FinOps: Evolving Cloud Financial Management

4 min read

As more organizations are adopting a hybrid, multicloud approach, they are struggling to optimize value and control cloud spend.

FinOps — short for Financial Operations — is the practice of bringing together finance, technology and business to master the unit economics of cloud for business advantage and create an operating model for efficient cloud usage. The journey to cloud is exciting, and it offers companies new ways to deliver existing solutions and explore net-new capabilities. 

Cloud brings a change in agility, demand-based consumption and decentralized control, all of which drive innovation and productivity; however, it clashes with existing on-premise BAU operating models that put IT finance and business teams a step behind tracking, monitoring and planning cloud costs. With the increasing adoption of a hybrid, multicloud approach, organizations are struggling to optimize value and control cloud spend. FinOps tries to address that balancing act, empowering engineering teams with speed and agility, while still considering quality and costs. 

What is FinOps?

FinOps is a natural companion to DevOps and can be thought of as the operating model discipline for efficient cloud usage. It is a combination of systems, best practices and culture change to increase the enterprise’s ability to understand cloud costs, make smart, objective-based decisions and take action to improve value. This requires a revised approach to cost and value management which inherently affects most areas of an organization; from leadership down to the newest junior engineer — everyone has their part to play. 

The methodology is laid out for practitioners by the FinOps Foundation. FinOps can be a radical transformation for some organizations, but when done right, it becomes part of the enterprise culture by breaking down functional barriers between development squads, product owners, finance and commercial teams. It causes them to collectively rethink and reimagine how they work and collaborate, assigning appropriate accountability and metrics for the questions of: "Am I being cost-effective, and am I delivering value?" 

Why should my organization adopt FinOps? 

FinOps is a new word and a new practice within organizations, but not a new function — cloud migrations and cost management have been taking place across enterprises for almost a quarter-century. FinOps brings visibility and accountability forward in organizations struggling to manage cloud spending and proper allocations. 

Some other challenges include the inability to show value from the utilization of the cloud, slow optimization of cloud consumption from development and delivery and lost connections between cloud strategy and enterprise strategy. IDC Futurescape: Worldwide Cloud 2022 predicts that "by 2023, 80% of organizations using cloud services will establish a dedicated FinOps function to automate policy-driven observability and optimization of cloud resources to maximize value." 

In order to achieve successful program completion and attain the necessary business value, FinOps program delivery should be bracketed by two simple principles: 

  1. What are the pain points being addressed?
  2. What are the frameworks, approaches, tools and personnel required? 

In our experience, the most common organizational challenges related to cloud include three main issues: 

  1. Overspending on existing off-premises and on-premises hybrid cloud resources. 
  2. Lack of cloud resources and business value visibility to leadership and senior executives.
  3. Inability to connect public cloud strategy with overall technology strategy. 

How can my organization be cost-effective and deliver value?

These challenges come from the complexity of invoicing, billing and tagging when utilizing multiple cloud providers across different teams or departments, and it requires people to shift their ways of working and attitudes towards cloud consumption. The State of FinOps Report for 2021 estimated that 46% of enterprises use cloud-native tooling as their primary technology for managing cloud costs, 43% use a third-party platform and 11% use home-grown tools or spreadsheets. 

FinOps solves shifting culture and management agendas by creating visibility into where the utilization is occurring, accountability of who is doing the spending and an explanation as to why the spending is happening by tying it directly back to business value objectives. The earlier an organization can establish these practices, the better they will ingrain these healthy cloud financial management habits into their people and set themselves up for fewer challenges in the future. 

The cultural shift in cloud financial management created by the FinOps discipline focuses on data-driven decision-making between between engineering, IT finance and the business to maximize business value. A successful FinOps adoption will consider the following:

  1. IT-wide, cross-functional support is paramount.
  2. Business objectives drive cloud decisions.
  3. There must be individual accountability for cloud usage and spend.
  4. FinOps reports should be accessible and timely.
  5. There should be a centralized ownership of FinOps.
  6. Organizations must actively manage the variable cost model of cloud.

Summary

The FinOps solution requires a cultural shift. When done right, FinOps becomes part of the company DNA, with every choice and action shaped around the questions of: "Am I being cost-effective, and am I delivering value?" 

In order to succeed, the solution needs to be cross-functional and collaborative, breaking down functional barriers and involving a wide variety of stakeholders from across the organization. This goes from top to bottom and everywhere in between. Covering the entire organization — from executives down to the newest engineer — FinOps requires both practical action and strategic leadership. By setting targeted metrics to allow responsible and accountable parties to verify that cloud spend is used in the pursuit of business objectives, FinOps is about delivering value, not just cutting cost.

Learn more

IBM Consulting Hybrid Cloud Advisory Practice leverages client-proven strategies with industry-leading assets and accelerators to bring accountability and visibility to cloud cost management by tying business objectives to squad-level metrics to seamlessly accelerate cross-enterprise adoption. To learn more about IBM's FinOps Offering, please visit IBM Hybrid Cloud Advisory

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