How FinOps can save banks from sky-high cloud costs

Over the last 10 years, cloud computing has become one of the most important innovations in financial services, promising lower costs and greater flexibility, as well as increased resilience and security. Although some organisations have realised these benefits, most have not. 

Perhaps most disappointing has been the failure to realise the potential cost savings, which were the most enticing part of the business case for cloud adoption. In some instances, organisations have exceeded their target cloud budgets by 50% or more.¹

Given these shortfalls, many IT leaders have sought a better way. FinOps is a holistic approach to governing and operating large-scale cloud environments, which has produced strong outcomes across many industries and regions. In other words, it has delivered the results and value companies were looking for when they first ventured into the cloud. 

The FinOps: how to keep cloud costs under control report (PDF) explores the reasons behind high cloud computing costs and why FinOps offers an answer, giving organisations a powerful and proven way to manage their cloud costs, optimise their cloud resources and enhance the overall governance of their cloud environments. 

Why the cloud doesn’t always reduce IT costs 

The high costs of cloud computing are not an isolated issue. An EY survey of IT leaders found that 57% of organisations have surpassed their annual cloud budgets² and 72% have moved at least one enterprise application back on premise.³ Research from Gartner has suggested that 30% of all cloud spend is wasted⁴ – a staggering figure, given that hundreds of billions of dollars are spent on cloud software and services around the globe every year. 

So why have computing costs remained high? There are a number of reasons, from outdated budgeting and accounting processes and limited visibility into the full cloud spend to lack of alignment between finance, procurement and IT. Moreover, there is a lack of expertise within many companies to analyse and optimise cloud costs. 

Additionally, the widespread perception of cloud computing as extremely inexpensive, combined with the cloud’s ability to elastically scale resources, can lead to unpleasant surprises. Indeed, rising cloud costs are particularly tricky to manage, because the underlying causes are inextricably linked to the cloud’s strengths and the consequent desire for organisations to consume more resources compared to traditional IT. Consumption spend will spiral quickly out of control if usage is not measured and monitored continuously.

Another factor has been the inability of organisations to adjust their working styles and approach to design solutions. Specifically, cost implications are not prioritised or even reviewed during approval processes. In many situations, the business case for cloud migration only includes a simplified run cost estimate. 

Overlapping costs represent another commonly overlooked risk. For example, cloud consumption cost is incurred once migration begins, whilst existing costs may remain in place. For instance, organisations that don’t take action to “turn off” on-premise infrastructure or redeploy application support teams may find themselves paying for legacy systems and services for far longer than necessary. Again, all of these costs can negatively affect the projected savings. 

Why FinOps works

In response to higher-than-expected cloud costs, many organisations have turned to cost optimisation initiatives or software. But, as many organisations have found, managing a cost-effective and high-value cloud platform for the long term is not something a single tool or a one-off process can do on their own.

In contrast, FinOps is an integrated and coordinated approach that can reduce the time and cost of cloud migrations by up to 30%,⁵ largely by introducing full control over the cloud spend, alignment across all departments involved in the cross-charging mechanism and establishing prevention controls on cloud cost. Further, FinOps enables organisations to manage and optimise their cloud spend by:

• Establishing a cloud cost operating model tailored to meet the common challenges of cloud adoption.
• Facilitating coordination between IT, business stakeholders and finance teams to take joint ownership of cost management.
• Promoting a cost optimisation culture where forecasts are formally considered during architecture design and viewed more holistically through the software life-cycle.
• Enabling real-time cost visibility and analysis so overruns can be addressed before they get out of control.
• Applying best practices, such as tagging strategies, to easily identify and classify assets.
• Automating management reporting and data access via dashboards for show-backs, charge-backs and other metrics, as well as providing cost alerts.
• Supporting compliance with finance-related regulatory requirements and controls (e.g., identifying unsupported or unapproved services). 

FinOps is designed to seize the cloud’s cost advantages from day one, but also to sustain them over time, as organisations mature their cloud capabilities. By adopting cloud-specific solutions and techniques, organisations can significantly increase the long-term return on investment. 

How to realise the benefits of FinOps

As evidenced previously, FinOps requires fundamental changes across the organisation, for which top-down support and advocacy from executive stakeholders is essential. They would need to secure the buy-in of IT, finance and procurement leaders and demonstrate a strong commitment to coordinate these sides of the business over the long term. In a shared responsibility model, there must be absolute clarity on which services and responsibilities are required to effectively manage cloud costs. 

At the same time, FinOps needs bottom-up adoption – engineering teams must understand why new processes and toolsets are necessary and how to use them properly. To address these and other challenges, many organisations that have realised the benefits deploy dedicated FinOps champions within larger “cloud centres of excellence.⁶ 

Organisations will also need to establish other core components of an effective FinOps framework including: 

• Cost optimisation models: Continuous analysis across the cloud estate to control the spend, map actual to forecast and optimise budgets.
• Engineering design: Approved architecture and engineering standards to guide development of cloud solutions and instill cost awareness across delivery teams.
• Finance policies: Evolving finance, budgeting and accounting policies to support dynamic cloud environments without compromising the ability to control costs.
• FinOps governance: Thorough and continuous governance across finance, operations, delivery and procurement to establish strong controls and enable visibility.

More than just a process or toolset, FinOps is almost analogous to a mindset – not unlike agile development or DevOps. And we know based on experience that it’s just as powerful as those ways of working and management concepts to drive optimised value for customers. 

Rohit Garg, Partner, Consulting, Ernst & Young LLP contributed to this article and report.

Saby Roy, Partner, Consulting, Ernst & Young LLP contributed to this article and report.