Understanding FinOps: The Basics of Cloud Financial Management
Starting with the basics
Defining FinOps and how it works can get complicated. We recommend you start with The FinOps Foundation’s definition. They informally define “FinOps” as a centralized cultural and best practices group in which individual teams manage their cloud costs, and everyone takes ownership of their cloud usage. As a united cohort, these Finance, Product, Engineering, and IT teams collaborate to enable faster application launches and support internal modernization projects and external customer-facing applications. You might hear other names for this responsible, transparent and collaborative management of public cloud costs. That list includes cloud financial management, cloud financial engineering, cloud cost management, cloud optimization and cloud financial optimization.
Ultimately, FinOps teams strive to gain more financial control and predictability for their cloud environments. These environments typically include one or more of cloud service providers (CSPs), such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform (GCP) or Alibaba, among others.
Additional cloud costs may also derive from:
- Containers (e.g., Kubernetes)
- Cloud database management players (e.g., Snowflake)
- Application portfolio management tools (e.g., Splunk)
- Other technologies built for efficient cloud operations
Why do we need FinOps?
Massive societal and workplace change over the past few years had organizations asking themselves some hard questions:
- Are we truly meeting today’s digital demands?
- Can we efficiently scale our supply chain?
- How can we move faster in this environment?
- Is our business agile, innovative and cost efficient enough to survive — and thrive — in the future?
All organizations investing in the cloud are at different places in their own cloud maturity. Some have established contracts with their preferred CSPs. They may be able to predict and budget their cloud spending to some degree. They also allocate costs to their users and optimize where to run specific workloads for agility, governance and cost control (at least within the bounds of what the CSP offers from a dashboard, reporting and measurement perspective).
Other organizations lack visibility into their cloud-based assets. These organizations may be inundated with surprises such as unexpected cloud cost spending, cloud cost spikes or wasted resources. They may not have the historical context or best practices to properly set up terms with CSPs or fully manage their hybrid IT infrastructure and the computing, storage, database and networking aspects of cloud operations that come with it.
FinOps provides the information and collaboration necessary to optimize those cloud investments. This is why we need it. With FinOps, an organization can grow its fledgling cloud adoption program, strengthen its IT ecosystem and position itself for long-term security and success.
FinOps: countering spend amid growth
The acceleration of cloud-based projects and organizational changes are unsurprisingly driving enterprises to spend much more on the public cloud. In fact, IDC forecasts that cloud infrastructure spending will exceed $90 billion by the end of 2022. Despite the significant investment in new cloud services, organizations still need to be mindful of unanticipated spend or usage. According to advice from The FinOps Foundation, you’ll need a cross-functional team that shares visibility, knowledge and accountability to do what’s best for the overall company’s success you if you want to move faster, manage costs and drive growth or strengthen resilience.
The final say on defining FinOps and how it works
If someone asks you about defining FinOps and how it works after you’ve read this blog, don’t limit your answer by saying it’s all about capping cloud spend. It isn’t. It’s not just about tightly controlling developer output or restricting certain cloud services to control operational costs, either.
FinOps is also about understanding what your organization is trying to achieve and how to enable those goals through cloud services, all while understanding and managing costs. We see a direct correlation between the goals of FinOps and other areas such as IT asset management or SaaS management. All these disciplines create visibility, effective cost management strategies, risk reduction and more predictable planning cycles.