Understanding FinOps: How to Optimize Cloud Costs

FinOps has emerged as a major trend in cloud computing, combining finance and operations to manage cloud costs effectively. It refers to cloud financial management, focusing on balancing speed, cost, and quality in decision-making.

According to the FinOps Foundation, FinOps is “the practice of bringing financial accountability to the variable spend model of the cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.”

Unlike traditional on-premise systems, where software costs are tied to physical infrastructure, cloud costs are dynamic and more difficult to track. Most cloud providers operate on a pay-as-you-go model, with services scaling automatically as workloads increase. Multi-tenant systems and containerized environments, such as Kubernetes, further complicate cost allocation.

These challenges create two main issues:

• Finance teams often lack clarity on how money is spent in the cloud.
• Engineers and product teams may not understand the impact of their work on cloud costs.

FinOps provides a solution by creating visibility, accountability, and cost-conscious practices across teams. The following five strategies are essential for effective FinOps implementation.

1. Build a dedicated FinOps team

Creating a team responsible for FinOps is the first and most important step. Organizations may call it a Cloud Center of Excellence or a FinOps Team. In some cases, it may be a cross-functional group working part-time.

This team serves as a governing body, setting best practices and defining metrics that clarify the unit economics of the business. Typically, the team includes representatives from finance, engineering, and product teams, reporting to executive leadership.

For example:

• A finance manager oversees budgets.
• A cloud engineer or architect manages technical aspects.
• A product owner ensures product initiatives align with cost goals.

The team establishes guidelines that act as guardrails for cloud operations, ensuring decisions are aligned with both business and technical objectives.

2. Increase cloud cost visibility

A common challenge in cloud operations is that teams contributing to cloud costs often lack insight into spending patterns. FinOps improves visibility by providing cost information in a clear, role-specific manner.

• Finance teams need to compare actual costs with forecasts.
• Engineers require insights into the cost impact of architectural decisions or product features.
• Product teams need to understand how changes in contracts or product scope affect cloud spending.

Cost visibility starts with proper allocation. Untagged or inconsistently tagged resources, containerized infrastructure, or shared costs make this difficult. Tools like Opslyft use a code-driven approach to organize cloud spend, enabling immediate visibility and actionable insights.

3. Establish a single source of truth

A reliable, centralized platform for tracking cloud costs is essential. While tools such as AWS Cost Explorer provide a starting point, they have limitations, including restricted filtering and complex navigation.

Larger organizations often use multiple tools, creating inconsistent data and confusion. Opslyft provides a centralized cost intelligence platform, allowing each team to view costs from its perspective. This eliminates silos, promotes transparency, and enables more informed decision-making across teams.

4. Apply cost-saving and waste reduction strategies

Once visibility is established, the next step is optimization. Organizations should start with simple strategies, such as reserved instances, savings plans, or private pricing agreements.

Unused resources should be removed. For example, a storage bucket costing $100 per month and unused for four years results in $4,800 wasted. While seemingly minor, multiple instances of such waste can accumulate quickly.

Re-architecting applications can also unlock savings. Many organizations initially migrate workloads using a “lift and shift” approach. Once a central FinOps team and cost visibility are in place, redesigning applications to use native cloud services can achieve further efficiency and cost reduction.

5. Measure unit costs to improve cloud efficiency

Cloud computing should support innovation rather than purely focus on cost reduction. Higher spending is acceptable when it enables business growth or new features.

Unit cost measurement puts cloud spending into context, linking costs to business activities such as cost per customer, per transaction, or per user session. Starting with a single key metric provides a baseline, which can then be refined for specific products, segments, or services.

Tracking unit costs helps organizations balance spending, innovation, and efficiency, ensuring cloud resources are used effectively.

Conclusion

Implementing FinOps practices gives organizations control over cloud spending while promoting collaboration across finance, engineering, and product teams. By building a dedicated FinOps team, increasing visibility, creating a single source of truth, optimizing costs, and measuring unit efficiency, organizations can make informed, data-driven decisions. Tools like Opslyft simplify cost tracking, reduce waste, and enhance accountability, ensuring cloud resources are managed efficiently to support growth and innovation.