AWS Knowledge
AWS FinOps: Optimizing Cloud Financial Management
Guillermo Ojeda
Jul 31, 2023
What is AWS Cloud FinOps
Effective financial management in the cloud is a core component of modern business operations. In line with that need, Cloud FinOps is a structured approach to controlling costs and managing resources efficiently within the cloud environment. It integrates technical, business, and financial domains, utilizing tools provided by AWS to help organizations to align their cloud spending with business objectives.
This article will explore how Cloud FinOps works in AWS, analyze its benefits including cost optimization and automation, delve into real-world use cases, and provide practical recommendations for implementation. It was written for technical managers, directors and CTOs, focusing on technical aspects and practical applications.
Overview of Cloud Financial Management
FinOps or Cloud Financial Management (CFM) represents a multidisciplinary approach to managing cloud costs effectively. While the term is relatively new, the concepts have been around for some time within the IT financial management discipline. It involves understanding consumption patterns, predicting future costs, and aligning them with business strategies. This includes applying AWS-specific concepts and strategies such as Reserved Instances, Savings Plans, and Spot Instances according to the application requirements.
AWS offers several tools for Cloud FinOps. For example, Cost Explorer, AWS Budgets, and Cost and Usage Reports can help you visualize and understand the cost structure, allowing for better informed decision-making. Additionally, different pricing models such as AWS Reserved Instances and AWS Savings Plans can help you reduce cloud costs significantly.
FinOps is a discipline that promotes collaboration between technology, business, and finance teams. Integrating these disciplines means decisions will be made in alignment with the business's goals, and not just technology. In line with that, AWS provides tools that help with cloud governance, such as AWS Organizations for consolidated billing and AWS Config for compliance monitoring. Defining a governance strategy and being able to enforce it automatically is a key aspect of managing cloud costs effectively.
Benefits of AWS Cloud Financial Management
Improved Efficiency
Improving efficiency isn’t just about cutting costs; it’s about spending wisely. There's several ways in which applying a Cloud FinOps strategy to your AWS workloads will improve efficiency:
Real-Time Visibility: Through tools like AWS Cost Explorer, you can gain insights into your spending patterns, which will help you better understand where the money is going, and identify cost-savings opportunities such as under- or over-provisioned resources.
Rightsizing Recommendations: AWS Trusted Advisor can provide rightsizing recommendations, which helps you identify when to downsize resources that are not being used to their full capacity.
Workload Management: Services like AWS Auto Scaling help in managing the workloads efficiently, adjusting capacity dynamically as demand increases and decreases. Alternatively, serverless services will manage capacity automatically and only bill you for actually consumed capacity.
Cost Allocation and Reporting: Cost Allocation Tags will help you break down costs by department, project, or any other category. This way you can produce more accurate reports that help in understanding the true cost drivers.
Automation
Effectively enforcing a cloud governance strategy is key to effective Cloud FinOps. To that end, there several tools you can use to automate actions in response to non-compliant states, or to execute responses based on different triggers:
AWS Lambda: Lambda functions are serverless functions that can be triggered by events and will run for a short period of time. They can be used to automatically respond to cost-related triggers. For example, you can stop or terminate underutilized EC2 instances automatically.
AWS Systems Manager: Systems Manager is a service that encompases several features for managing EC2 instances. It can be used to manage instance schedules, update software or run commands in EC2 instances.
AWS Budgets: Budgets can be set to alert when spending goes beyond a threshold. You can use those alerts to trigger Lambda functions, automating both the detection and the action.
AWS CodePipeline: Automation can be integrated into Continuous Integration/Continuous Deployment (CI/CD) pipelines built with CodePipeline, making cost optimization part of the development lifecycle.
Pump.co: Pump is a tool that uses advanced AI to automate cost optimization in AWS, reducing you cloud bill by up to 60% in mere minutes, and with no engineering input from your part. It's entirely free to you, we do not take a part of those savings as payments, nor do we charge a fixed rate. Pump is developed by us at Pump.co. Find out more about Pump.
Cost Optimization
Strategies to reduce and optimize costs are a transversal component of a Cloud FinOps strategy. Here are some of the actions that you can take in AWS to optimize costs, as part of applying Cloud FinOps:
Understanding Usage Patterns: By analyzing usage data through AWS Cost and Usage Reports (CUR), organizations can make informed decisions on when to use different pricing models.
Purchasing Reserved Instances and Savings Plans: Both RIs and Savings Plans are alternative pricing models that allow you to commit to a specific usage level in return for a reduced price. Find out what's the difference between Reserved Instances and Savings Plans.
Considering Spot Instances: Spot Instances allow you to get temporary EC2 instances at a much lower price. They can be terminated by AWS at any time, so they're not suitable for every workload.
Eliminating unused resources: Identifying and deleting resources that are no longer being used, such as unattached EBS volumes or idle Elastic Load Balancers, can have a significant impact on your AWS bill.
Use Cases for AWS Cloud FinOps
Tracking Cloud Spending
Tracking cloud spending is a core activity within a Cloud FinOps strategy. In AWS, you can use Cost Explorer to view a detailed breakdown of costs, including filtering by usage, services or Cost Allocation Tags. Assigning tags to your resources will also help you assign costs to the correct department, project, or individual user, so you can understand where exactly the money is going.
If Cost Explorer doesn't provide the insights you're looking for, you can use Amazon QuickSight to build custom dashboards to analyze your spending patterns and trends. Additionally, setting up AWS Budgets will alert you to anomalies in your cloud spend, so you don't need to spend every day looking at the dashboards.
Optimizing Resources
Once cost-optimization opportunities are identified, you need to optimize the resources involved, so they're not resulting in more expenses than necessary. We've gone over the common strategies of rightsizing and purchasing Reserved Instances and Savings Plans. In addition to that, you need to consider re-architecting your workloads to use AWS services to their full strength.
For example, an application that receives very spiky traffic could be better served with a serverless architecture, which will scale much faster than EC2 instances, and will let you only pay for the compute capacity that's actually being used.
When considering re-architecting a workload, you should be aware of the benefits and tradeoffs of different architectures, and of the tools that AWS offers to support them and to optimize their costs. For example, a serverless architecture with a clearly defined baseline of traffic would benefit greatly from a Savings Plan.
Reacting to Changes
It has been said that no plan survives contact with the enemy. Cloud FinOps strategies are not the exception. Your best plans and strategies will serve you until reality changes, and the sooner you find out about it, the more prepared you will be.
Some changes can be predicted with forecasting tools. AWS Cost Explorer will let you forecast your costs based on previous spendings, utilizing machine learning algorithms. Custom dashboards built with Amazon QuickSight can also help you with forecasting and predictions.
When, inevitably, something happens, it's key to be alerted immediately. AWS Budgets plays a key role there, notifying you when actual or forecasted costs cross thresholds. It can be combined with Amazon Simple Notification Service (SNS) to trigger automated responses, such as executing an AWS Lambda function.
Recommendations for Implementing AWS Cloud FinOps
As with any strategic initiative, implementing Cloud FinOps in AWS requires a good deal of planning, involving multiple areas of the company. Here are some recommendations to keep in mind when designing and implementing your Cloud FinOps strategy:
Conduct Regular Reviews: Regularly review AWS costs and usage. Try to identify trends, anomalies, and opportunities for improvement and cost-savings.
Enforce Cost Allocation Tags: A tagging strategy is essential for attributing costs to departments, teams, or projects. Once you define your tagging strategy, you can use automations to enforce it, preventing the creation of resources that don't comply with the required tags.
Leverage Pricing Models: Understand the different pricing models available in AWS, such as Reserved Instances and Spot Instances. Analyze your workloads, determine which of them can be applied, and use it to optimize your costs.
Automate Where Possible: Automation through tools like AWS Lambda will ensure that actions are taken immediately, without manual intervention, and without human errors. More comprehensive automated tools, such as Pump, will help you reduce costs significantly without requiring additional engineering efforts.
Collaborate Across Departments: A good Cloud FinOps strategy depends entirely on good collaboration between technology, finance, and business.
Educate and Enable Teams: Training teams on Cloud FinOps practices and providing them with the right tools and access will let you create a culture of cost accountability, where teams are responsible for their own costs. This improves ownership and helps implement cost-optimization strategies.
Define KPIs and Metrics: Implementing Key Performance Indicators (KPIs) and metrics related to cloud governance and cloud cost management will let you continuously monitor your Cloud FinOps strategy and find areas for improvement.
Cloud FinOps is the convergence of technology, finance, and business with the intent to govern, control and reduce cloud-associated costs. It's a strategy and a set of practices aimed not towards cost-cutting, but efficient spending.
Cloud FinOps involves creating a culture where resources and costs are owned by teams, and they understand and respect cost implications. Education, collaboration and governance play a significant role in Cloud FinOps implementation.
Additionally, Cloud FinOps needs to be a continued effort, evolving together with cloud providers like AWS, and regularly reviewing, updating and improving the practices involved. Cost optimization is a continuous cycle of monitoring, analyzing, identifying opportunities and applying strategies. AWS provides a fantastic set of tools to help you with this, but it requires expertise, attention and continuous learning.
The journey towards an effective Cloud FinOps strategy is neither short nor simple. It will require understanding the underlying principles, choosing the right tools, integrating best practices, and constantly evolving as both AWS and your own company change. It’s a journey of continuous learning, adaptation, and collaboration. The reward for those efforts is not just a reduction in the AWS bill, but a more efficient, agile, and cost-effective cloud infrastructure that is aligned with business goals and strategies.
