Understanding FinOps
Key Principles and Benefits
Khushboo Shah
Principal Architect - Cloud Engineering &
Modernization Practice & Member of Tech Advisor Group, CitiusTech
June 23
Article
Insights
- With the increasing adoption of cloud solutions, there is an indispensable need of optimizing cloud expenses
- FinOps provides a framework for effectively managing cloud costs and optimizing spending while aligning it with broader business goals
- FinOps is guided by a set of six fundamental principles that form the basis for successful cloud expense management
- Healthcare organizations can leverage Effective FinOps to efficiently manage both financial and operational aspects of cloud projects
According to a cloud computing market report by MarketsandMarkets, the global healthcare cloud computing market is projected to experience a compound annual growth rate (CAGR) of 17.8% from 2022 to 2027, reaching a total value of $89.4 billion by 2027. However, the advantages of cloud computing also bring about new difficulties, particularly in the management of cloud costs.
A recent survey conducted by Flexera revealed that a majority of respondents consider cloud cost management as one of the primary focuses in their organizations. The survey further highlighted that organizations, on average, waste around 30% of their cloud expenditure due to a lack of visibility into their usage and spending patterns. The complexities arising from multi-cloud environments, diverse pricing models, and decentralized ownership compound the challenge of optimizing cloud expenses.
As cloud usage continues to expand, these challenges will become even more significant. To tackle these issues, healthcare organizations are adopting FinOps (Financial Operations), or cloud financial management. FinOps provides a framework for effectively managing cloud costs and optimizing spending while aligning it with broader business goals. It involves a cultural shift where each department or team assumes financial accountability and ownership of variable cloud expenses. It empowers them to make informed decisions regarding trade-offs between quality, speed, and cost in their cloud architecture and investment strategies.
What is FinOps?
FinOps, which stands for Financial Operations, is a field that integrates financial management practices with cloud operations to enhance the efficiency of cloud spending and maximize the returns on cloud investments. It introduces a structured approach to managing cloud costs while ensuring they are aligned with wider business goals. Fundamentally, FinOps strives to cultivate a culture of financial responsibility, openness, and cooperation among the teams responsible for utilizing and allocating cloud resources.
FinOps is guided by a set of fundamental principles that form the basis for successful cloud financial management.
- Accountability and Ownership - FinOps emphasizes the distribution of financial accountability, where individual teams or departments assume responsibility for the cloud resources they utilize. This principle ensures that teams are aware of the financial implications of their decisions, fostering responsible usage of cloud resources.
- Empower Consumption - FinOps places a strong emphasis on promoting transparency and visibility into cloud usage and costs. By providing teams with real-time insights into their cloud spending and consumption patterns, organizations can encourage cost consciousness and enable data-driven decision-making.
- Cost Optimization - FinOps involves regularly evaluating cloud usage, identifying opportunities for cost optimization, and implementing strategies to achieve optimal cost-efficiency while maintaining performance.
- Planning and Forecasting - FinOps relies on leveraging data analytics and insights to drive informed decision-making. By utilizing cloud cost management tools, organizations can gain actionable insights, identify trends, and make data-driven decisions to optimize cloud spending.
- Selecting the Right Resources - FinOps emphasizes choosing the most cost-effective cloud resources that align with business requirements, considering factors such as usage patterns, workload needs, and vendor pricing models. This involves developing a deep understanding of cloud pricing and vendor offerings, as well as engaging in negotiations with vendors to secure favorable terms.
- Continuous Measurement and Optimization - FinOps promotes the continuous measurement and optimization of cloud operations to improve performance and reduce costs. This includes implementing an ongoing improvement process that involves regular reviews of cloud operations, benchmarking against industry best practices, and identifying areas for enhancement.
Apart from the fundamental principles of FinOps, two essential practices, showbacks and chargebacks, play a crucial role in fostering awareness and accountability regarding cloud resource usage. These practices involve presenting the costs of cloud resources to various departments in a hospital, allowing them to comprehend the financial implications of their consumption. Showbacks provide transparency by revealing cloud costs and usage metrics to different departments or teams within the organization. It enables departments to visualize how their activities contribute to the overall cloud spending, promoting a culture of transparency and encouraging them to optimize their resource usage.
Chargebacks take the concept of showbacks a step further by directly assigning costs to the respective departments or business units. Chargebacks involve allocating cloud costs based on actual resource consumption, giving departments a clear understanding of the financial impact of their cloud usage.
Benefits of FinOps for Healthcare Organizations
Implementing a FinOps approach in healthcare organizations brings a multitude of benefits that positively impact both the financial and operational aspects of cloud management. Let's delve into the key benefits in detail:
- Cost Optimization - A primary objective of FinOps is to optimize cloud costs by introducing financial accountability and visibility into cloud resource usage. By adopting FinOps practices, healthcare organizations can gain insights into their cloud spending patterns, identify areas of inefficiency and waste, and take proactive measures to optimize costs.
- Operational Efficiency - FinOps promotes operational efficiency by streamlining cloud operations and improving resource utilization. With a clear understanding of their cloud environment, organizations can identify opportunities to enhance workflows, automate processes, and boost overall efficiency.
- Enhanced Business Agility - In the rapidly evolving healthcare landscape, organizations must be agile and responsive to changing market dynamics. FinOps empowers healthcare organizations to scale their cloud resources up or down based on demand, enabling them to swiftly adapt to evolving business needs.
- Improved Governance and Compliance - Robust cloud governance and compliance are crucial for healthcare organizations. FinOps assists in establishing sturdy governance frameworks, ensuring that cloud usage aligns with industry regulations, organizational policies, and security requirements.
- Strategic Decision-Making - FinOps equips healthcare organizations with valuable insights and data to make strategic decisions regarding cloud investments and resource allocation. With comprehensive visibility into cloud spending patterns, organizations can align their cloud strategy with broader business objectives and make well-informed decisions.
- Environmental Sustainability - Alongside financial considerations, healthcare organizations are increasingly conscious of their environmental impact. FinOps can play a significant role in promoting sustainable cloud usage by raising awareness of the carbon footprint associated with cloud resources.
Conclusion
FinOps plays a vital role in the digital transformation of healthcare IT organizations. It extends beyond merely measuring cloud expenditures; it promotes the development of a robust framework to identify optimization opportunities and enables teams to safely experiment while being accountable. By implementing FinOps, healthcare organizations enhance their ability to drive innovation and build secure software solutions, all while maintaining agility in response to evolving market conditions.
As healthcare stakeholders strive to meet customer expectations and provide a wide range of services and flexibility, the adoption of cloud technologies is expected to increase in the future. Effectively utilizing the cloud and optimizing costs with best practices are still in the early stages across industries, particularly in healthcare. While cost optimization often becomes a consideration after investing in cloud technologies, there is a constant need for optimizing cloud resources to meet and achieve business objectives—a requirement that can be fulfilled through the principles of FinOps.
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