Introduction

Organizations that are increasingly reliant on cloud-based solutions need effective cost management. FinOps (from Financial Operations) is an emerging discipline that helps organizations gain a clear picture of their cloud spending in order to control cloud costs. By bridging the gap between traditional IT, engineering, and finance teams, FinOps can identify opportunities to optimize resources and drive accountability across all stakeholders. Ultimately, FinOps uses data-driven decisions to ensure that organizations’ cloud infrastructure aligns with their strategic goals by minimizing costs and maximizing efficiency.

What is FinOps?

Cloud environments are becoming more complex and more cash-hungry. As a comprehensive framework designed to help organizations manage and optimize their cloud infrastructure costs, FinOps combines expertise from finance, technology, and operations, enabling organizations to make data-driven decisions, increase collaboration between teams, and bring greater control to their cloud spending. Engineering organizations that embrace FinOps will post better numbers than their competition and attract positive investor sentiment to their businesses.

The FinOps framework is built upon five core principles that guide its implementation and practice: collaboration, visibility, accountability, optimization, and continuous financial management.

• Collaboration fosters shared responsibility for cost management across cross-functional teams.

• Visibility ensures accurate real-time insights into cloud usage and spending for more informed decisions.

• Accountability assigns cost ownership to teams or individuals, giving them direct cost-control of their cloud resources.

• Optimization calls on teams to use constant analysis and refinement of cloud resources to reduce costs without compromising performance.

• Continuous cloud financial management permits constant review and adjustment of FinOps processes to adapt to changing cloud environments and business needs.

Why do we need FinOps?

Vendor sprawl continues to grow, consumption-based billing with thousands of SKUs has become the norm, and self-service architectures enable engineers to pick and choose any tool for the job. With the plethora of data and vendors, the sheer size of the infrastructure estate can produce a cumbersome mess. In addition, the need to balance operational expenses (OpEx) and capital expenditures (CapEx) while revisiting previous technical decisions to factor in growth is becoming increasingly necessary to meet next quarter’s Rule-of-40 numbers. FinOps was born to help provide a foundation and common framework for what best practices look like.

Who are the FinOps Stakeholders?

Embracing FinOps requires bringing together disparate parts of an organization from different domains under one umbrella. Each stakeholder plays a critical role in helping to bring the best perspective of each domain to help drive successful implementation. Let’s take a closer look at the key stakeholders and their roles in FinOps:

• Practitioners: The FinOps practitioner serves as the bridge between business, IT, and finance teams. This allows each individual domain to focus on what they’re best at (e.g. finance for FP&A, engineering for building products) while having subject matter expertise in the room when it comes time to dig into the data.

• Executives: Executives like CTOs, CFOs, and CEOs play a pivotal role, not just driving accountability and transparency within an organization, but also providing the necessary sponsorship for initiatives that cut across multiple teams. Executives help set the strategic direction for FinOps initiatives and empower teams to take ownership of their budgets.

• Product Owners: Product Owners are responsible for balancing cloud optimization and cost management with the overall goals of their products. They ensure that cost-cutting measures aren’t haphazardly impacting the end user by working closely with engineering, finance teams, and the customer. It’s always good to cut costs unless it has a negative impact on the bottom line over the long run.

• Engineers: Engineers are the builders and maintainers of the systems that drive a large portion of the COGS bill. They are the de-facto subject matter experts of what is running where and how important it is to the business. Engineers play a vital role in optimizing cloud resources, ensuring that the organization's cloud infrastructure is cost-effective while still meeting performance requirements.

• Finance: Finance team members are responsible for using reporting to ensure the accuracy of allocation costs, showback allocation, and forecasting future cloud spending. They work closely with other stakeholders to ensure that financial data is accurate and up-to-date, enabling informed decision-making and cost optimization.

• Procurement: Procurement teams use the insights produced by the FinOps process to source and purchase products and services that best meet the organization's needs. They negotiate contracts and manage vendor relationships to make sure the organization gets the best value for its cloud investments. Procurement works with finance and engineering teams to help forecast long term costs.

• ITAM Leaders/Practitioners: IT Asset Management (ITAM) leaders and practitioners work to maximize the business value of assets and manage risk related to asset optimization and contract compliance. They coordinate with other stakeholders to handle cloud resources effectively while ensuring that the organization remains compliant with licensing and contractual obligations.

How does FinOps work?

The FinOps process can be broken down into three core phases: Inform, Optimize, and Operate. These phases form a cycle, allowing organizations to continuously adapt and improve their cloud cost management practices.

The Inform phase is the foundation of the FinOps process, making cloud usage and costs visible to the organization. During this phase, stakeholders can understand the financial impact of their cloud resource usage because costs are accurately allocated to teams or individuals. The Inform phase involves regular reporting and up-to-date analysis. This visibility encourages data-driven decision-making and helps identify areas for optimization.

The closely-intertwined Optimize and Operate phases focus on the ongoing management and refinement of cloud resources. In the Optimize phase, organizations analyze their cloud infrastructure to identify opportunities for cost reduction and resource optimization. This may involve rightsizing resources, selecting the most cost-effective cloud services, or implementing automated cost-saving measures.

The Operate phase is the ongoing management of cloud resources to align with business goals and deliver value. In this phase, the organization monitors and adjusts cloud resources based on the insights gained during the Inform and Optimize phases. By cycling between the three phases, cloud cost management practices improve over time, maximizing the value of cloud investments.

Conclusion

As organizations continue to embrace cloud-based solutions, effective cost management becomes increasingly important. FinOps provides a comprehensive framework for coordination between IT, engineering, and finance teams to encourage data-driven decision making, resource-optimization, and stakeholder accountability. By adopting FinOps principles and practices, organizations can ensure that their cloud infrastructure aligns with their strategic goals while maximizing efficiency and minimizing costs. The collaboration between stakeholders is key to the successful implementation of FinOps. Cloud environments will continue to evolve, and FinOps will play a vital role in navigating the complexities of cloud cost management and realizing the full potential of cloud investments.