What is FinOps? Why is it important? Why has it become a thing? The technology sector is so full of acronyms and jargon terms that it’s hard for us all to keep up. As of today not everyone in tech or IT will know this relatively new catch all term, but everyone will immediately “get it” once you’ve explained it to them. They’ll recognise that this is simultaneously both “business as usual” and a necessary cultural shift in our rapidly changing, hybrid cloud world.
What is FinOps? It’s a new discipline. There’s a Foundation for it. You can get badges of certification for it. The foundation’s website explains it this way:
“FinOps is shorthand for “Cloud Financial Operations” or “Cloud Financial Management” or “Cloud Cost Management”. It is the practice of bringing financial accountability to the variable spend model of cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.”
It’s not a FAD. It’s definitely a trend. It is, in my opinion, essential in today’s hybrid cloud world. It matters for any size of business, but for medium sized enterprises heading towards large – it’s a big deal, made bigger by the disruption and changes we’ve lived through in the last 18 months. I use the word deal on purpose.
You may know that I’ve been evangelising the Cloud topic since before we started using the term in business on a regular basis back in 2007. It’s taken a while, but here in 2021, every IT professional, business and CFO recognises the importance of using Cloud infrastructure and services alongside or replacing their traditional, on-premise servers running the software that runs the business that connects their customers and people. Cloud underpins the agility and innovation any business needs.
However, running and managing Cloud infrastructure requires different skills and processes to the way you managed and governed your on-premise architecture and software assets. The underlying concepts may be the same, but you need a different framework, approach, and most importantly – a different mindset.
Why is it important? Even before the global pandemic, a Gartner report “Software Assessment Management for the Cloud: Consumption Management and Optimisation Take Center Stage” (handily hidden behind a paywall) suggested that 30% of enterprise cloud spend is wasted, and that’s a percentage of 100s of billions of dollars of cloud software and services. Flexera’s 2020 State of the Cloud Report suggests a third. It’s a big number, and a significant opportunity for any business.
Then the pandemic hit, and companies had to transform and do things differently in days and weeks, not months and years. Cloud infrastructure and services were a huge component in that innovation, and doing things fast usually results in compromises in cost, governance, and risk in favour of that velocity. The potential waste is probably a bigger percentage now. If your business is consuming these services at scale, you better get them under control.
Most businesses are using two or more brands of cloud infrastructure, and multiple Software as a Service offerings. The larger the enterprise, the larger the number of choices implemented, or being considered by business units, as well as IT, to get things done quickly in an innovative way. They call it Cloud sprawl. It’s shadow IT on steroids. Have you got a register of all of those services in use in your organisation today? You used to run queries over the data lake in your on-premise data centre. They took hours and days. Now that you’ve moved to cloud you can get answers in minutes, but they’ll probably come with a big, unexpected bill. You’ve lifted and shifted an application to a particular cloud platform, but there are reasons to move it to a different platform. Have you taken in to account the costs of getting the data out from one and moved in to the other? They call it ingress and egress, and it comes with a bill.
Too many businesses think of cloud in terms of cost – treating IT as a cost centre. Depending on the application scenario you may make a good case for saving costs over an on-premise solution, but that’s only one factor, and shouldn’t be the starting point. You need to think more strategically than that. Technology should be used as a weapon to gain competitive advantage and get closer to your customers. For a particular workload, what’s the best cloud platform, or would it be better left on-premise? You should be making these decisions based on good data, and thinking business value first and foremost. Revenue generation, not cost saving. Not incremental change, transformation. Effectiveness, not efficiency.
This is what the growing practice of FinOps is all about. FinOps practitioners will suggest tools and techniques to help you identify, understand, and manage the costs, but you’ll need KPIs too to measure the value to the business. Many businesses will need a cultural change in the way they consider technology investments, and on who is involved. Decisions should be made and monitored not on cost, but on the business value of cloud with the growth and outcomes it achieves. You’ll need a FinOps framework that integrates into your company’s operating model, that treats technology as a value creator, not a cost centre. Barriers will likely need to be broken down in your organisation, so that everyone takes ownership of their cloud and technology usage. Business, product and service owners, finance, procurement, and IT all need to be aligned and talking a common language, with transparency in spending tied to business metrics, with governance and security baked in. FinOps drives a shift in focus from cloud spend to business growth, with all the necessary trade-offs between control, speed, and innovation.
Here at CIF it’s our belief that the FinOps approach and culture are not a nice to have, but a must have for every organisation. We’ve added it as a key discussion topic on the agenda at our next virtual Members Meeting scheduled for Wednesday, 2 March 2022 at 10:00. We’ll be talking multicloud management tools that can help you deal with the complexity. There are practitioners who have frameworks and processes that can help, and the FinOps Foundation has good resources too. Please come and join us, and if you aren’t already a member.
By David Terrar, CEO, Cloud Industry Forum