Cost reduction emerged as one of the primary drivers of cloud adoption during the early years of cloud computing. Today, however, companies are facing an exponential rise in cost. There is even a word for the emerging process to deal with: “FinOps”. Shrinking the terms “finance” and “operating”, aims to improve cloud computing costs.
Businesses continue to waste significant spending on the cloud, according to Flexera’s 2022 State of the Cloud report, which is based on survey responses from 753 global decision makers and users of the cloud. 66% of CEOs said cloud usage is “higher than originally expected this year.” They estimate that their organizations waste 32% of spending on the cloud, up from 30% in last year’s survey.
Additionally, “spending is likely to be less efficient and possibly higher on average, as many organizations tend to underestimate the amount of their waste,” the survey authors say. Additionally, respondents reported that their spending on public cloud exceeded budget by an average of 13% last year. They expect their spending on the cloud to grow another 29% over the next 12 months.
Track unused services
Among small and medium-sized businesses, 53% now spend $1.2 million annually on cloud computing, up from 38% in 2021. Although the survey authors do not provide a comparison of numbers for large companies, they note in their report that many spend 12 million A dollar or more per year on certain public cloud services. 18% of companies spend this amount on AWS, 15% on Microsoft Azure, and 7% on Google Cloud Platform.
So there is a lot of money pouring into cloud services. It’s possible that a significant portion of your monthly subscription bills goes to a bunch of unused or underused services, for which no one is really responsible. For example, an employee in a department logged into a test cloud instance three years ago, left it, and the company continues to pay for its use.
This is where FinOps comes in. According to FinOps, the practice aims to help companies get the most business value from the cloud “by helping technical, finance, technology and business teams collaborate to make data-driven spending decisions.” In many cases, they practice the art of FinOps without even calling it that. Respondents actively participate in the ongoing use and cost management of both SaaS or SaaS (69%), Infrastructure as a Service (IaaS), and PaaS (Platform as a Service) of the public cloud (66%). “More and more users are swimming in the FinOps side of the pool, even if they don’t know it – or haven’t called it FinOps yet,” say the authors of the Flexera survey.
Additionally, for the sixth consecutive year, “improving existing cloud usage is the number one initiative of all respondents, underscoring the need for FinOps teams or similar means to improve cost-reduction initiatives,” they note.
While the survey does not explicitly ask about FinOps adoption, the authors also note that some organizations have FinOps teams in place to help assess the metrics and value of cloud computing. They also note that “for the sixth year in a row, optimizing existing cloud usage is the first initiative for 59% of companies, followed by moving more workloads to the cloud (57%).”
Automation, one of the keys to improvement
The survey authors seem very optimistic that the cloud can do to increase the value of technology for businesses. “By moving more workloads to the cloud, companies can eliminate the technical debt associated with keeping traditional data centers up and running,” they say.
What are companies doing to better understand and control cloud costs? Nearly two-thirds, 64%, focus on improving resource use, while 50% are committed to deleting or terminating unused or inactive resources. This means that half of the respondents do not actively review cloud services for which they pay a monthly fee. The other half (41%) look at seller discounts, such as Reserved Instances. Finally, 39% follow a purely FinOps approach: they use the standard economic model, which is an essential component of the FinOps principle.
Automation is a key tool for optimizing cloud costs, according to the survey. More than 40% of respondents use automated policies to close workloads after working hours and resize underutilized instances. Additionally, 33% use automated rules to implement required tags, while 43% still perform this labor-intensive process manually.
Although at least half of IT leaders understand the value that cloud brings to business, the primary measure of success is still cost reduction. This is perhaps the easiest and most substantiated argument for management and the board. Speed to market is also a very tangible benefit and therefore it also ranks highly in success metrics. The innovation and competitive advantage generated by cloud resilience are perhaps the most enduring benefits for a cloud-based business, but they are a little more difficult to quantify.