Speed, meet savings: why product companies need cloud FinOps

Managing cloud costs with FinOps has never been more important for hardware and software businesses, as pressure grows to deliver innovation in the most economical way.

If it weren’t for the cloud, there’d be far fewer product engineering businesses in existence today. But now, cloud is not enough—to optimize cloud cost management, product companies also need cloud FinOps.

A cloud-hosted development environment is what gives hardware, software and platform businesses the speed and scale to meet market pressure for innovation at a relatively low cost. However, low cost doesn’t mean no cost. The more companies use the cloud, the more they realize the importance of cloud cost management.

In fact, the need for cloud cost management is growing nearly as fast as the cloud computing market itself. According to market researcher IndustryARC, the cloud market will reach $1 trillion by 2030, reflecting a compound annual growth rate (CAGR) of 17% from 2023 to 2030. The meteoric growth in cloud spend, however, is rife with waste. According to industry estimates, about 30% of cloud spend is wasted due to inefficient usage and resource allocation.

Such uncontrolled spending isn’t tenable for software and hardware businesses, given the need to continuously innovate even when talent costs are surging and economic indicators are iffy. According to some estimates, it can cost anywhere from $25,000 to $150,000 to build a mobile app, for example, depending on the app’s complexity, features and functionality, development approach and more. Costs can exceed $300,000 in the case of customized complex apps. Meanwhile, more than half of tech hiring managers say they’d bump up compensation to get the tech skills they need.

But the pressure for innovation is on. in a recent study, high-tech CEOs named “developing new products and services” as a top priority, even while feeling intense cost and inflationary pressures.

That’s why a growing number of software and hardware businesses are turning to FinOps for cloud cost management.

What is FinOps?

FinOps, which combines the practices of finance and DevOps, is a strategic approach to cloud cost management that helps organizations achieve both cost efficiency and operational agility. By using FinOps for cloud cost management, businesses can optimize their use of the cloud.

Central to the practice of FinOps is collaboration among finance, engineering and operations teams. When this collaboration exists, engineers understand there is a cost associated with the convenience they're getting from the cloud, and finance is involved with optimizing cloud spending and ensuring alignment with business goals.

By working together, these stakeholders understand and can better control the impact of their cloud usage and are committed to a culture of optimizing costs and accountability. With this alignment, transparency and accountability, businesses are in a better position to make informed decisions about cloud resource allocation, forecasting and budgeting, which can significantly impact the bottom line.

FinOps principles are becoming essential for product engineering businesses as these organizations increasingly rely on cloud infrastructure and digital solutions to drive innovation. To reap the full benefits of innovation, they will need to reduce unneeded expenditures. According to McKinsey & Co., effective use of FinOps can reduce cloud spending by 20% to 30%.

How FinOps is integral to cloud cost management 

Here are a few areas where product development businesses can use FinOps to maximize cloud investments:

1. Balance speed and cost in cloud development: A key advantage of cloud development is the ability to provision resources on demand, experiment with different workloads, and scale up or down as needed. However, this also requires engineers to be mindful of the cost implications of their choices.
   
   For example, engineers who have traditionally been encouraged to experiment with new approaches and adopt a “fail fast” mindset might not be accustomed to thinking about the resulting cloud usage price tag. 
   
   To optimize cloud costs, businesses can use best practices such as rightsizing (optimizing the size of your cloud resources based on workload requirements), shutting down idle workloads and using native cloud capabilities. Businesses can also adopt the FinOps practice of “shifting left,” which means incorporating cloud cost awareness and optimization earlier in the product development pipeline.
   
   
2. Measure and improve cloud value: Cloud value is the ratio of the business outcomes—such as improved sustainability, higher revenues or greater customer satisfaction—to the cloud spend. One way to measure cloud value is with unit economics, which correlates cloud consumption with a business-centric metric, such as cost per user or cost per transaction. 
   
   By using unit economics, product engineering businesses can compare the value of different cloud providers, services and workloads, and can identify opportunities to improve performance, utilization or rates.
   
   
3. Leverage multi-cloud and artificial intelligence (AI): Many businesses pursue a multi-cloud approach: using more than one cloud provider for different workloads, services or applications. The advantages of doing so are redundancy, flexibility and cost optimization.
   
   However, a multi-cloud approach can also introduce challenges such as greater management complexity, inconsistent performance and differing governance requirements. For instance, it’s more difficult to coordinate technical and administrative issues or consistent data policies across multiple cloud platforms, and different cloud vendors might provide varying qualities of service.
   
   With FinOps, businesses use a common framework and lexicon to manage costs across cloud platforms. Open-source specifications such as the FinOps Cost and Usage Specification (FOCUS) from the FinOps Foundation, for instance, defines clear requirements for cloud vendors to produce consistent cost and usage datasets.
   
   Meanwhile, AI can play a big role in supporting FinOps initiatives as it can automate and enhance tasks such as data extraction, forecasting, modeling and optimization. AI-driven analytics in FinOps can help product development companies obtain predictive insights into cost-saving opportunities.
   
   
4. Grow FinOps maturity to achieve greater cloud cost optimization benefits: FinOps requires a shift in culture, mindset and behaviors throughout the product development lifecycle and organization. It requires education, awareness and empowerment of cloud users, as well as alignment and collaboration among stakeholders.
   
   According to the FinOps Foundation, engineers need to take ownership of costs from architecture to operations. Product teams need to be empowered to manage their own usage of cloud against budget. And technical teams need to consider cost as a new efficiency metric from the beginning of the product lifecycle.
   
   With all this change, FinOps maturity can take up to seven years to achieve. However, with the right guidance, tools and policies, product engineering businesses can accelerate their FinOps journey and reap the benefits sooner.

Getting started with cloud FinOps

FinOps enables product engineering businesses to both innovate quickly and become good financial stewards. By doing so, they can ensure business growth isn’t dragged down by unnecessary costs.

Here are four ways product engineering businesses can get started with building a FinOps culture.

• Emphasize the three-legged stool of business, technology and finance: Educate staff about how FinOps unites business, technology and finance and the benefits of that. Once everyone sees the bigger picture, they’ll realize the value of moving from a reactive approach to cloud cost management to a proactive one. 
  
  For instance, with FinOps practices in place, engineers can signal ahead of time that an initiative is coming up that will incur costs or even go over budget. The work would be aligned with business objectives, and finance would be aware of the upcoming cost.
  
  When business, technology and finance are working in concert, everyone has full transparency into cloud cost management and can ensure spending is aligned with business goals.
  
  
• Capitalize on the creativity of your engineering team: Engineers may initially be resistant to the need for cloud cost management or fail to appreciate the cost implications of using the cloud. One way to engage them in FinOps efforts is to appeal to their natural creativity around how they can optimize their workloads to be more efficient, such as using native cloud capabilities.
  
  Some businesses use gamification or sponsor hackathons to encourage their engineering resources to be creative not only in their product design, development and coding but also in the way they select and use cloud resources to be more cost-effective. Once engineers see FinOps as another way of innovating, they’re more likely to focus their creativity on not just what they build but also how they build it.
  
  
• Blend governance with growth: Early-stage product engineering businesses tend to have a single-minded focus on building the brand, product and business. They're less focused on cost savings and governance because they're trying to get their product to market.
  
  Some of the more mature product engineering companies build in foundational policies and governance at the beginning, while the product is still in development. They recognize that it’s more difficult to go back later and refactor their policies and processes; instead, they make sure they’re organized and effective while they're building their business, their brand and their product.
  
  Early on, businesses should begin analyzing and identifying their cloud usage patterns to establish a baseline or steady state. They can then use that baseline to begin calculating their future cloud usage needs.
  
  
• Apply metrics to measure progress: There are several metrics businesses can use to calculate the efficiency of their cloud usage. An effective formula to get started with is calculating the difference between planned cloud expenditures and actual spending. That variance becomes an indicator or KPI for cloud efficiency.
  
  A variance below 10% indicates a good level of efficiency. If it’s greater than 10%, it indicates the business doesn’t yet understand how to accurately forecast consumption or is not yet using FinOps practices effectively. Using AI-driven analytics will help improve forecasting ability.

The future of cloud cost management for product development

The mandate for innovation among product development businesses isn’t going away anytime soon, but no one can afford to spend unnecessarily on something as integral as the cloud. 

With smart cloud management using FinOps, product development businesses can get all three: the advantages of the cloud, cost optimization, and the ability to meet never-ending market demand for innovation.
 

To learn more about how product engineering organizations can take advantage of FinOps, tune into our product innovation podcast series.