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Why we started the FinOps Foundation

J.R. Storment
J.R. Storment in FinOps Foundation
17th February 2019

DevOps in Cloud has broken traditional procurement. Procurement has outsourced their job to engineers. Engineers now spend company money at will and make financial decisions on cloud providers like AWS, GCP and Azure at rapid speed.

This change has necessitated the discipline of FinOps. It’s why I’m excited to announce today the founding of The FinOps Foundation (F2). With founding charter members that include some of the greatest FinOps minds from Atlassian, HERE Technologies, Australia Post, Nationwide and Spotify, the FinOps Foundation is a non-profit trade association focused on codifying and promoting cloud financial management best practices and standards.

In the coming months, the FinOps Foundation will roll out a number of resources for practitioners through FinOps.org. We’ll be tapping some of the best thinkers in this space worldwide to share best practices and build a community for FinOps professionals. We want you to join us.

Why is the Foundation needed? At many companies I talk with, engineering teams spend more than needed with little understanding of cost efficiency. Finance teams struggle to understand — and keep up with — what is being spent in the rainbow of 200k+ SKUs that AWS alone offers, and the additional thousands of new features per year. Leadership doesn’t have enough input into how much will be spent or ability to influence priorities. Procurement wasn’t a deliberate participant in their own outsourcing.

In most of those conversations, the thing that stands out is the lack of FinOps education and knowledge available to practitioners and executives. Enterprises and tech unicorns alike struggle to evolve the way their teams work in the world of DevOps plus cloud. They all reinvent the same wheel trying to codify day to day best practices and don’t have a broad peer group to which they can turn.

But the few enterprises further along the maturity curve (call them the FinOps Heroes) have broken down the silos. They get huge savings over what they would have paid in the old world. At the same time, engineers are delivering innovation at faster speeds. Procurement has shifted to strategic sourcing, owning the relationship with the cloud provider. Finance is a proactive partner who has become technically enabled and is focused on unit economics. Leadership makes intentional and frequent choices between speed, quality and cost.

Let’s look at a bit of history to see how we got here, and how those that thrive in this new world have used FinOps culture to become more competitive.

In the 2000s, DevOps exploded onto the stage, changing decades of software development culture. Ops could no longer blame engineers for their code being slow, and engineers could no longer blame ops for their servers being slow. The two merged, or, at a minimum, began to work together in a less siloed way than ever before. They developed new cultural philosophies, practices and tools and had to retrain people on entirely new ways of working.

Add cloud to the mix a few years later (thank you Slicehost, AWS, Softlayer and all of the early IaaS pioneers) and suddenly the time-honored silos between tech, finance and procurement started to become a problem.

Why did cloud accelerate this change that DevOps started? Let’s look to my favorite definition of Cloud by Dave Nielsen back in 2011. He said to be “cloud,” an infrastructure provider had to be “OSSM”:

On-Demand
Scalable
Self-Service
Measurable

In the public cloud, the “OSS” in “OSSM” is where everything changed. Self-Service, Scalable and On-Demand mean that an engineer can spend the company’s money with the click of a button or by writing infrastructure as code to scale up resources programmatically, without going through finance or procurement controls. Every participant’s role has shifted as a result.

In the good old days, engineers didn’t have to think about costs. But they did worry about performance: they were constrained by hardware procurement and couldn’t get more servers. Now they throw dollars at the problem to prevent getting a page in the middle of the night. There’s a new dimension to their work. In order to be “good citizens” they also have to think about cost of their infrastructure choices and its very real impact on the business. This feels foreign at first — and at odds with their primary focus of shipping things — until they realize that “cost” is just another efficiency metric they can tune to positively impact the business. And engineers really dislike things that are inefficient.

In the good old days, the finance team focused on trailing indicators of quarterly performance, and saw IT as a cost center to be reported. Now they must proactively partner with tech teams to make investments that fuel growth and innovation. They shift from opaque and fixed — but consistent — Capex reporting to transparent and fluid Opex/COGS forecasting. They shift to FP&A partners who understand what the drivers of cloud spend are amidst thousands of SKUs and know which investments are delivering outcomes. And they have a more nuanced environment to consider when classifying cloud spend as Opex or COGs and whether they can capitalize R&D cloud spend to affect EBITDA.

In the good old days, the procurement team tightly controlled spending and rate negotiations, and wielded the power of the PO before vendors would get paid. Now they become strategic sourcing, pulling all rogue spending together into an enterprise agreement with AWS, Google or Microsoft so that they can get the best rates for what the engineers use. The capacity planners from the data center days of old are now often part of the FP&A and procurement functions. They monitor, help optimize, look for financial leverage, deal with more minutia because that’s the right way to FinOps.

All these teams now need to come together in interesting new ways, like buying Reserved Instances (RIs) and Committed Use Discounts (CUDs). A typical conversation looks like this:

CFO: “You’re spending 5 times what we budgeted and it’s all something called ‘on-demand’ which is expensive. If you don’t get spending down we’ll need to put cost controls in place.”

Engineering leader: “We don’t really have time to spend time thinking about cost, that’s your job. We’re under tight deadlines to deliver features.”

Finance/Procurement: “Can we try some of these RIs or CUDs that are supposed to save like 30%?”

Engineering leader: “We can’t buy RIs or CUDs for this infrastructure because it’s all going to change it all in a few months. Stop bothering me.”

CFO: “It’s been a year and we’re still using the same infrastructure. Finance/Procurement team, go work with the Engineering leads to figure out what RIs to buy.”

Finance: “OK, but we’re not sure what to buy, whether to pay up front, how to allocate the amortized costs or how to account for them since they look capitalizable but are actually opex pre-payments.”

CTO: “Velocity is our top priority. Oh wait, the cloud bill is how much? Actually, I need all of you to work together to slow the growth rate of cloud spend. Now it’s everyone’s job to keep moving fast AND think about cost.”

Each of these teams now needs to integrate in ways they never have before. The entire organization needs to shift from a centralized control model to one of shared accountability.

Enter FinOps. Just like DevOps, it requires new a new operating model, new frameworks and a dissolution of silos. But it’s more than just a framework — it’s a cultural shift that I’ve watched happening in organizations around the world over the last 6-7 years.

I first saw FinOps pop up in San Francisco circa 2013 at companies like Adobe and Uber who were early scalers in AWS. Then saw it when working in Australia in 2015 in forward-looking enterprises like Qantas and Australia Post. Then, during a two-year tour of duty in London starting in 2017, I’ve watched giant companies like BP and Sainsbury’s work diligently to develop this new culture.

It’s finally picking up steam. Recently Nike posted a Director level job role in their newly formed “Cloud Business Office.” One of my favorite FinOps poster children, Atlassian, have begun operationalizing FinOps through their team collaboration software. Last month, while visiting Spotify’s hip Stockholm office, the engineering team mentioned FinOps before I could even say the term.

Back in 2016 at the AWS Public Sector Summit in DC, I first spoke about the concept of FinOps in a “DevSecOps” talk with Emil Lurch from AWS. With maybe a little hubris, I borrowed the definition of DevOps written by the venerable Gene Kim and crafted a derivative definition of FinOps.

(See slides 20-43 on SlideShare for some of the early FinOps thinking)

The cost of not doing FinOps? Spending soars, innovation dollars get eroded by unnecessary spending and company margins decline as COGS increase. As one CTO put it:

“Cloud spending is like antigravity, it will always float up unless you actively manage it.”

The challenge is that FinOps is brand new to most companies. Very few people know how to implement it in an organization, and there’s not yet a commonly agreed set of published principals.

This year, the FinOps Foundation will look to change that. FinOps.org will deliver real-world stories, expertise and inspiration for and by FinOps leaders and practitioners — all aimed at helping the community members and their teams become better at cloud financial management.

And in the fall, the first-ever conference focused entirely on FinOps, CloudyCon, for FinOps practitioners across all the parts of the business to come together for the first time.

It’s going to be a fun year. I hope you’ll join us on the journey.

— J.R. Storment, President & Chief FinOps Guy, FinOps Foundation