FinOps is performed by working iteratively on the Framework Capabilities through three phases: Inform, Optimize and Operate.
FinOps practitioners cycle through the Inform, Optimize, and Operate phases rapidly as they look at the organization’s technology use. Different members of a FinOps team can work on different phases, or at a different cadence, as the team examines the current state of the IT environment (Inform), identifies and documents ways it could be improved (Optimize), and empowers the individuals to enact changes that will drive the most value (Operate).
Quick action on a regular cadence can help teams avoid analysis paralysis, and can reinforce the good practice of starting small and growing the size and scope of the team’s actions as it matures through experience and momentum.
The goal is to continuously develop strategies and refine workflows in the Framework Capabilities, measuring the results, making incremental improvements, and building muscle memory in the process to reduce the time required to cycle through these phases.
Inform
Visibility & Allocation
In the Inform phase, examine technology cost, usage and efficiency data. The FinOps activities in Data Ingestion, Allocation, Reporting & Analytics, Forecasting, and Unit Economics provides information to assess budgeting, forecasting trends, analyze KPIs, benchmark, and report on metrics that will reveal the business value of an organization’s current technology state.
Accurate allocation of spend and usage based on tags, accounts, or business rules enable accurate reporting. Business and financial teams must ensure they are driving ROI while staying within budget, accurately forecasting spend and carbon costs, and avoiding surprises. Benchmarking against others or between teams provides organizations with metrics to understand how effectively they are operating. By combining cost data with other data about sustainability, efficiency, utilization, and performance benchmarks for the organization, teams should be able to see the key performance indicators and unit metrics related to the organization’s technology use.
The on-demand and elastic nature of modern cloud, SaaS, and AI technology, coupled with complex pricing and discounting mechanisms, requires organizations to continuously revisit the Inform phase to validate the impact of optimization actions, and to ensure that data-driven decisions are using accurate information.
Optimize
Rates & Usage
In the Optimize phase, FinOps activities involve identifying opportunities to improve efficiency and value using the view of the technology landscape gathered in the Inform Phase.
Each technology category (Public Cloud, data center, data cloud platforms, AI services, SaaS, etc.) offers different options to optimize. FinOps for Cloud can involve rightsizing underutilized resources, take advantage of modern architectures, manage workloads and automate the elimination of waste from unused resources. SaaS and License optimization might involve making changes to vendor contracts, rationalizing to eliminate the use of multiple vendors in a category, or removing licenses from those not using them.
Optimization options may include both usage optimization (using fewer resources to achieve an acceptable outcome) and rate optimization (paying an appropriate amount for the resources we must use).
Usage optimization requires collaboration with engineering teams primarily, while rate optimization options require collaboration with procurement and leadership. The goal in this phase is to identify and document a list of options for the organization to optimize its technology state in ways that create more value and help achieve the organization’s objectives.
Optimization options may compete. Having a collaborative process, and well-defined set of criteria based around the organization’s goals, allows the FinOps team to prioritize those options that are most valuable, while maintaining a backlog of other options for future cycles through the phases.
Operate
Continuous Improvement & Usage
In the Operate phase, FinOps activities involve implementing changes identified in the Optimize phase to improve the state of the technology estate. Taking action, even small, incremental actions, will have an impact on the unit metrics and value produced by the organization’s technology use.
FinOps success requires a culture of accountability where engineering, finance, and business teams collaborate on continuous, incremental action based on the data generated in the Inform phase, selecting the best opportunities identified in the Optimize phase, and enabling decision making at every level throughout the organization to take action.
Some of the actions a FinOps team takes may be to mature the activities in one or more Framework Capabilities, implementing or maturing Capabilities, or evolving FinOps operations for the organization, not just usage or rate adjustments.
Working through this phase, keep in mind the goal to iteratively enact optimization strategies and refine workflows; this involves looping back to the Inform and Optimize phases continuously.