Blog | Financial Operations/FinOps: A Solution to your Cloud Financial Management Problems

Financial Operations/FinOps: A Solution to your Cloud Financial Management Problems

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Cloud environments are inherently complex, and with rapid cloud adoption, organizations struggle to regulate cloud costs and get their ROI correct. FinOps or financial operations addresses the issue by enabling spend optimization and bringing financial accountability to the variable spend model of the cloud. The enterprise IT spending on cloud adoption is witnessing an accelerating shift to the cloud.

Gartner says the worldwide end-user spending on public cloud services in 2022 is forecast to grow to total $494.7 billion i.e. by 20.4% up from $410.9 billion in 2021. The end-user spending in 2023 is expected to reach $600 billion approximately. The accelerating shift to the cloud stems from the promise of improved productivity and competitive gains. Leading cloud service providers include Amazon Web Services (AWS). All cater to businesses from small to medium to large enterprises. While organizations hop on to the cloud bandwagon, they realize challenges in regulating their cloud costs and achieving the correct return on investments with rapidly expanding cloud services and their use.

Cloud spending is becoming a more prominent and visible cost component in quarterly financial reports of organizations, irrespective of size. Questions arise on efficient management of cloud utilization costs and ensuring that it is money wisely spent, and providing planned ROI.

Role of FinOps in tracking Cloud Financial Accountability

Cloud accounting or FinOps helps address the extravagant cloud spend issue enabling spend optimization and cloud spending using operational practices and necessary tools. Today FinOps is an effective means to manage cloud financial operations, cloud financial management, or cloud cost optimizations. It is a cloud operation model that consolidates finance and IT by guiding to profitable cloud operations through processes and practices that provide visibility into cloud resources. With proper implementation, FinOps uses the right cloud accounting tools and approach to provide considerable cost savings, efficient resource utilization, and billing transparency.

Let us take a closer look at some challenges with the cloud and why FinOps or Cloud Accounting is essential today.

Challenges with Cloud Cost Accounting

Firms usually transition from fixed-priced data centers to cloud solutions that are usage-based and adaptive for additional core computing services resulting in a new set of problems. Some of such challenges are as follows:

Cloud spending is less predictable and variable when computing resources are required with options of on-demand scalability. It becomes time-consuming and challenging to comprehend the large volume of data on cloud prices and invoices.
For example, AWS offers Reserved Instances (RIs) in Amazon Web Services (AWS). Duration of reservation and amount of upfront payment are vital components. Between their one-year or three-year commitment options, a longer commitment period offers higher discounts with an upfront payment. With upfront payment, you are pre-paying for three years. But using accrual accounting, the finance teams cannot consider the entire three-year payment as operating expenses for the first year. One needs to capitalize the three years of payments and amortize them over the 36 months. Finance departments need to use appropriate accrual methods or have misrepresentations in their financial statements.
FinOps approach has solutions to track, predict, and optimize cloud costs accurately.
Engineers focus on their special technical delivery, making financial decisions that might be steering away from the established economic and purchasing processes. FinOps helps to implement accountability for all the cloud costs.
Cloud costs must be updated, transparent in associating with the correct departments, and deliver commercial value for success. The need is for economics at the unit level along with real-time inputs and responses for business cases.
Optimizing cloud resources has to be a regular activity, and the expense management activity covers various techniques. Technical experts need to get a centralized view and work on optimizing cloud resources accordingly.
Organizations pursue multi-cloud strategies and may take various packages from different cloud providers. Standardization and consolidation of cloud costs into a single reference source can be challenging.
Cloud FinOps helps increase financial accountability in the cloud's variable expenditure model among disparate teams delivering business efficiency. It enhances cloud expenditures' administration and cost management by establishing and facilitating real-time and efficient control.

Why FinOps?

Cloud infrastructure technologies are significantly different from the familiar on-premises technology infrastructure. Organizations typically use the tried and tested financial model that involves purchasing resources and depreciating and amortizing them over the years. Using a FinOps model, there is a paradigm shift in the company's perspective that focuses on operational expenses of using cloud resources by by-the-minute.

Unlike on-premise solutions with memory space limitations, the cloud offers scalable on-demand memory resources with varying pay-as-you-go usage that risks exhausting allocated financial resources. IT engineers must proactively plan software projects and consider cloud costs a top-class performance indicator.

FinOps is becoming a widely accepted industry practice as firms realize the criticality of driving optimal value from their cloud investments that help boost business outcomes and ROIs.

Getting a grip on cloud cost optimization

As cloud computing costs rise yearly, organizations and their leadership need a proper explanation that demonstrates sound cloud knowledge and justifies the costs. A well-planned implementation of a cloud spend optimization strategy using FinOps can help an organization leverage the benefits of the cloud at optimal prices.

Visibility to Cloud Spends

Having visibility across cloud resources and activities for even the most sensitive environments with a comprehensive solution can help attain immediate cost savings. From analyzing your cloud billing, cloud cost drivers, generating alerts on cloud cost budgets to keeping your cloud spending in check by controlling cloud access and recommending actions for cost optimization – Swayam does it all for you. From small-sized organizations to public sector to large-sized enterprises Minfy customers deploy Swayam for optimizing, governing and managing the most complex cloud infrastructures.

To learn more about FinOps, sign up for a free consultation. We can help you manage cloud finances with FinOps solutions at a 50% discounted cost, sign up know-how.

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