorities and value.

In brief

• The benefits of cloud adoption have been huge and are incontrovertible – including speed, agility, and scalability.
• Financial services use of the cloud is increasing rapidly; but as usage has increased, so too have issues related to understanding and managing costs.
• FinOps is an operating model for cloud cost management that increases an organization’s ability to understand cloud costs and make tradeoffs.

The challenges of cloud cost management are best met head on through the adoption of FinOps best practices – processes, principles, and cultural mindset.

Cloud cost challenges loom large…and are likely only going to increase

In 2022, the average yearly enterprise cloud spend for financial services firms was $25 million, according to Forrester’s Infrastructure Cloud Survey, 2022; and the increase in consumer demand, pandemic pressures, and rise of industry clouds have pushed the industry to move even further into the cloud to gain the benefits that the hyperscalers offer — and with lasting impact. Further, in April of this year, Gartner, Inc., forecasted that worldwide end-user spending on public cloud services would grow 21.7% to a total $597.3 billion in 2023, up from $491 billion in 2022; Gartner also said that hyperscale cloud providers are driving the cloud agenda.

Businesses and engineers now have quick access to near-infinite storage and computing capabilities for processing enormous datasets, and for blossoming development and innovation initiatives. But without close and ongoing attention, cloud-related expenses can move from near zero to many thousands of dollars per month within a very short timeframe. A recent report from Gartner found that companies’ cloud bills are frequently two to three times higher than expected.

A couple of additional cross-industry statistics illustrate well the magnitude of cloud usage, efficiency, and cost management issues:

• By 2025, $917 billion will be spent on the cloud, surpassing traditional, on-premises spending. In contrast, public cloud spending in 2023 is predicted to trail the on-premises spend of $775 billion.
• Recent surveys indicate that 30% of total 2023 cloud investment will be wasted.

Why is there such waste and where are organizations falling short? While enterprise-specific circumstances vary, common challenges include:

• Cloud costs may seem simple, but the reality is much more complex. Depending on provider agreements, pricing may be “pay as you use” or “pay as you go,” and multiple contracts mean there’s a lot to keep track of across the enterprise. Further, pricing often lacks consistency across services, subscription timeframes, and regions.
• Accurate, consolidated, and timely views of total purchased cloud capacity and services, and actual usage, are hard to come by, in large part because demand has grown so quickly and procurement and governance processes have been hard pressed to keep up.
• Grappling with effective cloud cost management needs to be a team sport, and corralling a host of different stakeholders is difficult.

The right solution for the problem: Adopt FinOps

At its core, FinOps is a way for individual teams to manage their cloud costs, but where everyone takes ownership of their cloud usage supported by a central best-practices group. It allows an organization to anticipate, control, check, and optimize the costs linked to a cloud-based infrastructure, both reactively and proactively. For FinOps to work best, a phased approach is recommended.

Figure 1: Leverage FinOps to manage uncontrolled cloud cost

Let’s examine the components of each of these phases a bit further:

Inform: assessment and visibility.

Gain a clear view on cloud usage across the enterprise; develop detailed reporting that enables cost tracking from an application or environment perspective, down to the granular level; analyze your inventory, and obtain a deep and detailed view of usage and time allocations.

Optimize: rates and usage optimization.

Waste management becomes easier as detailed views on unused and idle resources enables cost reduction; right sizing provides opportunity to shape your cloud estate in line with real needs; reserve usage recommendations enable evaluation opportunities and decision-making on reducing costs.

Operate: governance and continuous improvement.

Allocate costs in line with the business owners; define budgets and alerting to provide cost control, helping to secure agreed-upon forecasts; allocate cloud costs to individual businesses in line with the application landscape and/or business structure.

An additional recommendation.

To achieve the highest levels of cost accuracy, each cloud resource or service being used should have a tag or label that can point it to a respective line of business or application, creating a tagging framework across the organization. This scheme is key not only to FinOps but also helps to improve internal asset management and security policy.

Let FinOps operating principles also be a guide

Growing adoption of FinOps as the right partner in cloud cost management across industries has led to a series of standard approaches or principles that an organization should bear in mind as it moves forward on its FinOps journey.

• Teams across functions – including finance, technology, engineering, and businesses – need to collaborate in near real time and always with an eye on efficiency and innovation.
• Everyone takes ownership for their cloud usage, from engineers to technical teams to product teams. Decision making around cost-effective architecture, resource usage, and optimization is decentralized.
• A centralized team drives FinOps and enables best practices in a shared accountability model, but where everyone remains responsible for their portion.
• Reports should be accessible and timely, and include components such as consistent visibility into cloud spend provided to all levels of the organization, real-time forecasting and planning, trending and variance analysis, and benchmarking across internal teams and competitors.
• Decisions are driven by business value of cloud: Use value-based metrics and make decisions based on trade-offs among cost, quality, and speed.
• The variable cost model of the cloud should be viewed as an opportunity to deliver more value. Engage in just-in-time prediction, iterative planning, and purchasing of capacity, and embrace proactive system design with continuous optimization.

These are not in priority order; rather, they are meant to comprise a complete set of ground rules, all of which should be kept in mind.

Best practice tips – cloud bill reduction

• Use multiple providers
• Identify mismanaged resources
• Use reserved instances and autoscaling
• Right-size services, identify waste
• Monitor and correct anomalies
• Pause reshift clusters when not in use
• Build in guard rails

In conclusion: Optimizing cloud spend requires a culture shift

Adoption of FinOps across the financial services industry is vitally important in terms of improving and increasing visibility into overall cloud spend and efficiency, and accuracy in terms of all related financial reporting, forecasting, and budget management. It is about expense discipline – procurement processes, governance, and guard rails – but it is about much more than that, too:

• Success with FinOps requires a change in mindset – bringing a financial accountability cultural shift that enables organizations to get maximum business value by helping engineering, finance, technology, and business teams to collaborate on data-driven spending decisions.
• Indeed, a well-oiled and architected FinOps engine will help remove obstacles to strategic cloud decision making, empower engineering teams to deliver better and faster, and enable cross-functional conversations about where and when to invest for maximum benefit.

Now is the time to embrace FinOps at your organization. We hope you find this paper of interest, and that it sparks further thought and discussion across your teams. Capgemini’s FinOps experts would welcome opportunity for dialogue: please don’t hesitate to be in touch.