Published on October 29, 2023, 9:15 pm
The rapid adoption of cloud computing has raised questions among finance leaders about the financial implications of this shift. Public cloud Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) costs can quickly spiral out of control, and organizations are grappling with the challenges of managing these expenses. With the variability in spending, lack of capacity constraints, and increased user autonomy that come with cloud adoption, new cost governance models are needed.
Enter FinOps: an emerging discipline and cultural practice that aims to maximize business value by fostering collaboration between engineering, finance, technology, and business teams. The term “FinOps” is a combination of “Finance” and “DevOps”, highlighting the importance of communication and collaboration between these two key functions.
Also known as cloud financial management, cloud financial engineering, cloud cost management, cloud optimization, or cloud financial optimization, FinOps is all about making data-driven spending decisions rather than simply saving money. It focuses on aligning cloud spending with business outcomes to drive profitability.
According to renowned analyst Lydia Leong from Gartner, there may not be a reasonable return on investment (ROI) specifically for FinOps or a strong business case for building a dedicated FinOps team. However, she emphasizes that organizations still need to manage their cloud finances effectively using existing IT spending management practices applied in traditional on-premises data centers.
To shed more light on FinOps, Paul Whiten from Red Hat explains that it is a cultural practice in which teams take ownership of cloud costs and view spending as a crucial metric for maximizing business value. In challenging economic times like recessions or downturns following the pandemic-induced IT growth period we witnessed recently, tracking and managing cloud spend becomes even more essential.
Whiten also highlights the connection between DevOps and FinOps. Both practices are fundamentally rooted in culture. While DevOps focuses on delivering value to stakeholders through measures such as Deployment Frequency and Lead Time, FinOps associates a dollar value with team activities and tracks them accordingly. These two practices are intertwined and support each other in delivering business value.
Building a successful FinOps team requires a combination of skills, expertise, and experiences. Finance and procurement professionals can offer their knowledge when it comes to tracking financial implications. Operations teams and developers, who are always seeking optimization, are also valuable contributors to the team. The challenge lies in getting stakeholders on the same page about what should be measured and how costs should be calculated. Utilizing readily available tools helps simplify this process.
FinOps is not a one-time exercise but rather an ongoing journey of continuous improvement, much like DevOps. It involves three distinct phases: Inform, Optimize, and Operate. During the Inform stage, organizations gain visibility into their spending patterns. In the Optimize phase, they optimize their cloud footprint to achieve cost efficiency. Finally, in the Operate phase, businesses continuously evaluate their objectives against costs and make adjustments as needed to align with their desired outcomes.
Securing executive support and buy-in for implementing FinOps can be a challenge at the beginning due to the need for cultural change within the organization. However, the FinOps Foundation acknowledges that FinOps is key to unlocking the full potential of cloud computing and enabling collaboration between finance, engineering, and executive leadership through the FinOps framework.
To sell the idea of FinOps effectively within an organization, it is important to build a business case that showcases its overall value rather than focusing solely on monetary ROI. Autonomy and shared responsibility for cloud usage are positive outcomes worth highlighting. Implementing FinOps requires commitment from multiple stakeholders across different teams within the organization. Starting small and demonstrating tangible value will help gain management buy-in.
In conclusion, embracing FinOps as part of your organization’s cloud strategy can help drive greater financial efficiency while maximizing business value. By bringing together finance, engineering, technology, and business teams in a collaborative manner, organizations can make informed and data-driven spending decisions in the cloud era.