Unveiling Blind Spots in FinOps

In the evolving landscape of cloud technology, effectively managing finances is paramount to organizational success. However, while many organizations reap the benefits of cloud services, they often have blind spots that reduce financial visibility and control. This blog post examines four common blind spots that can evade even the most vigilant executives’ radars.

Limited Spend Segmentation

Visibility into cloud spending is crucial for optimizing costs and maximizing efficiency. However, many organizations struggle to report real-time cloud costs due to disjointed communication between financial and technical teams. Technical owners lacking real-time insight into their teams’ spend leads to overspending (especially in development or test environments).

About a year ago we were leading a discussion with a management consulting firm. We began the conversation by asking how they segment their cloud spend for chargeback and cost allocations.

“We don’t,” they answered. “The charges all land in a single account called ‘AWS Expense.’”

Probing into their practices further, we asked about their cost optimization efforts and learned that they allocated minimal resources to identifying and eliminating waste. The reason? They didn’t believe they were overspending in the first place.

The customer’s belief in their operational efficiency represented a large blind spot. In our experience, an organization that isn’t segmenting and allocating its cloud spend cannot run anywhere near peak efficiency. When spend is unsegmented, individual cloud consumers cannot know how much spend their teams generate. Without this information, they have no way of separating healthy spend from waste.

To address blind spots, organizations should prioritize enhancing visibility through centralized reporting tools and real-time dashboards that show spend segmented by technical owners, teams, products, etc. Laying this foundation often leads to more informed decision-making and, in turn, immediate cost reductions.

Underutilized Resources

Cloud infrastructure’s elasticity and scalability offer organizations unparalleled flexibility. However, the “set it and forget it” mentality inherited from on-premises environments often leads to underutilized, “stray,” or unneeded cloud resources.

One AWS customer suspected their cloud spend’s rapid growth was driven at least partly by waste, but they couldn’t prove it or pinpoint the cause. Digging into their data, our team discovered they lacked a process to segment shared costs by technical owner and team. Once we segmented spend on their containerized workloads, we discovered their automated provisioning included templates that inadvertently duplicated high availability clones each time a new workload was spawned. Their costs plunged once these redundant workloads were terminated.

To combat a blind spot as large as this one, organizations must adopt a proactive approach to resource management. This includes actively monitoring resource utilization, implementing automated scaling policies, carefully auditing workload deployment templates, and leveraging cost optimization tools provided by cloud service providers.

Manual Cost Attribution

The chargeback process is essential for allocating costs accurately and transparently across departments or business units. However, organizations often rely on manual, error-prone methods due to missing tags or flawed account structures in billing data. This lack of attribution limits visibility and hampers effective cost management.

Organizations often fail to realize how much manual cost attribution obfuscates their true economics. As our team kicked off a new engagement with a large Fortune 500 customer, we asked for a demonstration of their chargeback process. The customer expressed satisfaction with their present spreadsheet-based process, which only took an hour or two to update and distribute each month.

After ingesting their AWS Cost and Usage Reports into Amazon Redshift, we enriched their cost data with external data sets, such as an “account table” that links AWS accounts to various business units. They could suddenly see their departmental costs daily and run a nearly limitless range of reports by additional dimensions, such as cost center. They were astonished at how much their understanding of the business expanded; automation of their chargeback had revealed and eliminated a major blind spot in their reporting.

To eliminate blind spots caused by manual cost attribution, organizations should invest in automating chargeback processes and enriching their billing data with business metadata such as accounting cost centers, teams, etc. Additional automation can be employed by adopting DevOps practices and leveraging machine learning algorithms for predictive analytics.

Neglecting Discounts and Commitments

Cloud providers offer significant discounts on some services via term-based commitments ranging from one to three years. However, organizations often overlook these cost-saving opportunities, citing a lack of certainty around future consumption patterns. This neglect results in missed opportunities for substantial discounts and cost savings.

To address this blind spot, organizations should conduct a thorough analysis of their cloud usage patterns and workload requirements. By identifying steady-state workloads with predictable usage patterns, organizations can leverage reserved instances or commit to spend agreements to secure discounts up to 72% .

Avoiding Blind Spots

Managing cloud financials requires a holistic approach that proactively exposes and eliminates common blind spots in cloud environments. Organizations should regularly conduct self-assessment processes to look for these blind spots—particularly when there are few perceived problems with their cloud spend. Organizations should periodically ask these key questions:

1. Is your spend fully segmented? Are requests for reports on cloud costs by certain business segments going unmet?
2. Is your cost allocation fully automated, including enrichments of billing data with business attributes such as product, application, etc.?
3. Can daily reports be viewed against fully segmented spend, or is chargeback only conducted periodically (e.g., monthly)?
4. Can you prove that you’re optimizing participation in commitment-based discounts, like AWS Cost Explorer Savings Plans, using proven metrics such as effective savings rate versus on-demand?
5. Are you regularly confirming that your FinOps processes are updated to match the best-in-class recommendations from AWS and the FinOps

In conclusion, navigating the complexities of cloud finances demands a keen eye for identifying and addressing blind spots. By shedding light on common pitfalls such as limited spend segmentation, underutilized resources, manual cost attribution, and neglecting discounts and commitments, organizations can fortify their financial management strategies. Proactive measures, including enhancing visibility through centralized reporting tools, automating resource management, streamlining chargeback processes, and leveraging available discounts, are essential for optimizing cost efficiency and maximizing returns on cloud investments. Regular self-assessment against best practices ensures that organizations stay aligned with industry standards and continuously improve their FinOps processes. Embracing these principles empowers organizations to wield cloud finances as a strategic asset, driving innovation and sustainable growth in an increasingly competitive landscape.