What is FinOps?

Combining finances with operations, FinOps is a framework for managing operational expenses and maintaining financial accountability in the cloud.

More than anything, FinOps is the recognition and acceptance that traditional infrastructure management is simply not effective when working within the cloud. FinOps brings together business, finance, and technology to optimize cloud-vendor management.

FinOps is as much a cultural practice as a financial one; it establishes best practices for cloud usage and then relies on everyone involved to take personal ownership. Instead of individual, separate procurement teams working in silos to identify and approve costs, FinOps unites cross-functional teams of business, finance, and technology to better manage cloud vendors, rate, and discounting in a cloud environment.

When coupled with reliable real-time data, this provides increased financial and operational control.

Unlike many modern tech movements, FinOps is not a single advancement or policy change pioneered by any specific company or organization; it’s a natural evolution of technology management to account for on-demand cloud resources.

With the rise and proliferation of cloud computing in the new millennium, many companies began to see a shift from standard, traditional pricing to usage-based pricing models. And, while this allowed businesses to take a more cost effective approach to technology—paying only for the time and resources they used, rather than paying a set rate—it created a crisis for CFOs. After all, it’s next to impossible to predict tool usage with any degree of accuracy, which can make budgeting an exercise in futility.

To address this issue, prevent runaway expenses, and promote business profitability, organizations around the world began to develop the concept of financial operations, (FinOps). This revolution was guided by respected technology companies around the world, first taking shape as cloud cost management, developing into cloud cost optimization, and then into cloud financial management.

Finally, taking inspiration from the success of DevOps, FinOps was born, bringing cross-functionality and agility to financial management of cloud technologies.

Effectively implemented, FinOps does more than simply realign organizational focus. It provides clear capabilities for businesses in regards to cloud financial management. These include the following:

Accurate cost analysis

FinOps allows organizations to more clearly track where their costs are coming from, comparing current and past spending to identify key drivers.

Real-time decision making

In a usage-based cloud environment, businesses need to be able to make precise predictions and split-second decisions regarding finances. FinOps generates real-time data insights, so organizations can respond quickly and accurately.

Improved resource planning

Effective planning and budgeting depends on a foreknowledge of what resources an organization will need, and when. Historical data analysis through FinOps helps businesses better forecast resource usage, for more-efficient planning.

As FinOps is largely dependent on personal ownership and commitment, it relies heavily on self-governing behavior to promote accountability and business agility. With this in mind, FinOps is built on several core principles.

Business-value based decisions

Rather than depending on aggregate spending, businesses should focus on value-based metrics and unit economics. FinOps prompts conscious decision making that must often trade off between speed, cost, and quality.

Capacity and resource planning

Businesses must be keenly aware of their available resources and make a concerted effort to allocate them effectively.

Centralized management

While buy-in must be organization-wide, FinOps should be driven by a centralized team that works with cloud providers to govern cloud finances. This allows other teams to focus on usage and optimization, rather than rates.

Collaboration

The real-time accessibility provided by the cloud demands ongoing collaboration and continuous improvement and innovation between finance and technology teams.

Governance and policy

Businesses that incorporate FinOps must establish usage policies for all cloud resources. Defining who is authorized to use which cloud properties and when will improve forecasting.

Security

Although nearly all cloud vendors provide some level of security, FinOps organizations must likewise take responsibility for security-related functions. This may include key management, duty segregation, risk management, and more.

Shared ownership of cloud usage

Resource usage and optimization is decentralized, putting the responsibility for managing cloud usage against established budget in the hands of individual feature and product teams.

Timely and accessible reporting

FinOps organizations must be capable of processing cost data as soon as it becomes available, improving visibility and driving faster feedback loops. Data and insights should be visible throughout every level of the organization, and performance should be assessed using industry peer-level benchmarking.

Variable cost models

Cloud-based technologies rely on variable costs, making agile, iterative cost planning much more effective than long-term forecasting. FinOps views this as an advantage, allowing organizations to continually optimize cloud costs by making ongoing adjustments and course corrections.

Because FinOps takes an iterative approach to managing cloud finances,the FinOps lifecycle can be visualized as an ongoing three-step process.

Inform

FinOps depends upon clear visibility into resources, budgeting, benchmarking, and more, to promote real-time decision making for businesses and teams. The more informed the organization is with visibility and allocation, the better they will be able to manage cloud costs.
Graphic showing the FinOps lifecycle.

Optimize

With relevant data in hand, the organization must next take action to reduce spend and rightsize capacity without reducing cloud effectiveness. Optimization means taking a cold, hard look at utilization and rates, and making necessary changes.

Operate

After trimming away the excess, organizations need to assess effectiveness. Measuring speed, cost, and quality of cloud capacities, they compare results to predefined goals. As improvements are made and tested, the business continuously restarts the cycle, for ongoing FinOps optimization.

It’s important to note that not only is this cycle self repeating, it’s also team-dependent. An organization may find itself in multiple different stages at the same time, across multiple departments.

Because FinOps is an organization-wide cultural shift that requires collaboration between every team and department, essentially everyone within a company is a FinOps stakeholder. That said, those with the most vested interest in FinOps include the following:

Executives

Executives lead by example in embracing FinOps culture. They focus on accountability and transparency throughout the entire organization, and act as a safeguard against teams exceeding budgets.

Finance/procurement

Finance and procurement specialists rely on accurate financial reporting and historic billing data to improve accounting and forecasting. They also use their analytical insights to negotiate rates with cloud vendors.

Engineering/operations

Engineering and operations teams work within FinOps to establish cost as a performance metric, and are responsible for building and maintaining FinOps support services.

FinOps practitioners

FinOps practitioners help forecast cloud spend, and work within teams to accurately budget and allocate resources.

By providing a reliable, agile approach to cloud finance management, FinOps offers a number of distinct advantages.

  • Real-time reporting
  • Improved cost and resource visibility
  • More-efficient workflows
  • Better team collaboration
  • Increased operational flexibility
  • Cloud cost optimization

As previously addressed, FinOps is a cultural shift that demands ongoing support and accountability throughout an entire organization. To help ensure FinOps success, here are several best practices that can be implemented across levels, teams, and departments.

Determine where money is being spent

Identify which applications, teams, and departments are using which resources. Visibility into current spending will provide a clear starting point for reducing costs without negatively impacting performance.

Eliminate unnecessary costs

As unnecessary costs are identified, cut them out. FinOps businesses need to be able to run lean, without any room for extraneous cloud expenses.

Use reserved instances

When reserved instances become available, consider purchasing them for future use. Reserved instances are often available at cheaper rates, and can help reduce costs when compared to on-demand options.

Leverage autoscaling

When workloads are unpredictable, take advantage of autoscaling options to automatically adjust computational resources to match active services.

Avoid being locked in to a single vendor

By working with multiple vendors, businesses improve their flexibility and allow for a better range of cloud options.

Seek out and take advantage of discounts

While it can be advantageous to work with a range of vendors, some vendors offer volume discounts, potentially offering significant savings on cloud services.

There are a lot of factors that go into establishing successful FinOps practices and culture. ServiceNow, the world leader in IT service management, makes effective FinOps easy, with IT Operations management (ITOM) and advanced Cloud Management.

ServiceNow Cloud Management provides developers with improved agility and governance to deploy and provision essential resources on demand, driving down cloud costs and more effectively managing operational expenses. ITOM allows users to more accurately predict issues that might affect financial accountability, while also employing automated resolutions built on reliable, data-focused insights.

Additionally, users can now analyze the range of cloud-asset expenses with the ServiceNow Cloud Insights application. Rightsize resources, reduce unnecessary costs, and identify the top opportunities to optimize cloud operations and save money. ServiceNow makes it all possible.

See for yourself how ServiceNow can help make the dream of effective FinOps a reality, and put the cloud to work for your business.

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