FinOps as a critical skill for Hybrid Cloud Management

Companies are under an ongoing pressure to contain technology costs.

• Organizational Transparency: Driving better outcomes and performance with leadership visibility and planning.
• Enterprise Agility: Aligning business and IT goals for enhanced agility and new capabilities.
• Cost Management: Controlling organizational costs and providing consistency.
• Value Optimization: Operational excellence through value, not just costs.

According to McKinsey, here are the common pitfalls in FinOps, an emerging discipline and operating model for efficient cloud usage, to start at unit costs and optimize based on TCO. As we try to move towards a cost optimized cloud centric world, the five categories become even more important.

1. A wait-and-see strategy can be costly: granular visibility into spend, governance, forecasting, and optimization, until their annual cloud spend had reached $100 million.

2. Business executives get involved too late in the game: building effective cloud consumption capabilities with clear sponsorship from key business leaders from the start

3. Tactical activities are prioritized over higher-impact strategic initiatives: strategic programs such as providing unit economics, delivering accurate forecasts, guiding change management programs based on greatest value potential, and optimizing cloud spend practices

4. FinOps teams often lack crucial skill sets: predictive analytics skills to understand future demand, estimate unit economics for cloud usage, holistically optimize resource consumption

5. Companies have a limited understanding of cloud unit economics: clear relationship between cloud costs and business value at the use-case level

Also, the three pillars of business technology are:

• reimagining the role of technology,
• reinventing technology delivery, and
• future-proofing the foundation

Cloud native startups have shown the importance of business technology where their business relies mostly on the technology foundations.

FinOps is a way to tie back the value of each component in the technology atlas back to business P&L.

Let's look at fundamental principles of onboarding to cloud and the role of FinOps in that process:

• Develop new use cases on the cloud. Use the cloud to create new products and services that can help you innovate and grow your business.
• Assess the cloud suitability of workloads. Evaluate each workload to determine if it is a good fit for the cloud. This includes considering factors such as the workload's technical requirements, security needs, and compliance requirements.
• Prioritize workloads for migration to the cloud. Make informed decisions about which workloads are the best candidates for migration to the cloud. Consider factors such as the cost savings, agility, and security benefits of migrating each workload.
• Reinvest savings from migrated workloads. Develop a plan to reinvest the savings from migrated workloads back into the business. This could include funding new initiatives, reducing costs, or improving margins.
• Optimize products with cloud capabilities. Use cloud capabilities to improve the efficiency and agility of your products. This could involve using cloud-based tools to automate tasks, scale your infrastructure, or improve performance.
• Review operational readiness for cloud workloads. Ensure that your organization is ready to support workloads in the cloud. This includes having the right people, processes, and tools in place.
• Assess the financial viability of cloud migration. Conduct a financial analysis to determine the cost-benefit of migrating to the cloud. This will help you make informed decisions about which workloads to migrate and how to finance the migration.
• Track cloud value benefits realization. Measure the benefits of cloud migration, such as cost savings, improved agility, and increased customer satisfaction. This will help you demonstrate the value of cloud migration to your stakeholders.

In order for us to have a strong foundation for FinOps, we need to categorize resources. Companies need to use a cloud cost management tool to track the cloud usage and costs.

1. Tag your cloud resources with the relevant P&L.
2. Use a consistent allocation model for all of your cloud resources.
3. Review your allocation models regularly to ensure that they are accurate.

Diving deeper...

• Taggable resources:?For e.g.: Compute instances, databases, storage buckets. These resources can be tagged with a specific P&L, such as a compute instance that is used by a single business unit.
• Shared taggable resources:?For e.g.: Load balancers, networks, managed Kubernetes clusters. These resources are shared by multiple business units. Customers can use traditional P&L allocation models, such as revenue or headcount, to divide the costs. Leading-edge customers use elements in their cloud microservices architecture, such as API calls, to measure the relative consumption of shared applications.
• Untaggable resources:?For e.g.: Support, third-party Marketplace costs, etc. These resources cannot be tagged. Customers can use traditional P&L allocation models or the relative distribution of their taggable resource allocations to allocate these costs.

"Migrating to a cloud platform can be a confusing, time-consuming and expensive process. The IBM? Turbonomic? platform provides easy-to-use cloud migration planning that allows you to optimize your cloud consumption from the start and simplify your cloud migration process. Whether your organization is pursuing a cloud-first, hybrid cloud or multicloud strategy, Turbonomic software can deliver convenient cloud migration planning tools that can accelerate your digital transformation..." [2]

Turbonomic Migration plan optimization

Turbonomic software analyzes the real-time resource needs of application workloads, whether they’re cloud-based or running on-prem. The platform then delivers potential application migration plans that detail specific actions and indicate which cloud configurations will support your workloads if you take a “lift and shift” approach versus an approach that optimizes workloads as part of the migration. This migration assessment strategy can help with cost savings by avoiding expensive lift and shift migrations.

Turbonomic Discount-aware actions

Turbonomic software examines billing and price adjustments negotiated with your cloud service provider and creates migration plans that account for discounted pricing. These cloud migration plans include moving workloads from on-demand to discounted pricing through additional purchases (reserved instances and committed use discounts).

Turbonomic Guided workflows

The Turbonomic platform provides a guided workflow to help you configure different scenarios for your organization’s specific cloud solution use case. You can select which workloads you want to migrate and where in your cloud environment you want to migrate them to, as well as your discount pricing and licensing preferences. With these inputs, Turbonomic software then creates a migration plan in minutes.?

Turbonomic Optimized resource consumption:

Optimize workloads pre-migration, then assess the most appropriate cloud configurations for migration.

Turbonomic Quick configuration:

Guided workflows allow you to configure migration plans in minutes.

The Turbonomic platform differs from other cloud migration tools in that it enables organizations to better analyze the potential benefits and drawbacks of a “lift and shift migration” versus an optimized cloud adoption strategy. This detailed comparison can help you feel more confident in your cloud migration journey.

“Lift and shift” migrations match current on-premises VM instance and storage tiers to the closest equivalent?in the cloud. This method is typically faster, but can be more expensive and can risk?performance. Optimized migration strategies?examine VM?and storage historical utilization metrics to select the best VM/instance type and storage tier in the selected cloud provider’s region. This method?helps guarantee workload performance at the lowest cost. Turbonomic software provides detailed?plans for both migration strategies that organizations can compare and analyze down to each individual optimization action.

Here is a case study where Turbonomic evaluated a on-prem solution and its suitability to migrate to the cloud.

Case study:

A retailer which had workloads heavily weighted towards on-prem used Turbonomic to evaluate the "cloud readiness" of workloads based on potential cost savings.

The results are graphically depicted below:

Enter Apptio...

Apptio is aimed at additonal use cases:

?Multi-cloud and container cost visibility

?Detect anomalies and reduce waste

?Automate savings program coverage

?Track and allocate cloud total spend

?Drive unit economics and analyze customer profitability

Key features to look for in a FiOps tool

1. Supporting multiple, evolving billing formats
2. Monthly billing files routinely in the 100s of millions of rows
3. Engineering requirements including data persistence and integrations
4. Enterprise access controls and data privacy
5. Keeping pace with frequent SKU releases by your CSPs
6. Maximizing your opportunity to optimize cloud spend
7. The best use of internal resources for differentiating your business

Using Apptio Cloudability 'TrueCostExplorer', your company can establish an effective cost allocation strategy to

• Curate dashboards and personalize views
• Integrate custom pricing and discounting
• Perform showback/chargeback for BUs

Conclusion:

IBM Turbonomic and IBM Apptio not only identify cost saving opportunities in your existing cloud estate but also guides you in a FinOps exercise to determine which workloads are cloud beneficial.

Caveat: Opinions expressed are those of the author and not of IBM Corporation. No warranties express or implied.

References:

1. How to use FinOps to get the most value from cloud | McKinsey
2. Cloud migration planning - IBM Turbonomic
3. J.B. Hunt Transport, Inc. | IBM
4. FinOps Framework Overview