What is FinOps?
According to a McKinsey report, businesses using FinOps can reduce their cloud cost by up to 20-30%. So, what is FinOps? Short for “financial operations,” FinOps is a management practice that combines financial management principles and cloud operations/engineering. FinOps aims to help businesses understand their cloud spending and enable them to get the most business value out of the cloud. Many people are involved in a successful FinOps team, ranging from CEOs to engineers, all playing an important role in optimizing a company’s cloud usage.
This article will explore how FinOps works, why businesses need it, and best practices for adopting FinOps. The role of a FinOps technologist and the current challenges in cloud FinOps will also be discussed. We will also explore the FinOps framework and how FinOps helps to avoid the pitfalls of realizing the cloud’s value.
How does FinOps work?
FinOps works through a three-phase lifecycle, as outlined below:
- Inform: This is the first phase in the FinOps framework. It involves providing stakeholders with all the information they need to make informed decisions about cloud usage. This will help determine spending needs and establish a budget.
- Optimize: This next phase focuses on ways for the business to save time and money. This is done by looking at current cloud spending and optimizing it with automation, scaling back on unused resources, and ensuring that workload performance is meeting demands.
- Operate: The final phase in the FinOps framework is operation. This includes using FinOps to monitor cloud performance, quality, and workflow costs. In this final phase, all stakeholders can communicate about changes that may need to be made.
Why do businesses need FinOps?
There are a number of benefits to FinOps and reasons why businesses can benefit from it, especially about managing costs.
- Cost savings: By adopting FinOps, businesses can save money by choosing the right cloud service provider, reducing unnecessary resources, and investing in long-term partnerships with providers.
- Cost visibility: Through the reporting done by FinOps teams, cost breakdowns and budget use will be made clearer and become more easily accessible.
- Cost accountability: The stakeholders and project owners are responsible for how much money is spent on cloud services and their effectiveness for the business. Accountability helps teams stay within budget.
- Cost optimization: By understanding the resources needed for FinOps and the corresponding costs, teams can optimize costs and workload to fit the given budget.
Best practices for adopting FinOps
When a company adopts FinOps, several practices/principles should be followed.
- Collaboration: FinOps teams must collaborate to improve their company’s FinOps operations. Working together is especially important because FinOps may involve teams working together who have not done so before. Removing silos and encouraging change are some of the ways collaboration can prove successful.
- Ownership: Decentralizing decisions about cloud usage and spending within budget will help teams effectively manage their cloud usage. This will help teams hold each other and themselves accountable from the ground up.
- Accessible Reporting: FinOps teams must provide clear and accurate reports of cost data and cloud usage in a timely way. It is important for this reporting to be accessible to all stakeholders who need this information to make the right decisions and determine future moves.
- Cost control: Teams should take advantage of the variable cost model of the cloud – meaning costs vary month-to-month depending on cloud usage. This includes comparing price options from different service providers and taking advantage of usage discounts.
What does a cloud FinOps technologist do?
There are many different roles involved in a successful FinOps team – some are more technical, while others are more focused on the financial aspects. A cloud FinOps practitioner is responsible for reporting on cloud costs and utilization, analyzing budgets, and helping optimize costs and cloud usage. This role is also responsible for monitoring cloud consumption and producing insights and accessible reports that can be shared with all stakeholders. Recommending actionable tasks to help businesses stay within their allocated budget is another important part of this role.
What are the current challenges in cloud FinOps?
While there are many reasons businesses should adopt FinOps, especially related to costs, there are also several challenges in cloud FinOps:
- Minimal oversight: If FinOps teams are not centralized with the proper oversight/management, then budgets may only be set once too much money has been spent, and different groups may purchase cloud services throughout the business without proper communication.
- Lack of collaboration: If teams across an organization do not collaborate, adopting cloud FinOps will not work. If tech, engineering, and finance teams can’t work together and remain siloed, this may result in mismanaged cloud resources.
- Cost control: Common challenges, such as a lack of oversight and collaboration, can make managing costs difficult. Staying within a predetermined budget and optimizing costs are crucial to adopting FinOps successfully.
FinOps Framework: Bringing Accountability to Cloud Spend
FinOps is continuously evolving so businesses can get the most out of it. This includes the principles/best practices discussed above: collaboration, ownership, centralization, accessible reporting, and cost. There are several people involved in the FinOps framework. This includes the FinOps practitioner, who bridges the IT, business, and finance teams by helping make decisions about cloud usage and increasing business value. They are also responsible for establishing a FinOps culture. Executives, such as CEOs and CFOs, drive accountability, not exceeding budgets, and build transparency among teams. The business/product owner is a team member focused on cloud optimization or analysis. The engineering and operations team members work on building and supporting services for the business, with cost as a driving force for their decisions. The finance/procurement teams work closely with the FinOps practitioners to build forecasting models and ensure the costs match the agreed-upon contract.
The FinOps framework includes the three phases outlined above: inform, optimize, and operate. Through the principles, people, and phases discussed, the FinOps framework brings accountability to cloud spending – everyone involved has a stake in the services provided and the outcome.
How FinOps helps to avoid the pitfalls of realizing the cloud’s value
Businesses often deal with a few common pitfalls when migrating to the cloud. Below are some examples of how adopting FinOps will help avoid them and get the most out of the cloud.
- Wait-and-see strategy is costly: Often, businesses delay establishing comprehensive cloud financial management practices because they feel overwhelmed migrating all at once to the cloud. These businesses would benefit from adopting FinOps early on in the migration process, as it would make for a smoother, more cost-effective transition.
- Business executives get involved too late: According to a McKinsey survey, they don’t usually get involved in their company’s cloud programs until $100 million a year has been spent. This is too late, as once this much money has been spent, it’s hard to stay ahead of the steep learning curve of understanding the cloud’s capabilities and benefits. Cloud waste is reduced when business executives are involved with FinOps practices from the beginning.
- Businesses have a limited understanding of cloud unit economics: If FinOps aims to enable companies to get business value from the cloud, an understanding of the relationship between cloud consumption costs and value for businesses is a must. An effective FinOps team will have a high-level understanding of this crucial relationship.