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
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.
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.
The real-time accessibility provided by the cloud demands ongoing collaboration and continuous improvement and innovation between finance and technology teams.
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.
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.
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.
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.
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
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.
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 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 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 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.
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.
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.
As unnecessary costs are identified, cut them out. FinOps businesses need to be able to run lean, without any room for extraneous cloud expenses.
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.
When workloads are unpredictable, take advantage of autoscaling options to automatically adjust computational resources to match active services.
By working with multiple vendors, businesses improve their flexibility and allow for a better range of cloud options.
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.
Automate the end-to-end lifecycle for software licenses, hardware assets, and cloud—on one platform.