You may have heard of the term “FinOps” being thrown around. But what exactly is it? Why is it important for finance professionals to understand this concept?
FinOps, short for “financial operations,” is a cloud financial management practice and strategy that empowers finance teams to monitor and manage cloud expenses. More and more finance professionals are starting to recognize the need for efficient cost management in cloud environments. According to a recent McKinsey survey, 54% of respondents anticipate migrating at least half of their workloads to the public cloud within the next five years.
In this article, we delve into the pivotal role that cloud finance operations play for finance professionals in 2023, how it works, and how you can start adopting the framework in your workplace.
What is Cloud FinOps?
FinOps Foundations defines FinOps as “an evolving cloud financial management discipline and cultural practice that enables organizations to get maximum business value.” The methodology aims to bridge the gap between finance and operations by collaborating with finance professionals, IT, and operations to optimize the financial aspect of cloud computing.
Given the increasing reliance of businesses on cloud services for their operations, managing and optimizing the costs linked to cloud usage has grown significantly. The FinOps framework enables organizations to track, analyze, and control cloud spending, ultimately helping organizations make informed financial decisions and optimize their cloud-related costs.
Why is FinOps adoption on the rise?
FinOps adoption is increasing for several reasons. Firstly, as organizations continue to rely on cloud services for their operations, the costs associated with cloud usage can quickly escalate. In fact, it's hardly surprising that 94% of enterprises say they're overspending on the cloud, as reported by CIO.
FinOps provides a structured approach to managing and optimizing these costs, allowing financial professionals to gain better visibility and control over cloud spending. According to Spot.io, nearly 96% of cloud decision-makers believe that FinOps is an essential part of their cloud strategy.
By gathering analysis of data related to cloud usage and spending, utilizing FinOps enables organizations to identify areas of potential cost savings. This can include rightsizing instances, leveraging reserved instances, and implementing automation to manage cloud resources more efficiently. As a result, organizations can optimize their cloud costs and streamline their operations to achieve significant cost savings.
How does FinOps work?
According to the FinOps Foundation, cloud financial operation works by following a structured framework that involves three key pillars: inform, optimize, and operate.
Inform: The initial step involves collecting data and gaining the current state of cloud usage and spending. This involves establishing cost allocation practices, utilizing cloud cost management tools, and creating financial reports and dashboards. Financial professionals can use these insights to understand where and how cloud costs are incurred.
Optimize: Once data analysis is complete, the optimization pillar takes center stage. This involves identifying areas of potential cost savings and implementing strategies to optimize cloud spending. Actions may include rightsizing stances, leveraging reserves instances, and implementing automation to manage cloud resources more efficiently. By optimizing cloud costs, organizations can achieve significant savings and improve financial performance.
Operate: The final pillar involves continuous operations and governance. It requires setting up processes and controls to ensure that cost optimization strategies are implemented and monitored continuously. This includes establishing clear accountability for cloud costs, tracking cost trends, and regularly reviewing and adjusting cost optimization strategies as needed.
What technologies are employed in FinOps?
Technology plays a crucial role in enabling the implementation of FinOps practices. Here are some key technologies used in FinOps:
Cloud Management Platforms (CMP): CMPs provide a centralized platform to monitor, manage, and optimize cloud resources. They offer features such as cost analytics, budgeting, and resource allocation, allowing finance professionals to track and control cloud spending effectively.
Cloud Service Providers (CSP): Leading cloud providers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP) offer their native tools and services for cost optimization. These include services like AWS Cost Explorer, Azure Cost Management, and GCP Cost Management, which provide detailed cost breakdowns and recommendations for optimizing cloud spending.
Automation and Orchestration Tools: Automation tools play an important role by automating repetitive tasks and optimizing resource allocation. Tools like Terraform and Ansible enable finance professionals to define and provision cloud resources efficiently, ensuring cost-efficient deployments and reducing manual errors.
Metering and Monitoring Tools: To effectively manage costs, it is essential to understand resource utilization. Metering and monitoring tools, such as CloudHealth, Cloudability, and Datadog, provide real-time insights into resource utilization, helping finance professionals identify areas of inefficiency and take appropriate cost optimization measures.
How can finance professionals get started with FinOps?
The FinOps Foundation provides a comprehensive guide to getting started with cloud financial management. They provide a five-step framework that involves planning, socializing, preparing, launching, and running. Here are the steps to get you started:
Planning: This step involves gaining a comprehensive understanding of your organization, including gathering the right team, setting roles and responsibilities, and researching the current state of your cloud infrastructure. This requires you to create a plan that highlights the organization's current pain points, opportunities, and who is involved. This will help you build the roadmap for FinOps implementation.
Socializing: Once you establish clear cost optimization goals, budget, and priorities, it's time to communicate this plan to a newly created 'stakeholder community'. For example, you may create a cross-functional team that involves a senior executive, finance professional, product owner, and infrastructure lead. This newly created Cloud Cost Centre of Excellence (CCoE) team will ensure consistent communication and collaboration. This team should establish a regular cadence for reports, summaries, and feedback.
Preparation: As you gear up for FinOps action, it's vital to assess your organization's readiness. This involves defining a taxonomy, building toolboxes, and finalizing the baseline of KPIs. It's important to keep in mind that different areas of your organization will have varying levels of maturity and readiness for FinOps adoption.
Launching: The launch stage involves the complete implementation of the FinOps framework that has been planned and developed in the earlier stages. This includes deploying necessary tools, establishing processes, and integrating relevant teams. It also includes providing training to the stakeholders involved.
Running: After the initial launch, it's best practice to vigilantly monitor and enhance the maturity of your FinOps approach. By continuously reviewing and honing your FinOps strategies, you empower your organization to maintain its agility and effectiveness in overseeing cloud expenditures.
