Why enterprises fail at finops

As cloud spending continues to climb, the discipline known as finops (financial operations) has emerged as a critical strategy for managing and optimizing cloud investments. This is no longer news. Finops has been a discipline and a toolkit for years.

The core promise of finops is immensely appealing: Achieve radical cost optimization, enhance operational efficiency, and ultimately drive measurable business value. In the real world, many organizations struggle to realize this promise. There’s a troubling trend that the ROI for many finops initiatives is falling far below expectations. In some cases, a dollar invested in finops delivers a mere 30 cents in actual savings. What’s going wrong?

The undeniable potential of finops

Let’s be clear about the value that finops can deliver when implemented effectively. Finops is not just about saving on marginal costs; it aims to fundamentally transform how an organization approaches cloud economics. According to a recent Deloitte report, companies that implement finops tools and practices could collectively save an impressive $21 billion by 2025. McKinsey estimates that the potential value realized from embedding finops as code (FaC) could reach approximately $120 billion based on projected global cloud spending.

These figures highlight a colossal opportunity for cost optimization and value creation. Some organizations report cutting their overall cloud costs by as much as 40% through strategic finops implementations. Leading companies such as Airbnb, Sky Group, The Home Depot, Lyft, and WPP are already enjoying tangible benefits from a well-crafted finops strategy. Achieving these substantial savings and a meaningful ROI demands more than just investing in tools or hiring a dedicated team. It requires a significant shift in organizational culture to re-engineer existing processes and assign clear accountability across all the teams involved.

Where enterprises fall short

One of the most significant challenges is the lack of integration between the finops and engineering teams responsible for building and deploying cloud applications. McKinsey’s report showed that many organizations struggle to capture savings beyond the immediate finops team’s mandate because these teams often lack the incentives or access to cloud cost data. Consequently, many well-meaning optimization efforts fall by the wayside as engineers juggle multiple priorities or lack the resources to focus on cost-related improvements.

Another issue is the lack of systematic implementation of finops best practices. This is where FaC becomes essential by incorporating finops processes directly into application configurations to make them foolproof. FaC can dramatically reduce costs by integrating financial management principles directly into the infrastructure management life cycle. Organizations can enforce budget constraints by automatically identifying opportunities for cost reduction, supporting more efficient resource scheduling, and employing cloud-native services to decrease operational cloud resource expenses.

Many organizations struggle with basic cloud hygiene practices. They’re not effectively identifying and eliminating obvious sources of waste, such as underutilized resources, oversized virtual machines, and redundant storage volumes. A tagging strategy should be implemented to assign resource costs to specific teams or projects to foster accountability.

Practical steps for cloud optimization

Here are several key recommendations enterprises can use to significantly improve their finops ROI and transform it from a cost center into a genuine value driver:

Break down the silos between finops and engineering. Integrate finops principles into engineers’ workflows. Provide the team with real-time cost visibility, actionable insights, and accountability for resource consumption.

Embrace FaC to move beyond reactive cost management. Embed finops best practices into the software development and deployment pipeline. Enable proactive cost control through automation and policy enforcement. I’ve found this to be most useful since you don’t have to rely on humans to run these processes, and it completely automates part of the application.

Create and consistently enforce a robust tagging strategy. Ensure all resources are tagged correctly. This will enable precise cost allocation, detailed reporting, and effective chargeback mechanisms.

Regularly identify and eliminate underutilized resources. Right-size virtual machines to match the actual workload requirements, and optimize storage usage to minimize unnecessary expenditures.

Carefully select finops tools that provide granular visibility. Automate key cost optimization tasks to enable proactive policy enforcement and pursue robust reporting and analytics capabilities.

As I attend finops conferences, I see a chasm between those who understand finops and those tasked with carrying it out. Experts give presentations on cost observability and cloud resource optimization that have little to do with how enterprises can find success. At its core, finops is much more than cutting costs; it’s driving business value and enabling more informed decision-making. A successful finops program requires comprehensive integration before it can produce measurable improvements in operational efficiency.

It also comes down to a genuine commitment to cultural change, which is where most enterprises fail today. Rather than tossing tools and money at the problem, start by applying some common-sense solutions to your human and cultural problems. Improve communications between teams. Create and enforce policies and accountability. Encourage good stewardship. And then implement or improve your finops solutions. Success will happen one step at a time.