The What and Why of FinOps | Cloud industry forum

The What and Why of FinOps

By ​Jonas Lazar, SoftwareOne
1 Dec 2021

FinOps, also known as Cloud Financial Management, is becoming increasingly important for organizations that leverage the cloud. As the de-facto operating model for the cloud, FinOps helps organizations tie cloud spend directly to business outcomes, helping to add value back into your organization. Keep reading to learn the "what and why" of FinOps, key principles for success, and why you should be looking at FinOps as the next strategic step for your organization.

What is FinOps?

For many organizations, the journey to the cloud is filled with point solutions that lack cohesion. FinOps, however, helps align an organization’s approach with methodology and guidance. The term “FinOps” – short for Cloud Financial Management – refers to the practice of bringing financial accountability to cloud spend. This collaborative approach provides visibility into the cloud that enables better decision-making and leads to a stronger understanding of how every dollar spent in the cloud impacts the business.

As a cultural practice, FinOps encourages all members of an organization to take ownership of their cloud usage by applying best practices, and work together to ensure the most value for every dollar spent. The end result of the FinOps operating model is better understanding, visibility, control, and predictability of cloud spend, ultimately leading to an increase in business value.

Even before COVID-19, 80% of organizations typically overshot their budget in the cloud. Reasons include lack of a clear strategy during cloud migrations, and an inability to uncover and address anomalies. Some were even under the impression that migrating to the cloud would save money. But the actual primary advantage of cloud migration is increased speed of delivery and innovation, and this is precisely what FinOps is meant to support.

FinOps: Timeline of A Datacenter Revolution

As little as five years ago, most organizations’ IT infrastructures were still largely on-premises. This meant they were funded primarily through capital expenditure (CapEx). IT departments would have to get financial approval for server infrastructure, storage, networking – basically, anything and everything needed to deploy a new application or set of applications. Once approved, there was pressure to leverage all acquired technology rather than attempt to optimize it in order to justify the large expenditure.

However, tides shifted as AzureAWS, and other major cloud providers became common names in the IT world. Many organizations are now somewhere in the process of migrating all or part of their IT infrastructure to the cloud. Let’s break down exactly how the enterprise data centers has changed over the last few years.

2015: On-Premise Data Centers

As just described, a mere five or more years ago, many organizations operated on-prem data centers funded through CapEx. Infrastructure saw long cycle times and purchasing power was siloed. This meant limited options for services and software, as well as low pressure to optimize the data centers themselves.

2017: Cloud Viability

By 2017, many organizations were testing the waters of the cloud computing world. The primary use was for test cases and new development initiatives. Many IT departments started simple by using the cloud for cheap storage, but not anything critical. At this point in the timeline, very few enterprises were “all in” on the cloud.

2019: Cloud-First Strategies

By 2019 many companies were moving toward a cloud-first strategy, meaning if they were going to build or replace an application, that it would be done entirely in the cloud. This approach led to a massive shift in IT spending away from CapEx and toward operating expenses (OpEx). Finance and Procurement departments were pushed to the edge when they used to be the primary decision-makers for approving IT-related spending.

Moreover, the bills for cloud spend are much more complicated than the big infrastructure purchases of the past, with tens of thousands of lines – one for each cloud instance or application. The end result was an environment where spending $10,000 in the cloud is easier than buying a $10 mouse.

2020: FinOps

In an attempt to bring cohesion and establish industry standards for Cloud Financial Management, the FinOps Foundation was established. While it first came onto the scene in 2019, it hit the ground running when it merged with the Linux Foundation in June of 2020 and is now made up of over 3,500 individual members representing more than 1,500 companies worldwide. FinOps, as defined by the FinOps Foundation, is now considered the industry standard cloud operating model, and emphasizes cohesion between finance, IT, and business outcomes.