FinOps, also known as Cloud Financial Management, is becoming increasingly important for organizations that leverage the cloud. As the de-facto operating model for the cloud, FinOps helps organizations tie cloud spend directly to business outcomes.
What is FinOps?
The term “FinOps” – short for Cloud Financial Management – refers to the practice of bringing financial accountability to cloud spend. This collaborative approach provides visibility into the cloud that enables better decision-making and leads to a stronger understanding of how every dollar spent in the cloud impacts the business.
As a cultural practice, FinOps encourages all members of an organization to take ownership of their cloud usage by applying best practices, and work together to ensure the most value for every dollar spent. The end result of the FinOps operating model is better understanding, visibility, control, and predictability of cloud spend, ultimately leading to an increase in business value.
Even before COVID-19, 80% of organizations typically overshot their budget in the cloud. Reasons include lack of a clear strategy during cloud migrations, and an inability to uncover and address anomalies. Some were even under the impression that migrating to the cloud would save money. But the actual primary advantage of cloud migration is increased speed of delivery and innovation, and this is precisely what FinOps is meant to support.
FinOps: Timeline of A Datacenter Revolution
As little as five years ago, most organizations’ IT infrastructures were still largely on-premises. This meant they were funded primarily through capital expenditure (CapEx). IT departments would have to get financial approval for server infrastructure, storage, networking — basically, anything and everything needed to deploy a new application or set of applications. Once approved, there was pressure to leverage all acquired technology rather than attempt to optimize it in order to justify the large expenditure.
However, tides shifted as Azure, AWS, and other major cloud providers became common names in the IT world. Many organizations are now somewhere in the process of migrating all or part of their IT infrastructure to the cloud. Let’s break down exactly how the enterprise data centers has changed over the last few years.
2015: On-Premise Data Centers
A mere five or more years ago, many organizations operated on-prem data centers funded through CapEx. Infrastructure saw long cycle times and purchasing power was siloed. This meant limited options for services and software and low pressure to optimize the data centers themselves.
2017: Cloud Viability
By 2017, many organizations were testing the waters of the cloud computing world. The primary use was for test cases and new development initiatives. Many IT departments started to use the cloud simply for cheap storage. At this point, very few enterprises were “all in” the cloud.
2019: Cloud-First Strategies
By 2019 many companies moved towards a cloud-first strategy. If they were going to build or replace an application, it would be done entirely in the cloud. This approach led to a massive shift in IT spending away from CapEx and towards OpEx. Finance and Procurement departments were pushed to the edge when they used to be the primary decision-makers for approving IT-related spend.
Moreover, the bills for cloud spend are more complicated than the big infrastructure purchases of the past, with tens of thousands of lines — one for each cloud instance or application.
In an attempt to bring cohesion and establish industry standards for Cloud Financial Management, the FinOps Foundation was established. While it first came onto the scene in 2019, it hit the ground running when it merged with the Linux Foundation in June 2020.
FinOps, as defined by the FinOps Foundation, is now considered the industry standard cloud operating model, and emphasizes cohesion between finance, IT, and business outcomes.
What about ITAM
There are many hurdles organizations can experience when it comes to gaining control over the cloud. The following are some of the main challenges and where FinOps + ITAM can help…
- Constant change within the cloud: Gaining and maintaining knowledge and experience on different cloud spend optimization techniques
- Realisation of savings: Identifying suitable candidates, implementing savings and measuring cost control / reduction, KPI achievement
- Pitfalls prevention: Understanding the technical and licensing implications for each optimization strategy
- Cloud spend visibility: Knowing where the current cloud costs come from
- Mitigation of business risks: Continue modernizing IT with control over cloud cost
The FinOps operating model aligns well to the traditional approach taken by ITAM and has a three step, continuous lifecycle – Inform, Optimise and Operate.
Gain visibility over cloud costs, where costs are originating and why. Then, benchmark how the cloud is affecting finances and operations, identify areas of weakness, and take inventory of the teams that use the cloud and the solutions they use.
Create FinOps best practices for every team that uses the cloud. This will vary depending on which solutions a team uses and how mature the approach is to the cloud. Every cloud-enabled team needs to be told which cloud resources they control and be provided with actionable recommendations to optimize cloud use.
During this phase, organizations learn how to lay the foundation for ongoing adoption. Governance policies are created that enable the goals of Technology, Finance and the Business to be jointly achieved.
Next steps for ITAM
Business, IT and Finance teams must work together to fully understand the costs behind the cloud resources being consumed and how these can be optimized. ITAM can certainly play an important role in the adoption of FinOps. It and FinOps align well, share similar challenges and objectives, follow the same principles and even cover each other’s blind spots.
ITAM teams are increasingly playing a crucial role in cloud financial management. It is a logical extension of ITAM’s traditional role, and ITAM professionals already have many of the skills needed to support and lead a FinOps programme.
If you’re an ITAM Forum member, log in to access our on-demand webinar: FinOps: What ITAM professionals need to know. This informative, conversational and discussion-based event explores FinOps and the key role(s) for ITAM.