Combining finances with operations, FinOps is a framework for managing operational expenses and maintaining financial accountability in the cloud.
Cloud computing has revolutionised the way organisations operate, offering unparalleled flexibility, scalability and efficiency. The ability to access on-demand resources and dynamically adjust infrastructure has empowered businesses to rapidly innovate and adapt to changing market demands even as they occur. However, not every venture into the cloud yields the expected success, particularly when it comes to managing costs.
Cloud operational management typically involves multiple teams and departments, leading to decentralised decision-making and fragmented cost control. The distributed nature of cloud spending makes it challenging for organisations to predict and control expenses effectively. Consequently, businesses frequently find themselves grappling with soaring cloud costs that can easily hinder growth, strain budgets and undermine the advantages inherent in cloud computing.
In the pursuit of more dependable financial control and optimisation in the cloud, organisations have turned to cloud FinOps. This comprehensive methodology for managing cloud costs bridges the gap between finance, operations and cloud management, providing a framework to tackle the complexities of cloud spending and maximise the value derived from cloud investments.
More than anything, FinOps is the recognition and acceptance that traditional infrastructure and cost management is simply not effective when working within the cloud. To this end, FinOps solutions focus on:
Efficiency lies at the heart of FinOps. Wasting money is detrimental to any business and, to thrive, organisations must utilise their resources judiciously, extracting the maximum value from every dollar spent. FinOps encourages businesses to adopt a proactive approach to cost management, identifying areas of waste and inefficiency to optimise resource allocation and eliminate unnecessary expenditure.
By continuously striving to do more with less, organisations can uncover cost-saving opportunities, leverage automation and streamline workflows. FinOps empowers teams to identify optimal resource configurations, implement cost-effective strategies and align cloud spending with business goals, ensuring a sustainable and cost-efficient cloud environment. Three key areas of optimisation would include cloud computing, storage and databases.
Learning from both mistakes and successes is a fundamental aspect of achieving financial excellence. FinOps emphasises a culture of continuous improvement by leveraging real-time data and insights to refine financial processes. By monitoring, analysing and evaluating cloud costs on an ongoing basis, organisations can gain valuable intelligence that informs strategic decision-making. This iterative approach allows businesses to adapt to evolving requirements, enhance cost visibility and foster collaboration between finance, operations and development teams.
FinOps brings together business, finance and technology to optimise 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 ownership and be accountable for the expenses. 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, rates and available discounts 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 organisation; it’s a natural evolution of technology management to account for on-demand cloud resources.
With the rise and proliferation of cloud computing, 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, organisations 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 optimisation 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.
To effectively assist organisations in better tracking and governing their cloud-related finances, FinOps is built on three essential tenets:
FinOps practitioners employ automation tools and cloud cost management solutions to identify opportunities for cost reduction and eliminate wasteful spending. By leveraging insights such as rightsizing recommendations, workload scheduling and reservation planning, organisations can optimise their cloud resource usage and take advantage of discounts offered by cloud providers.
By employing a collaborative approach that brings together finance, operations and engineering teams, FinOps enables organisations to achieve several key goals. These goals include:
The primary goal of FinOps is to foster innovation while lowering the cost of doing business. By effectively managing cloud costs and resources, organisations can more strategically allocate their financial resources. FinOps leaders work closely with stakeholders to ensure that cloud investments align with business goals, allowing for the efficient deployment of resources and faster time-to-market for new products and services. Through proper cost optimisation and budget allocation, FinOps empowers organisations to invest in innovative projects, drive revenue growth and gain a competitive edge.
Financial accountability and visibility are critical aspects of FinOps. Organisations need a clear understanding of their cloud costs and how they relate to various projects, teams and departments. FinOps establishes processes, tools and policies that provide detailed cost transparency, enabling stakeholders to take direct ownership of their cloud spending. By promoting financial accountability, FinOps encourages responsible cloud resource usage and cost-conscious decision-making and gives users the ability to track the financial impact of cloud initiatives.
Cost optimisation and efficiency are fundamental goals of FinOps. Organisations strive to optimise how they use cloud resources to ensure that they are obtaining the maximum value from their investments. Through rightsizing, workload scheduling and leveraging discounted pricing options, FinOps practitioners identify areas where costs may be reduced while eliminating unnecessary or underutilised resources.
FinOps fosters cross-organisational trust and collaboration by breaking down silos between finance, operations and engineering teams, aligning interests and creating a shared understanding of cloud costs and their impact on business outcomes. This promotes collaboration and effective communication, encouraging stakeholders to work together, exchange insights and make decisions that balance financial considerations with operational needs.
Cloud sprawl, or uncontrolled growth in cloud resources and costs, can pose challenges for an organisation's financial stability. FinOps exists to prevent sprawl by establishing governance policies and controls to monitor, manage and control cloud spending across teams and projects. FinOps provides organisations with the necessary tools and processes to identify and address instances of wasteful spending, redundant resources or unoptimised configurations.
Effectively implemented, FinOps does more than simply realign organisational focus. It provides clear capabilities for businesses in regard to cloud financial management. These include the following:
FinOps allows organisations to more clearly track where their costs are coming from, comparing current and past spending to identify key drivers.
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 organisations can respond quickly and accurately.
Effective planning and budgeting depend on a foreknowledge of what resources an organisation will need and when. Historical data analysis through FinOps helps businesses better forecast resource usage, for more-efficient planning. Budgeting should be detailed and combined across multiple vendors and resources and provide an awareness of where the organisation is in relation to their goals and forecasts.
As FinOps is largely dependent on team ownership and commitment, it relies heavily on self-governing behaviour to promote accountability and business agility. With this in mind, FinOps is built on several core principles.
By establishing clearly defined Objectives and Key Results (OKRs), Key Performance Indicators (KPIs) and other metrics, organisations ensure that teams understand their responsibility in optimising the financial outcomes of their cloud usage. This encourages ownership, fosters a culture of responsibility and drives continuous improvement in optimising costs and delivering business value.
Agile practices enable flexibility, iterative improvements and responsiveness in managing cloud costs, allowing organisations to allocate resources efficiently and adjust plans as necessary to optimise financial outcomes.
Although accountability is a major principle in FinOps, finger-pointing is not. Mistakes are viewed as part of the learning journey and a fundamental part of the process improvement within the FinOps culture.
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.
Businesses must be keenly aware of their available resources and make a concerted effort to prioritise and allocate cloud resources effectively.
While buy-in must be organisation-wide, FinOps should be driven by a centralised team that works with cloud providers to govern cloud finances. This allows the FinOps team to focus on multiple factors such as the usage, optimisation and securing better discounted rates.
The real-time accessibility provided by the cloud demands ongoing collaboration and continuous improvement and innovation between finance and technology teams.
By providing visibility into cloud spending and costs, organisations can make informed decisions, track usage patterns and identify areas for optimisation. Cost transparency facilitates collaboration among stakeholders, enables data-driven discussions and helps align cloud spending with established business priorities.
Businesses that incorporate FinOps must establish usage policies for all cloud resources. Defining who is authorised to use which cloud properties and when they use them will improve forecasting.
Although nearly all cloud vendors provide some level of security, FinOps organisations must likewise take responsibility for security-related functions. This may include key management, duty segregation, risk management and more.
Resource usage and optimisation is decentralised, putting the responsibility for managing cloud usage against an established budget in the hands of individual feature and product owners and teams.
FinOps organisations 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 organisation 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 organisations to continually optimise cloud costs by making ongoing adjustments and course corrections.
Because FinOps takes an iterative approach to managing cloud finances, the FinOps lifecycle can be visualised as an ongoing three-step process.
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 organisation is with visibility and allocation, the better they will be able to manage cloud costs.
With relevant data in hand, the organisation must next take action to reduce spend and right-size capacity without reducing cloud effectiveness. Optimisation means taking a cold, hard look at utilisation and rates and making necessary changes.
After trimming away the excess, organisations 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 renews the cycle, for ongoing FinOps optimisation.
It's important to note that not only is this cycle self-repeating, it's also team dependent. An organisation may find itself in multiple different stages at the same time, across various departments.
Because FinOps is an organisation-wide cultural shift that requires collaboration between many teams and departments, essentially most people within the organisation are FinOps stakeholders. That said, those with the most vested interest in FinOps include the following:
Executives lead by example in embracing FinOps culture. They focus on accountability and transparency throughout the entire organisation, and act as a safeguard against teams exceeding budgets. Key executives who are often involved with FinOps teams include the Chief Technology Officer (CTO), Chief Information Officer (CIO) and the Chief Financial Officer (CFO).
Finance and procurement professionals 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.
Business/product owners take the lead in guiding new products, services and features to the market, ensuring their successful adoption and facilitating continuous growth year after year. These individuals are also expected to leverage their expertise to align cloud resources with business objectives and drive operational efficiency and reduce costs.
Engineering and operations teams work within FinOps to establish cost as a performance metric and are responsible for building and maintaining FinOps support services. They are often the highest consumers of cloud resources and therefore need to respond and optimise their solutions to minimise cloud spend.
FinOps practitioners help forecast cloud spend, and work within teams to accurately budget and allocate resources. These FinOps practitioners often include individuals who are software asset managers that are performing similar tasks with enterprise software and SaaS solutions.
FinOps teams are built around principles of agility, which allow for some flexibility in how FinOps teams are structured. They often include executives, FinOps practitioners, finance analysts or consultants, and members of stakeholder teams like Engineering and DevOps. That said, many organisations also find that a collaborative and cross-functional team called the Cloud Centre of Excellence (CCoE) plays a pivotal role in overseeing strategy, governance and best practices designed to drive business transformation through cloud utilisation.
The CCoE serves as a central hub, interacting with various departments and stakeholders across the organisation. Think of this team as the front-end planners and strategists. Their primary responsibility is to manage and optimise the organisation's cloud operations, ensuring alignment with business goals. By establishing and implementing cloud governance policies, the CCoE enables other teams to leverage standardised practices, maximise the benefits of the cloud and facilitate the overall transformation of the business. The CCoE acts as a guiding force, providing expertise, support and strategic direction to ensure the effective and efficient utilisation of cloud resources throughout the organisation.
A FinOps team operates more as the back-end practitioners who monitor and account for the cloud practice and help optimise areas for better productivity and cost efficiencies. Both teams are necessary to mature your cloud management practices and results. And in some cases, especially where businesses are primarily in the cloud, FinOps may belong as a subgroup of the Cloud Centre of Excellence.
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 management and optimisation
Cost efficiency
Resiliency
Velocity
Increased transparency
Budgeting
This metric drives both the process and cultural transformation journey, aiming to foster financial accountability and accelerate the realisation of business value. By streamlining IT financial processes and facilitating frictionless cloud governance, the accountability metric empowers organisations to take ownership of their cloud costs and optimise spending effectively. Reporting costs and consumption to executive management and individual departments is often referred to as "show-backs" or "chargebacks".
The benchmark performance metric enables organisations to compare their cloud spending and cost optimisation efforts against industry standards and peers. It involves analysing OKRs and related KPIs, identifying what percentage of cloud spend has been budgeted for and reviewing other relevant performance data to create a scorecard detailing how the organisation's FinOps strategy measures up.
The cost optimisation metric focuses on strategic spending to maximise business value. This offers a consistent methodology for visualising and managing cloud consumption in the most cost-effective ways. This metric empowers organisations to identify areas where costs can be reduced, resources may be optimised and cloud spending can more effectively align with predefined business objectives.
Cost visibility emphasises the importance of transparency and traceability in cloud-related expenses. Relying on well-defined resource hierarchy and project structure standards and complemented by a labelling and tagging data architecture, this metric enables organisations to gain valuable insights into resource utilisation and expenditure.
This metric enables organisations to align their cloud usage with financial objectives, providing insights for budgeting, resource allocation and informed decision-making. Planning and forecasting is typically based on historical-spending data, augmented with predictions based on upcoming initiatives.
The tools and accelerators metric emphasises the adoption of appropriate tools and technologies to enhance cost visibility, automate cost analysis and provide actionable insights. These resources enable organisations to apply the full potential of FinOps to reach their goals, enabling better decision-making and cost optimisation in the process.
Total costs encompass not only the direct costs associated with cloud resources but also indirect costs such as data transfer fees, support charges and any other expenses related to cloud usage. By considering the complete cost picture, organisations can accurately assess the financial impact of their cloud operations and make informed decisions regarding cost optimisation and resource allocation.
As previously addressed, FinOps is a cultural and operational shift that demands ongoing support and accountability throughout an entire organisation. 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 are 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. But they need to be budgeted and used within a certain timeframe or you lose them, which can be even more costly.
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. Plus, they can take advantage of different services and capabilities that match the objectives of your business service or application running in the cloud.
While it can be advantageous to work with a range of vendors, some vendors offer volume discounts, potentially offering significant savings on cloud services.
Deploy FinOps solutions gradually, starting with foundational changes. Build enthusiasm and momentum by ensuring that everything is operating as expected and that successes are being clearly documented. Optimise resource utilisation and foster a culture of cost-conscious operations, adjusting where necessary.
Implementing a FinOps programme involves several key steps that span from planning to launch. By following these steps, organisations can successfully adopt and leverage the FinOps framework to optimise cloud costs and drive financial accountability. Here is a brief guide on implementing a FinOps programme:
Begin by researching and understanding the pain points, operational challenges and interdepartmental dynamics within the organisation. Assemble a pilot team of engineers, finance and C-Suite representatives. Collaboratively brainstorm a vision for the desired outcomes and consider seeking guidance from external consultants to help shape the plan. Take guidance from the CCoE team, if there is one in place.
Conduct a comprehensive analysis of cloud expenses to gain deeper visibility into current IT budgets and allocations by team. This stage involves examining cost breakdowns, identifying drivers and understanding the utilisation patterns of various cloud resources. The analysis phase provides valuable insights into the current state of cloud spending and serves as a basis for developing targeted cost-saving strategies.
Communicate the FinOps framework clearly and engage the entire organisation, preparing teams for the cultural and operational shift that will be required. To ensure FinOps success, promote a shared understanding of values and routines that need improvement to embrace a cost-conscious mindset.
Establish measurable OKRs and associated KPIs to track progress. Create a roadmap outlining the progression of the FinOps adoption journey from initial stages (Crawl) to scaling up (Walk) and achieving a mature, optimised state (Run).
Deploy FinOps solutions gradually, starting with foundational changes. Build enthusiasm and momentum by ensuring that everything is operating as expected and that successes are being clearly documented. Optimise resource utilisation and foster a culture of cost-conscious operations, adjusting where necessary.
Measure the performance of cloud instances by comparing resource utilisation, performance metrics and costs against industry standards and internal benchmarks. By analysing this data, FinOps teams can identify instances where resources are underutilised or over-provisioned, negatively impacting cost efficiency across the organisation.
Optimisation is an ongoing stage that permeates the entire FinOps process. This involves various strategies, such as rightsizing instances to match workload demands and business hours, leveraging auto-scaling capabilities, repositioning workloads to cost-effective cloud services and adopting containerisation or serverless architectures (where applicable). Continuous optimisation efforts ensure that cloud resources are used efficiently, costs are minimised and the desired level of performance is achieved without unnecessary overspending.
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 Cost Management provides FinOps teams 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 analyse the range of cloud-asset expenses with ServiceNow Cloud Insights – Right-size resources, reduce unnecessary costs and identify the top opportunities to optimise 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.