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What is FinOps?

FinOps is shorthand for Cloud Financial 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.

At its core, FinOps is a cultural practice. It’s the most efficient way in the world for teams to manage their cloud costs, where everyone takes ownership of their cloud usage supported by a central best-practices group. Cross-functional teams work together to enable faster delivery, while at the same time gaining more financial and operational control.

No longer is a siloed procurement team identifying costs and signing off on them. Instead, a cross-functional FinOps team adopts a definitive series of procurement best practices, enabling them to pull together technology, business, and finance in order to optimize cloud vendor management, rate, and discounting. With FinOps, each operational team (workload, service, product owner) can access the near-real-time data they need to influence their spend and help them make intelligent decisions that ultimately result in efficient cloud costs balanced against the speed/performance and quality/availability of services.

If it seems that FinOps is about saving money, then think again. FinOps is about making money. Cloud spend can drive more revenue, signal customer base growth, enable more product and feature release velocity, or even help shut down a data center. FinOps is all about removing blockers; empowering engineering teams to deliver better features, apps, and migrations faster; and enabling a cross-functional conversation about where to invest and when. Sometimes a business will decide to tighten the belt; sometimes it’ll decide to invest more. But now teams know why they’re making those decisions.

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What are the core principles and stakeholders of Cloud Financial Management?

Individuals at every level and in every area of an organization can have a different role to play in the FinOps practice. This includes:

Executives

Executives like a VP/Head of Infrastructure, Head of Cloud Center of Excellence, CTO or CIO focus on driving accountability and building transparency, ensuring teams are being efficient and not exceeding budgets.

FinOps Practitioners

FinOps practitioners, such as an AWS FinOps Analyst, Director of Cloud Optimization, Manager of Cloud Operations or AWS Cost Optimisation Data Analyst are focused on forecasting cloud spend, allocating and budgeting cloud spend to teams.

Engineering and Operations

Engineers and ops team members, such as Lead Software Engineer, Principal Systems Engineer, Cloud Architect, Service Delivery Manager, Engineering Manager, or Director of Platform Engineering, focus on building and supporting services for the organization. Cost is introduced as a metric in the same way other performance metrics are tracked and monitored. Teams consider the efficient design and use of resources via such activities as rightsizing (the process of resizing cloud resources to better match the workload requirements), allocating container costs, finding unused storage and compute, and identifying whether spending anomalies are expected.

Finance and Procurement

Finance and procurement team members, including Technology Procurement Manager, Global Technology Procurement, Financial Planning and Analyst Manager, and Financial Business Advisor, use the reporting provided by the FinOps team for accounting and forecasting. They work closely with FinOps practitioners to understand historic billing data so that they can build out more accurate cost models. They use their forecasts and expertise from the FinOps team to engage in rate negotiations with cloud service providers.

FinOps Team Structures

FinOps team structure

The above diagram demonstrates how, for organizations operating on the FinOps model, a cross-functional team known as a Cloud Cost Center of Excellence (CCoE) interacts with the rest of the business to manage the cloud strategy, governance, and best practices that the rest of the organization can leverage to transform the business using the cloud.

The Three Phases of FinOps

The FinOps journey consists of three iterative phases — Inform, Optimize and Operate.
Any company may be in multiple phases at any time depending on which business unit, application or team is on the journey.

Inform

This is the first phase in the FinOps journey, empowering organizations and teams with visibility, allocation, benchmarking, budgeting and forecasting. The on-demand and elastic nature of cloud, along with customized pricing and discounts, makes it necessary for accurate and timely visibility for intelligent decisions. Accurate allocation of cloud spend based on tags, accounts or business mappings enable accurate chargeback and showback. Business and financial stakeholders also want to ensure they are driving ROI while staying within budget and accurately forecasting spend, avoiding surprises. Benchmarking as a cohort and against teams provides organizations with the necessary metrics to develop a high performing team.

Optimize

Once organizations and teams are empowered, they need to optimize their cloud footprint. Cloud providers offer multiple levers to optimize. On-demand capacity is the most expensive. To encourage advanced reservation planning and increased commitment, cloud providers offer discounts for commitments which typically involves complex calculations for making reservations (Reserved Instances (RI) / Committed Use Discounts (CUD – Google Cloud). In addition, teams and organizations can optimize the environment by rightsizing and automating turning off any wasteful use of resources.

Operate

Organizations start to continuously evaluate business objectives and the metrics they are tracking against those objectives, and how they are trending. Measure business alignment on speed, quality and cost. Any organizational success is only possible if the organization builds a culture of FinOps which involves a Cloud Cost Center of Excellence built around business, financial and operational stakeholders who also define the appropriate governance.

 

Capabilities Architecture

FinOps Requires a Cultural Shift

At its core, FinOps is a cultural practice. This operating model is the most efficient way for teams to manage their cloud costs. Using FinOps, teams can come together to deliver faster while gaining financial and operational control.

Distributed decision making coupled with the move to variable spending in cloud allows technology teams to efficiently partner with finance and business teams to make informed decisions that drive continual optimization. FinOps processes enable these teams to operate at high velocity while improving the unit economics of cloud. This shift enables and empowers teams at the edge and allows team members in every part of the business to participate in the process of increasing efficiency, optimizing utilization and reducing spend.

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