…FinOps 101: The Basics

FinOps is an emerging practice for financial management in the cloud. Like DevOps, FinOps requires a culture shift and is an iterative process. While there are many other similarities, there are also differences.

What is FinOps?

FinOps is an evolving practice that combines data, organization, and culture to optimize cloud financial management. In the initial phase, FinOps teams inform their organization about their cloud spend and benchmark it against internal goals. Once they have established a baseline, they can automate and rightsize their workloads to minimize usage costs and then continually work to improve their efficiency and effectiveness.

While the implementation of FinOps can be disruptive for legacy enterprises, if it’s done properly, it can be very smooth. The benefits are immediate and include:

• Visibility of operational costs
• Proper forecasting
• Increased business impact.

In addition to reducing budgets, FinOps also frees up resources and enables teams to operate in an agile environment.

One important concept in FinOps is unit economics, the concept of measuring cloud costs against a business metric. This concept impacts almost every aspect of FinOps, including tagging, cost allocation, and cost optimization.

As with any new practice, early implementation is vital for success. With the support of an experienced team, companies can avoid costly mistakes. For example, a company’s financial team should be able to catch cost overruns before they become large. Additionally, it’s important to educate the entire organization to ensure that engineers and cross-functional teams understand the language of cloud computing. The benefits of FinOps will start to show up almost immediately after the implementation process, however the cultural change needed to ensure success can’t be overstated.

How is FinOps similar to DevOps

DevOps is a process of integrating operations and development. Its goal is to deliver software faster and more reliably. It uses a cycle of coding, building, testing, and deployment. The process involves close collaboration among team members in order to ensure that tasks are completed as quickly as possible. The different steps in the cycle involve a variety of technologies, tools, and devices.

Both FinOps and DevOps strategies aim to improve operations and reduce costs, but while DevOps is focused on the development of software, FinOps focuses on the cost-efficiency of cloud-based financial management by eliminating silos in the organization and maximizing the value of the cloud.

DevOps teams face pressure to meet agile release cycles, without sacrificing cost-efficiency. They can then channel the saved funds towards new features and technologies. In the same way, automated FinOps solutions help reduce cost, freeing up resources and reducing waste.

For SaaS companies, controlling cost can be a strategic advantage and FinOps is a process that combines technical and financial disciplines. Modern FinOps businesses go beyond spending reports to align their costs with business dimensions, they know the costs of their different customers, and even have a unit cost metric.

Similarly, DevOps teams need to collaborate with their finance colleagues to create a common language between finance and tech to better utilize cloud resources and make better decisions based on data.

Implementing a FinOps solution requires a cultural shift

The process of FinOps can be divided into three phases:

1. Inform

2. Optimize

3. Operate.

Each phase has a specific goal, and should be tracked and to measure the results. For teams to be effective, they should focus on business goals, while also minimizing the costs of processes. This will ensure that the culture of FinOps is efficient, and everyone will stay on track.

To achieve a successful cloud-based IT strategy, businesses need to change their culture. To achieve this, they need to develop a Cloud Cost Center of Excellence, which will align operational, financial, and business stakeholders. This will enable them to optimize their cloud footprint, while also providing the tools and training needed for the cultural shift.

Successful FinOps programs have strategies to drive this cultural change that are essential to building an effective Cloud FinOps practice. By aligning the organization to the principles of a FinOps culture, they can achieve more consistent results and maintain cost accountability and business agility.

A core FinOps principle is financial accountability. Businesses should know exactly how much they’re spending on their cloud, and should be able to calculate the TCO and ROI of each project. However, this can be difficult to achieve in large businesses, where silos prevent collaboration and communication, especially as calculating ROI and TCO takes time. To avoid such problems, businesses need to forecast their costs, and audit them regularly.

FinOps is an iterative process

A key part of FinOps is the iterative process of identifying, measuring, and analyzing metrics. These metrics should be part of a holistic business strategy that incorporates multiple data streams. Having this visibility will help businesses better manage their cloud resources and costs as well as allowing them to evaluate the effectiveness of their cloud capacities and compare them to their predefined goals. The process of evaluating metrics is ongoing and team-dependent.

FinOps allows businesses to manage cloud costs in an accountable way by integrating IT and finance functions. It enables distributed teams to make strategic and tactical business decisions, while fostering a culture of financial responsibility. By tagging expenditures with appropriate departments, FinOps can allow businesses to track and manage their cloud costs in real time. This will help CFOs gain control over their cloud spending.

The first step in implementing FinOps is to identify the use cases that are critical to the organization. While the benefits of cloud-based computing are numerous, the downside is that businesses often have trouble addressing cloud financial management. To make FinOps successful, businesses must address cloud cost management processes and culture. While the framework of FinOps provides the necessary tools to implement the process, it requires a significant amount of discovery work before adopting the process.

Then businesses can optimize their technology investments including cloud computing services, to help lower their costs. The FinOps process includes right-sizing instances, services, and infrastructure, as well as reporting and analytics. A FinOps team needs visibility into their cloud usage to make strategic decisions based on this information, including helping them calculate customized pricing.

FinOps is a cycle

As mentioned earlier, the FinOps cycle revolves around three stages: inform, optimize, and operate. Businesses can be in more than one of these phases at any time, depending on their business units, application, and teams. The three phases work together to enable businesses to make informed decisions to improve the efficiency of their cloud computing infrastructure by establishing better visibility.

Early in the cycle, businesses need to educate their entire organization on the benefits of cloud computing. This early cultural change cannot be overstated as it will help businesses see results almost immediately. When FinOps is implemented, the entire business will benefit. Engineers will begin to grasp financial concepts and cross-functional teams will begin learning the language of cloud computing.

By implementing FinOps, businesses are ensuring the availability, speed, and quality of their services. As a result, they can beat competitors in time to market. This helps them develop features faster, pay back their capital, and generate revenue sooner. By bringing in a more agile team and keeping costs under control, they are able to gain a competitive edge.

Managing cloud costs with FinOps requires ownership, accountability, and collaboration between engineering and finance teams. It also requires collaboration among teams across the organization. The finance team and the procurement team must be on the same page. Both teams must make business trade-offs based on data.

Summary

As public cloud spending increases globally, companies need to optimize costs while enhancing efficiency. And as you can see, FinOps is a business solution that helps businesses get rid of time-consuming tasks and increase their efficiency.

It’s a technology that encompasses all the fundamental aspects of finance in one system. It also reduces financial expenses by eliminating unnecessary processes and keeping operations on track. This makes it simple and easy for businesses to track their finances, manage expenses, and generate reports on time.