FinOps 2.0 in BFSI Cloud landscape

Introduction

The IT landscape within the Banking, Financial Services, and Insurance (BFSI) sector has undergone significant changes driven by various technological advancements, including technology modernization, cloud adoption, and digital transformation. With the rising adoption of cloud technologies by organizations and their extensive use across various teams, the necessity for efficient cost control has become paramount. A survey conducted by ‘Gathr highlights that 40% of companies end up spending more on cloud than planned, that’s where cloud cost management becomes important. FinOps has emerged as an essential practice to help organizations keep their cloud spending under control. This necessitates the adoption of new procurement processes, approach for cost ownership, distribution, monitoring, and optimization. Consequently, the industry has seen a rise in the implementation of FinOps practices encompassing a blend of strategies, principles, tools, processes, and best practices, aims to enhance the financial performance of cloud usage by showcasing business value. It has become a vital practice for organizations striving to manage their cloud expenditures effectively.

Evolving FinOps scenario

The adoption of multiple cloud platforms, in conjunction with investments in data centers, has become the prevalent practice among organizations for a variety of reasons such as core critical capability with data controls vs scalability & flexibility. The transition from a single cloud portfolio to multi-cloud leads to an overwhelming complexity. While this approach offers flexibility, best-in-class and cost-effective solutions, it also introduces significant challenges making it difficult to accurately track and manage costs across diverse technologies, environments, teams and cloud platforms. As per another survey, 53% of companies yet to realize substantial value from their multi cloud investments due to hidden costs and complexity of hybrid scenarios. This complexity is attributed to varying procurement processes, the distinction between capital expenditure (Capex) and operational expenditure (Opex), different pricing models, challenges in cost assignment, and the mechanisms and tools for cost monitoring and control. Furthermore, organizations are increasingly seeking cost tracking in a unified way to drive efficiency and cost optimization. Otherwise, enterprises will end up overpaying, resource underutilization and struggling to balance their budgets across different cloud platforms in a coherent way. The traditional singleton FinOps (FinOps 1.0) model is inadequate in this context and must evolve to integrate seamlessly with hybrid IT portfolio and overall asset life cycle and financial management processes.

FinOps 2.0 Strategy and approach

The adoption of the next level FinOps (FinOps 2.0) is essential for the effective management of a hybrid IT environment. It provides a structured approach to budgeting, cost analysis, cost control, and governance, all of which are vital for the efficient management of expenses in a hybrid context. The ability to predict future workloads and costs at a granular level is instrumental in cost forecasting & identifying optimization opportunities across on-premises and cloud resources. For this, the process of distributing costs among various teams, such as application owners and horizontal towers is necessary along with essential metrics, controls, analysis, alerts, guidance and policies. Therefore, a strong FinOps strategy is vital for organizations to successfully align their operational principles with business objectives. An effective and well-rounded FinOps 2.0 strategy should encompass the following characteristics.

• Usage Data Collection – Usage patterns and associated data collection
• Coverage – Inclusion of different portfolios vs processes
• Pricing models and cost calculations
• Impact Analysis – Present vs Future cost forecasting
• Recommendations - Resource optimization opportunities and guidance  
• Unified Cost Tracking and Reporting -
• Use case or pattern-based planning – Define use cases and plans based on above aspects
• Cost Optimization – Operational optimization ( ideal resources, rightsizing) through automation

Some of the key guiding principles applicable for FinOps 2. 0 are as follows.

• Financial / cost accountability – Model should incorporate complete ownership assignment, cost allocations, etc.
• Budgeting, unified consumption, cost tracking and overall reporting across varied environments for leadership
• Visibility of cost vs Performance for services consumed

• Utilization classification – Cost allocation based on show-back and charge-back mechanisms. Granular details comprising usage vs cost vs ownership matrix across cloud services
• Anomaly Management – Detect / identify, alert and manage unexpected cloud cost events in a timely manner
• Cross-Functional Collaboration - Across all stakeholders (finance, engineering, product, applications and business teams) throughout defining, implementing and managing and governing phases
• Change management and creation of FinOps Culture
• Continuous cost monitoring, forecasting and  optimization
• Integration between the FinOps lifecycle and ITIL Management Practices - ITIL4 has a robust foundation for defining and maturing cloud capabilities. Hence integration will ensure complementing operational excellence of ITIL and Financial accounting of FinOps
• Governance and Compliance – Differences because of governance and regulatory compliance policies across type of clouds and environments.

Tool/Platform Selection

Choosing an appropriate FinOps tool or platform is as crucial as formulating a FinOps strategy. Key factors to consider during the selection process include establishing essential criteria based on the features and principles previously outlined. Subsequently, an evaluation should be conducted focusing on core capabilities, user-friendliness, pricing, support services, and the tool's capacity to integrate with other systems. The market is populated with numerous FinOps providers, among which several notable options exist.

• CloudZero
• Appito
• Datadog
• Sedai
• Ternary
• Flexera

The portfolio of FinOps tools and platforms is continuously evolving to meet the dynamic needs of FinOps, becoming increasingly intelligent and comprehensive through the integration of technologies like artificial intelligence. Below are some of the considerations for selecting FinOps tools.

• Core capabilities – Advanced analytics – Forecasting, trend analysis, Detailed analysis, Guidance, Intuitive UI, Organization structure and process
• Extensibility and Scalability – Multi cloud / Hybrid support, Growth accommodation, Future proof
• Seamless integration – Cloud compatibility, Direct data access, ITIL processes, in house CMDB 
• Service operation and Continuous improvement – Real time cost tracking, reporting and reactive and predictive analysis
• Support to existing FinOps and overall financial management processes
• Automation features – Automate manual / repetitive tasks, Policy enforcement
• Robust Security and compliance – Due to financial data

Tools Benefits

• Single pane for managing heterogenous providers and financial management
• Better visibility across all clouds / IT assets spending and cost optimization
• Single oversight and standard across varied pricing models
• Consistent cost budgeting, monitoring, control and overall management

Challenges & Opportunities

•  Complexity due to integration of heterogeneous platforms & services combinations, respective pricing models, change management, Combined use of tools and practices use
• Requires coordination between multiple teams, integration of financial and cloud management systems, and the adoption of new processes.
• Integration with AI and ML: Leveraging AI and ML technologies to automate cost optimization, anomaly detection, and predictive analytics
• Extending financial planning practices to hybrid and multi-cloud environments for better cost visibility and management.
• Enhanced Collaboration: Strengthening collaboration between finance, operations, and development teams to optimize costs and drive innovation

 Futuristic expectations

• Autonomous cloud management
• Augmented FinOps

Summary

The diverse and complex IT landscape, which includes a variety of infrastructures, technologies, tools, platforms, and services across private and public clouds, creates significant challenges in financial management. These challenges extend beyond mere cost considerations to include other financial and operational dimensions. A well-defined, comprehensive FinOps 2.0 strategy, along with a clear definition of capabilities and principles, coupled with the appropriate tools and platforms enables organizations to consistently and uniformly achieve continous cost optimization and other business objectives  of all stakeholders.  Right selection of tool and implementation of FinOps platform navigates and guides organization stakeholders toward financial efficiency by integrating effectively with IT assets and operations, while ensuring governance and security for managing hybrid cloud investments prudently and confidently in an ever-evolving business landscape.