Framework / Domains / Quantify Business Value / Forecasting
Creating a model of the anticipated future cost and value of cloud systems leveraging statistical methods, historical spend patterns, planned changes, and related metrics.
Manage the forecasting strategy
Create forecast models
Track & Manage forecasts
The goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present.
– Paul Saffo
Forecasting defines a model of future spending for a particular scope (a system, service, application, etc.). Forecasts are usually based on Estimating, which looks at a combination of historical spending and evaluates future plans, and an understanding of how future cloud infrastructure and application lifecycle changes may impact current cloud usage.
Forecast models provide an input to the Budgeting capability, where they serve as the baseline for Finance allocating funding. Forecast models may be updated for other reasons, such as the integration of new features, modernization of application architectures, or optimization for efficiency.
While Estimating is investigative, Forecasting represents establishing an expectation among all stakeholders of future cloud spending and value. Engineering typically drives Estimating, but Forecasting will typically involve Product personas, and consult with Finance and Leadership personas to build agreed upon forecast models and KPIs which align with business goals. Once a forecast model is agreed to for an application, the budget owner for that application must live up to the forecast, or be responsible for seeking variance funding to address shortfalls.
Accurate financial forecasting depends on an organization’s other FinOps Capabilities also being robust in order to provide accurate data as input. For example, a foundational element of this capability is the ability to fully categorize and allocate cloud costs.
When Finance, Engineering, and Executives build models to forecast cloud spend reliably and accurately, cloud cost Forecasting will inform investment and operational decisions to accelerate an organization’s growth. In this way, each application owner committing to its own spend forecast model, and providing those to Finance allows for not only effective Budgeting, but also better management of Anomalies, better decision making related to on-premises capital spending, on cloud value, on expected revenue and even on environmental impacts related to cloud sustainability.
The Forecasting Strategy for an organization will be driven collaboratively by FinOps, Engineering, Product, Finance and Leadership personas. Engineering will generate estimates which must be vetted for accuracy, compared to current baseline forecast models (for existing applications or systems) or established as new forecast models to be fed to Budgeting.
Forecast models will include a more robust documentation of the timing and implementation details of the system, the pricing models to be used (and when they will be implemented), the total cost of ownership for the system scope of the forecasting model.
Outputs from Forecasting will go to the Budgeting capability to inform the creation of budgets. But in many cases, changes to systems that fall within the scope of an existing budget will not need to be further approved, but can just be estimated and the forecast updated.
There is a tight integration between Estimating, Forecasting, and Budgeting capabilities. It is important to recognize that although in smaller organizations it may seem like all three capabilities happen simultaneously, they are indeed three capabilities.
Within this domain, the FinOps team will establish a Forecasting Strategy detailing how the organization will conduct its forecasting work. Creating forecast models will largely be done jointly between engineering and product personas, those who own the budget for certain systems or applications. Over time, these owners will maintain the forecast model for their areas of responsibility, and make adjustments as their systems are operated and modified.
When actual costs exceed forecasts, or it is indicated that this will occur, the owners of the forecast model must take action to seek additional funding from budget owners, in coordination with the Budgeting capability.
FinOps Practitioner As someone in the FinOps team role, I will…
Product As someone in a Product role, I will…
Finance As someone in a Finance role, I will…
Procurement As someone in a Procurement role, I will…
Engineering As someone in an Engineering role, I will…
Leadership As someone in a Leadership role, I will…
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