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An Introduction to FinOps Governance: How to Get Started

FinOps, a portmanteau of Finance and DevOps, is a strategic framework created to help companies understand and manage their cloud costs, enabling greater efficiency in cloud service usage. Created by the FinOps Foundation, this financial management discipline brings together finance teams, engineering teams, operations staff, and other stakeholders together to optimize spending and maximize business value. The FinOps operational framework can help your organization maximize the business value of cloud by improving collaboration, expense and asset management, and decision making. Once you implement a FinOps framework, you can make decisions based on the greatest possible return on investment, rather than simply trying to cut costs.

Frameworks are great, of course. They offer a lot for those new to a practice, but it can be difficult to understand how to apply and enforce the framework in each individual organization. This is where policies come in: creating a statement of intent that describes  the execution of cloud-related activities in alignment with a standard model that is designed to deliver improvements in business value. Governance is the set of processes or tooling that controls the behavior described in the policy to ensure adherence.

What Is FinOps Governance?

FinOps governance is the framework for establishing roles, responsibilities, workflows, and processes to manage and optimize cloud costs. FinOps itself is the set of guiding principles and best practices for managing cloud financial resources. It does this by encouraging shared accountability, financial transparency, continuous optimization, and governance. FinOps governance is the practice that puts the framework into action. It defines who owns distinct aspects of cloud financial management and establishes rules for managing cloud spend, resource provisioning, and cost optimization strategies. It also defines key performance indicators to track progress towards FinOps goals, such as cost optimization percentage and resource utilization rate. You’ll need tools and automation to put FinOps governance into practice to enable efficient cost tracking, reporting, and task automation (including cost allocation models and automated chargebacks).

Key Objectives of FinOps Governance

It’s important to gain an understanding of cloud spend across different teams and projects because Kubernetes environments can result in hidden costs due to its complicated resource utilization patterns and dynamic scaling. FinOps governance enables you to put policies in place to ensure that cloud usage aligns with your business objectives, optimizes cloud resource usage, and complies with regulatory requirements.

Cost Visibility and Allocation

Cost visibility and allocation help you understand where your money is going, then make informed decisions about resource allocation, pricing models, and optimization strategies. Increasing cost visibility helps you understand cloud spend across different teams and projects so you can make data-driven decisions about resource allocation.

Budgeting and Forecasting

Using increased cost visibility, you can make accurate predictions regarding cost and resource optimization based on business needs. Your budget and forecasts should take your company’s specific goals and initiatives into account and align with your overall business strategy. This approach will help you avoid unnecessary cloud spending while still ensuring that you have the resources necessary for your business to continue to operate smoothly.

Cloud spend anticipated growth

State of the Cloud Report 2024, Flexera

Optimization and Accountability

By having greater visibility and allocations in place, you also enable optimization and accountability. You can do this by right-sizing resources, using reserved instances or savings plans, autoscaling, and taking advantage of cloud cost management tools to increase visibility into costs, identify optimization opportunities, and automate actions that save costs. This information enables cost-saving strategies and holds teams accountable for responsible cloud usage.

Compliance and Risk Management

No modern business can ignore compliance with financial regulations or the need to minimize financial risks. Many industries have regulations that impact financial management practices and policies regarding maintaining accurate and detailed records of cloud spend for a given period. This includes cost allocation per project or department for reporting and auditing purposes and implementing security controls to protect sensitive financial data stored in cloud environments. FinOps governance ensures that your cloud financial management practices comply with relevant regulations and internal policies. It also includes risk management related to unexpected cost overruns, vendor lock-in, and security breaches.

Key Aspects of FinOps Governance

Roles and Responsibilities

To successfully deploy FinOps governance, you need to define roles for the stakeholders within the organization. Particularly in smaller organizations, people may be on more than one team, sharing expertise in different areas to ensure greater understanding across departments.

  • FinOps team: This team leads all cost optimization efforts, develops policies, and implements tools.
  • Cloud cost owners: Members of this team are responsible for managing costs within their respective teams and projects.
  • Finance team: Provides financial oversight and ensures compliance with financial regulations and requirements.
  • Engineering team: Optimizes resource utilization and implements cost-saving practices. One common issue is that developers often over-provision resources accidentally because they are not sure how to set resource requests and limits appropriately.

Policies and Guidelines

Establishing clear policies and guidelines for cloud usage is vital to success for those pursuing FinOps governance, provided they are enforced. These policies and guidelines include cost optimization, increased accountability, improved resource management, and standardized practices. The following are a few key policies and guidelines you must put in place in order to be effective.

Approval processes for provisioning added resources

These are the steps required to get permission to set up and use new cloud resources within an organization, and may include:

  • Compute resources: Virtual machines (VMs), containers, and serverless functions
  • Storage: Cloud storage buckets and databases
  • Networking: Virtual Private Clouds (VPCs), firewalls, and load balancers
  • Software licenses: Subscriptions to cloud-based software applications

The approval process might include a request submission to provision new cloud resources, including the type of resources needed, the purpose, and the estimated cost. The request may go through a designated approval workflow, involving approval from managers, security teams, or a cloud governance committee. A request is evaluated based on budget constraints, resource availability, security requirements, and alignment with business needs. Reviewers may approve the request, ask for revisions, or deny the request. Once approved, resources are provisioned per the request specifications. In some cases, developers can provision new resources without going through this process, but still must understand the same information and be prepared to share it with the broader team.

Reserved instance management protocols

Reserved instances are discounted pricing plans offered by cloud providers, such as Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Platform (GCP). You commit to using a specific configuration of cloud resources (such as compute and storage) for a defined period (usually one or three years) in exchange for an upfront discount compared to on-demand pricing. While reserved instances offer cost savings, it’s important to utilize them appropriately (otherwise you’ll waste money).

Choose the configuration that aligns to your workload based on instance type, region, and so on. Your protocols enable you to define selection criteria to ensure you’re using reserve instances on predictable workloads to maximize the benefit. Right-sizing and monitoring usage are always important, as is optimizing placement to improve fault tolerance and cost efficiency. The protocols you define can also establish procedures for renewing expired reserved instances, converting them to on-demand instances if appropriate, or terminating them if you consistently have unused reserve capacity. Your protocols can also help you implement tools that automate right-sizing management tasks, streamlining processes and reducing manual effort.

Cost allocation and chargeback mechanisms

Cost allocation and chargeback mechanisms are two ways your organization can manage and distribute the costs associated with the services it uses. This is especially important in Kubernetes due to the ephemeral nature of containerized workloads. Because containers may spin up and down quickly, multiple workloads may share the same Kubernetes resources. The sharing of resources and additional factors (including storage usage, network traffic, and egress fees) can make it difficult to attribute costs. To address these issues, you can use namespaces and labels to enable more granular cost allocation. Chargebacks present similar challenges, which you can address by setting up cost attribution models and using tools that help you track costs.

Security and compliance best practices

It may not seem directly related, but it’s important to consider security and compliance best practices as part of FinOps governance because security incidents can result in data breaches, service disruptions, and regulatory fines. Unpatched vulnerabilities or misconfigurations can allow malicious actors to run unauthorized workloads or even mine cryptocurrency in your cluster, consuming excess resources and incurring unexpected costs. Similarly, some regulations may mandate specific security controls or data residency requirements, which can impact your resource allocation and your costs. In addition, failure to comply with regulations can result in significant fines, reputational damage, and business disruptions.

To manage these costs, consider adopting some of these security best practices for Kubernetes:

  • Least privilege: Grant the minimum permissions and resources required for workloads to function.
  • Network segmentation: Isolate workloads using network policies to limit lateral movement within the cluster in case of a breach.
  • Vulnerability management: Scan your cluster for vulnerabilities regularly and patch them as quickly as possible (based on the risk they present).
  • Secrets management: Store and manage sensitive data securely. For example, store access credentials using Kubernetes Secrets or a dedicated secrets management tool.
  • Cluster role-based access control (RBAC): Implement RBAC to manage access to resources based on user roles.
  • Continuous integration/continuous delivery (CI/CD): Integrate security checks into your CI/CD pipeline to identify and address vulnerabilities early in the software development lifecycle (SDLC).
  • Security audits: Conduct security audits of your Kubernetes cluster frequently to identify and resolve any security misconfigurations.

Example policies

A few policies to consider that enable better FinOps governance in Kubernetes include:

  • Only permitting certain EC2 instance types
  • Requiring labels on all Kubernetes workloads so you can do cost allocation
  • Requiring memory requests be set to improve efficiency and reliability

You can implement policies at each stage of the SDLC. Use tools that can help you with policy enforcement, such as:

Some examples of Kubernetes-centric policies and guardrails you may want to implement in the CI/CD phase when devs make pull requests include:

  • Requiring workloads to have CPU and memory requests set
  • Alerting developers when their resources are over-provisioned
  • Providing feedback to developers on the cost impact of their resource changes
  • Requiring use of ownership and reporting labels so container costs can be allocated

Cost Visibility and Reporting

To implement FinOps governance effectively, you need tools and processes to track and report cloud costs. Look for tools that include cost dashboards and visualizations to ensure teams can easily understand costs. You’ll also want regular reports and alerts so you can stay informed about cost trends across all teams — the FinOps team needs to understand the big picture, but cloud cost owners, the finance team, and the engineering team all need to know about these trends as well. In addition, make sure you have the ability to run regular chargeback reports to help to incentivize responsible budgeting for cloud spend.

Optimization and automation

Use tools and strategies to optimize cloud resource utilization. One key step is right-sizing resources (scaling your resource usage to your actual needs). To do that, you need to push right-sizing recommendations to engineers when they make a pull request (PR). It’s also beneficial to help developers understand the cost of workloads early in the development process so they understand the fiscal impact of their resource decisions.

Solutions that help you understand costs and identify and eliminate unused or underutilized resources will help you minimize unnecessary costs as well as align those costs to business needs. In addition, one of the biggest advantages of Kubernetes is the ability to scale with demand, so you’re only using (and paying for) the resources you need. Make sure that you are using the automated scaling and auto-shutdown features available in Kubernetes. Finally, there are multiple cloud-specific pricing models and discounts that you can take advantage of. The more you implement FinOps governance, the better you can use these capabilities effectively.

Communication and collaboration

Encourage open communication and collaboration among stakeholders when it comes to FinOps governance. To achieve this, in addition to tools that enable greater insight and automation, you must have regular FinOps meetings and training sessions. This allows the sharing of knowledge and best practices across not only individual engineering teams, but also with the company as a whole. This collaborative approach will enable you to identify and address cost optimization opportunities, ensuring that you have clear insight into your cloud spend.

Benefits of FinOps Governance

FinOps governance offers many benefits for organizations using cloud computing services. It can improve cost visibility and control, which enables informed decision-making and helps prevent unnecessary cloud spending — improving budgeting and forecasting in this area of the business. This approach can also increase accountability and ownership by promoting responsible cloud usage across teams and departments, in part by improving collaboration and communication. And by including compliance and risk management in your governance, you can both acknowledge the impact cyber threats have on the business and mitigate the financial risks associated with cloud adoption.

FinOps governance enables faster innovation and agility by increasing visibility into cloud costs in complex Kubernetes environments and aligning those costs with broader business objectives. FinOps governance, by automating the enforcement of your policies and improving cross-team collaboration, is key to achieving efficient and responsible cloud cost management. This approach enables you to adapt to evolving cloud landscapes and business needs. Done right, FinOps governance enables organizations to shift FinOps left, ensuring alignment with FinOps best practices from the beginning, improving your bottom line.

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