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Image: The perpetual loop of cloud cost optimization: Understanding the phases of FinOps

With Flexera’s unique position at the center of our customers’ cloud and on-premises infrastructure, we have great visibility into the IT management and optimization initiatives that our customers undertake on a daily basis. Whether resources reside in on-premises environments, a colocation facility, a datacenter or the cloud, the desire to use resources effectively and efficiently never wavers. Optimization efforts are never one-time endeavors and that’s why we wanted to highlight some recent challenges to that notion.

The phases of FinOps: A circular approach

The FinOps Foundation has developed a framework to guide organizations through the complexities of cloud cost optimization, highlighting the cyclical nature of these efforts.

FinOps phases

Credit: The FinOps Foundation

On a recent AWS earnings call, a comment made by Andy Jassy, the CEO of Amazon, brought to mind one of the components of the framework:

“…companies have largely completed the lion’s share of their cost optimization and turned their attention to newer initiatives.” – Andy Jassy, CEO of Amazon

Later in the call, Amazon’s CFO Brian Olsavsky suggested that organizations reach a point of diminishing returns in their cost optimization efforts:

“…we continue to see the impact of cost optimizations diminish. While there will always be a level of ongoing optimization, we think the majority of the recent cycle is behind us, and we’re likely closer to a steady state of these optimization efforts.” – Brian Olsavsky, Amazon CFO

We believe these statements are a bit short-sighted, as we have seen cloud cost optimization as a perpetual cycle. The phases of the FinOps framework form a circle, indicating that you’re never truly done with optimization. While certain optimizations may reach a plateau, the introduction of new technologies or services restarts the cycle, perpetuating the need for ongoing optimization.

Embracing the learning curve

For all organizations embarking on their cloud journey, it is “day one” at some point. For some of Flexera’s customers, their true day one was 10+ years ago. For others, it was just yesterday.  Initially, organizations face a steep learning curve as they navigate the complexities of cloud resources. It’s common for IT leaders to err on the side of caution and over-provision and overspend. As they gain more experience with the cloud, they get better at using their resources in a cost-efficient way. They continue to level up by implementing automation and focusing on the next phase of the FinOps optimization circle.

As leaders move through the cycle of the phases, they gain speed and experience until it’s time to evaluate yet another new cloud resource or service, and the process starts over at “day one.” The need for optimization begins anew. A great example of this is the increasing consumption of generative AI (GenAI) services, which Olsavsky mentioned in a recent call with the media:

“[our customers are] signing longer deals with larger commitments, many with generative AI components.” – Brian Olsavsky, CFO of Amazon

As such, the need to learn how to use GenAI services—and their impact on cloud resources—effectively and efficiently becomes paramount as organizations focus on expanding their business. All the while, they are also continually optimizing the costs of running that business.

The Hybrid ITAM and FinOps approach

The need for cloud cost optimization is also expanding beyond the confines of IaaS and PaaS resources and services. More and more organizations have begun to realize that the cost of commercial software running in the cloud can be significant and is typically overlooked in the early phases of the FinOps lifecycle.

The concept of Hybrid ITAM and FinOps, which brings the combined expertise of these two disciplines together, can provide significant rewards to an organization by taking a holistic view of the true cost of an application running in the cloud. The cost is not just the cloud resources on which that application is running, but also the software running on those resources.

In a nutshell, cloud cost optimization efforts are expanding beyond the “least common denominator” resources offered by the public cloud provider and their PaaS services. These expansions include the new transformative services such as GenAI, as well as the licensing complexities of commercial software in the cloud.

The never-ending journey

Even though you may feel a sense of mastery over cost optimization, the reality is your work is never done. Cloud cost optimization is not a destination but a journey—a perpetual loop of refinement and adaptation. Embracing the principles of FinOps empowers organizations to navigate this journey with confidence, leveraging insights and best practices to optimize cloud investments wisely.

As the cloud landscape continues to evolve, Flexera is your partner in ensuring you remain agile and responsive in an ever-changing environment. Connect with us to further understand the phases of FinOps and how we can help you on your journey.