What is FinOps and Why Do You Need It?

By Jim Hussey


December 16, 2021

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As adoption of enterprise-scale cloud services has become commonplace, so have the challenges associated with managing them. Decades in, the evolution is still underway with many companies adopting a Cloud Center of Excellence (CCOE) and, more recently, the establishment of FinOps. But before we delve into what FinOps is and why it is important, let’s review how cloud service management has matured over the years.

In the first generation of cloud adoption, organizations recognized the need to establish internal competencies that would help them best harness the power of the cloud to the benefit of IT and the business. Traditional infrastructure resources rushed to earn cloud management certifications, contributing to the arrival of what we call the Cloud Center of Excellence. At that time, the immediate task was to develop a standard cloud architecture and develop migration plans to move workloads to the cloud.

The typical CCOE was judged by the percent of the environment and applications moved to the cloud. In the hurry to achieve targets assigned by IT leadership and corporate executives, CCOE members were focused on delivering migration plans and supporting architecture to help applications and systems achieve cloud-ready status. In a lot of cases, efficiency and cost were an afterthought.

That’s changed in recent years. Enterprises have grown more comfortable with a ‘cloud-first’ approach to all decisions, and this familiarity has allowed CCOEs to expand their focus to improving efficiency and optimization within the cloud environment. Welcome to the FinOps era!

What is Cloud FinOps? Why is it Important?

According to the FinOps Foundation: “FinOps is shorthand for “Cloud Financial Operations” or “Cloud Financial Management” or “Cloud Cost 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.”

As we enter a new generation of cloud adoption, FinOps represents a significant refinement in how organizations manage, govern, and control their cloud investments. Efficiency of cloud assets combined with ongoing utilization monitoring and architecture governance is producing detailed intelligence that allows organizations to better predict cost and value.

The structure of a FinOps team can take different forms, but it’s typically cross-functional including stakeholders from IT, finance and business units/departments. In some cases, it’s led by an organization’s existing IT Asset Management organization in collaboration with the CCOE. Together, this team delivers real value to IT finance, procurement and IT operations. Benefits include improved financial accountability and transparency, ensuring organizations get the most value from every cloud dollar spent, the elimination of cost waste, and the ability to quickly respond to the need to calibrate speed, cost and quality of service to meet changing requirements.

Key Data Inputs for FinOps

To deliver value, FinOps must have access to several key data inputs. These inputs enable the level of analysis which form the foundation of FinOps’ contributions. Here are a few examples

Cloud Billing Reports

Each cloud service provider (CSP) provides customers with detailed billing reports in order for the customer to fully understand what they own. Similar to the function of telecom expense management, organizations have the opportunity to dig into this information and determine if it is accurate and complete. In addition, analysts can model the current environment to see if there are alternatives and options to reduce cost. This requires deep knowledge of the CSP’s offerings.

Cloud Consumption Reports

Now that organizations have extensive and stable cloud environments, understanding the utilization of these assets is core to enabling true optimization. Metering items such as processor utilization enables FinOps teams to work with the CCOE to determine optimization targets and even architecture refinement.

On-Premise Environment Reports

Historically, the initial business case to move to the cloud typically relied on the savings realized by eliminating the on-premise environment. Unfortunately, many times this removal never occurred, producing a double impact on IT budgets. FinOps has the opportunity to work with IT finance and IT operations to ensure proper removal and decommissioning of these assets to preserve the documented business case.

Making the Case for FinOps

The inputs above represent a few key items for FinOps teams to address as part of the broader FinOps charter. Incorporated into or in collaboration with the Cloud Center of Excellence and IT finance, the principles of FinOps deliver tangible, sustainable value.

While savings is an obvious benefit (and a needed one given the prevalence of toxic spend on enterprise cloud), FinOps’ role goes beyond the cost impact. It’s about ensuring financial control, predictability and agility.