Introduction
FinOps is a cloud cost management framework that has become essential for many businesses today. Companies and organizations that have been using cloud management solutions for several years have surely experienced the significant benefits of this service. However, due to unmonitored cloud spending, it has also come at a cost.
The benefits of migrating internal computing infrastructures and management systems to remote internet-based servers, known as “the cloud”, have manifested themselves in many different ways. On the contrary, without proper management, unallocated cloud costs are prone to easily going unnoticed, as these expenses can quickly build up and negatively impact previously established budgets. In this article, we’ll explore what FinOps in the cloud is, the different ways it can be implemented, and how this framework can effectively resolve the issue of unmonitored cloud usage and expenses.
What is FinOps?
FinOps is cloud cost management and a optimization framework that aims to assist companies in organizing their cloud workflows, allocating and provisioning resources, establishing transparency, and optimizing cloud usage to eliminate unnecessary expenditures.. Businesses and organizations that use cloud computing services purchase their usage rights on a Pay as You Go (PAYG) basis. While this payment model may seem ideal for minimizing costs, without a concerted effort to carefully document usage and spending across all individual teams and departments within a company, many companies have found themselves tangled in a net of cloud overspending.
To bring structure and financial responsibility to these companies, the FinOps framework was developed. FinOps stands for Financial Operations. Simply put, this framework acts as a guide to help bring together the departments of business, finance, and engineering. Together, these teams can plan, gather information, and finally implement principles of transparency, thorough documentation, and establish financial accountability.
FinOps Best Practices
- Track cloud usage and expenses to determine whether it’s necessary or not
- Reduce total expenditures by eliminating unnecessary cloud spending
- Keep your FinOps solution flexible. No need to settle for just one vendor; there are many ways to save money; leverage services from multiple vendors to meet your specific business needs and take advantage of potential discounts, such as volume discounts
- Deploy your FinOps solution in a gradual and methodical way
- Establish Cloud Governance within your company to oversee the provisioning or allocation of access rights to cloud resources and budgeting
- Implement Right-Sizing practices. Strategically identify and determine how much computing usage is required for specific applications or services to avoid costly mistakes, such as over-allocating or wasting resources
What is Cloud Computing?
Cloud computing is a secure internet-based service that delivers remote computing solutions, such as databases, servers, storage, analytics, and other resources. Cloud computing is a SaaS service provided by third-party vendors. Companies and organizations use cloud computing to reduce expenditures, namely in IT departments, reduce workload, and increase the overall speed and functionality of access to company data or resources.
Cloud usage is available to companies using a Pay as You Go (PAYG) payment model, similar to a utility bill. Ideally, this payment model is designed to help companies optimize their spending and only pay for what they need.
There are several benefits to using the cloud; some of the most important ones include speed, accessibility to resources and data, scalability, efficiency, security, and disaster recovery. Managing and scaling company-wide computing capabilities using onsite hardware, data centers, and servers has proven to be less efficient, less flexible, and more costly than cloud computing capabilities. Therefore, cloud computing solutions have become the standard and are continuously being upgraded to provide businesses and organizations with top-tier services.
FinOps Framework
The FinOps framework is a blueprint for companies to use as an informative guide to building and implementing a successful cloud infrastructure. This comprehensive guide covers all aspects of FinOps methodology from the initial planning phase to the launch and on-going maintenance. As established by the FinOps Foundation, the FinOps framework is comprised of six categories: Principles, Personas, Phases, Maturity, Domains, and Capabilities.
FinOps Framework by FinOps Foundation
Principles
The principles of the FinOps framework outline the necessary actions companies should implement and maintain. These principles are, in essence, the keys to FinOps success. Some of these principles refer to company culture and ensuring a collective understanding of FinOps best practices, while other principles address FinOps management or technical operations.
Personas
FinOps personas include all the stakeholders and teams involved in the decision-making, management, and operation of FinOps activities. FinOps personas are divided into two groups: Core Personas and Allied Personas. Core personas are those individuals and teams directly involved in the overseeing and execution of FinOps management and activities, such as company management and FinOps practitioners. Allied personas, on the other hand, don’t typically work directly in FinOps. Instead, allied personas are individuals or teams that play certain roles which have an impact on FinOps, such as IT asset management, IT service management, or finance management and security.
Phases
Within the FinOps Framework, there are three phases, also known as the three pillars of FinOps: Inform, Optimize, Operate. These three phases can also be referred to as the FinOps Lifecycle. Each phase has a specific purpose:
- Inform: identification of the usage and cloud costs associated with specific data sources
- Optimize: identification of where to optimize cloud usage based on information provided by the Inform phase
- Operate: implementation of operational changes to improve organizational efficiency and accountability based on the information gathered from the Inform and Optimize phases
The goal of these three phases is to help companies ease into a fully operational FinOps solution. FinOps is not a simple concept, it takes time and effort to incrementally transform an organization’s cloud infrastructure from a disorganized nightmare into a coordinated and financially responsible operational solution. Therefore, the implementation process should be methodical, gradual, and rely on collaborative effort between engineering, finance, and operations management teams.
Maturity
The FinOps framework includes a maturity model to assist companies in scaling their FinOps activities, capabilities, and domains. Naturally, when implementing a new system there are stages of growth; the FinOps maturity model provides businesses and organizations with a methodology to assess which stage each function, capability, or domain is currently at and which stage it could potentially progress to. With this model, management can make informed decisions when optimizing cloud usage.
The maturity model consists of three stages of development:
- Crawl: capability is defined by basic policies and procedures. Insights and reporting about the capability are limited, with only basic KPIs in place to measure success. Implementation of the capability is limited and has not been adopted by all major teams or departments across the organization period.
- Walk: capability is understood and adopted across the organization. Capability can handle most edge cases and identify more difficult or complex edge cases without adopting them. More advanced KPIs are set to measure medium to high-level goals.
- Run: capability is fully implemented and utilized across the entire organization. The most complex or difficult edge cases can be addressed. KPIs are implemented to measure the success of the highest goals that have been set. Automation of the capability can also be deployed to improve efficiency and overall success rates.
Domains
FinOps focuses on achieving cost efficiency and optimizing cloud usage within an organization. The FinOps framework defines the four fundamental outcomes, or domains, a business should achieve through the implementation of a FinOps solution. These include:
- Understanding cloud usage and costs
- Quantifying business value
- Optimizing cloud usage and costs
- Managing the FinOps practice
Within each of these domains is a set of recommended capabilities that an organization can deploy to achieve the anticipated results. The capabilities within each domain are categorized in the FinOps Framework graphic above.
Capabilities
FinOps capabilities are individual practices or strategies that represent the actionable tasks required for a FinOps solution to become functional. There are many different capabilities a company can implement, some examples include: allocation, cloud governance, benchmarking, budgeting, workload optimization, etc.
FinOps capabilities are the building blocks of each FinOps domain. There are a total of 22 capabilities within the four domains of the FinOps framework.
| Understanding Cloud Usage & Costs | Quantifying Business Value |
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| Optimizing Cloud Usage & Costs | Managing the FinOps Practice |
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Augmented FinOps
Augmented FinOps is the latest innovation in the FinOps community. This advanced version takes standard FinOps practices and augments them with the application of artificial intelligence (AI) and machine learning (ML) automation solutions.
Traditionally, FinOps employs the fundamental concepts of DevOps. The goal is to continuously improve financial visibility and accountability through financial governance, cost optimization, and realistic budgeting. To achieve those results, the DevOps concepts of agility, continuous integration and deployment, and feedback from end-users are put into practice. However, even these concepts that are intended to reduce spending on cloud computing services and increase efficiency can be very time-consuming processes.
With augmented FinOps, companies can now enhance their standard FinOps methodology with automated cloud cost optimization using AI and ML tools. Augmented FinOps is, however, NOT intended for all individuals or teams involved in FinOps operations. This advanced resource is designed for IT management, financial experts, and cloud computing engineers who possess a more keen understanding of pioneering and integrating cloud strategies.
What makes FinOps important?
FinOps has many benefits beyond cloud cost optimization. The overarching purpose of FinOps solutions is to eliminate waste and deliver the real business value of cloud computing services through analysis, visibility, allocation, optimization, accountability, cultural transformation, and cloud governance.
According to a report by Wakefield Research, 96% of respondents acknowledge the importance of FinOps in their cloud strategy. Although the vast majority of companies recognize the benefits associated with a FinOps strategy, many of these companies still have immature FinOps solutions. According to a 2023 survey by the State of Cloud Ops, only 9% of respondents had a mature FinOps solution in place. On the other hand, 92% reported that they had difficulties with FinOps, especially in managing and reducing their cloud costs (50%) and forecasting their cloud spending (47%).
Organizations face many different struggles when managing their cloud infrastructure. According to a survey by Flexera, most cloud professionals reported that after five consecutive years, their greatest difficulty was still managing their cloud spending. Furthermore, a survey by Accenture’s Cloud Outcomes Research found that 71% of cloud financial management teams facing this same struggle doubted their ability to deliver expected results within an expected timeframe. A common dilemma cloud engineers and financial teams run into is discrepancies between their forecasted spending and their actual spending.
FinOps is a multi-faceted solution that requires collaborative effort between all personas involved in an organization’s cloud computing. To achieve the prospective outcomes or domains as defined by the FinOps framework, teams should have a like mindset, key FinOps principles should be applied, and FinOps capabilities should be incrementally and strategically implemented throughout each phase of the FinOps lifecycle.
Key Benefits
When implemented as a whole, the FinOps framework can assist organizations in freeing up resources and realizing the maximum business value of their cloud infrastructure. Some key FinOps benefits include:Visibility
By first identifying and documenting where cloud usage is being used and the costs linked with that usage, companies will gain indispensable insights to later make informed decisions regarding resource allocation and provisioningCultural Transformation
To ensure FinOps success, a like-minded company culture where each individual holds themselves accountable for their cloud usage and spending prevents frivolous expenditures and promotes responsibilityEfficiency
With thorough documentation, clearly defined roles, and resource provisioning, cloud workflows can become more efficient and increase productivityCloud ROI
When organizations have better visibility into cloud usage and costs, they can forecast more accurately and make better decisions to optimize cloud costs, thereby increasing cloud ROIForecasting
With transparency into all aspects of cloud-related operations, including detailed reports, real-time data insights, and resource allocation, companies can make informed decisions and implement right-sizing practices to make more accurate forecastsScalability
FinOps solutions are completely scalable. From small start-ups to multinational corporations, each company can scale their solution to meet their company’s needs with the ability to upscale with business growthBenchmarking
To measure the excellence of a company’s cloud optimization efforts, businesses can take advantage of this performance metric to compare their cloud usage and spending data against industry standards and competitors.FinOps Solutions
There are many different FinOps solution options available to companies looking for one that is suitable for their cloud infrastructure. FinOps solutions can be developed internally by software engineers and finance experts or provided through a third-party vendor’s unique software or FinOps tools, such as USU’s Cloud Cost Management tool.
FinOps Tools
FinOps tools are often available as an additional tool provided by a cloud vendor. The top three most common examples of this are Amazon Web Services' (AWS) FinOps tool - AWS Cost Explorer, Microsoft Azure’s - Azure Cost Management + Billing tool, and Google Cloud’s - Cloud FinOps tool. However, these tools have a few significant downsides, including: having costly hidden fees, such as data transfer fees, delayed data insights (AWS in particular), multi-cloud limitations, and having a very complex UI design.
Instead of using native FinOps cloud tools, companies can opt for third-party tools, such as USU’s Cloud Cost Management (CCM). CCM provides a user-friendly multi-cloud FinOps solution with real-time data insights, detailed reports, high visibility into cloud usage and resource allocation, as well as strategic cost management suggestions based on trending data. USU’s CCM is compatible and compliant with the top three cloud vendors: AWS, Azure, and Google Cloud.
FinOps Certification
FinOps certification programs are designed for business professionals or organizations to gain deeper knowledge in FinOps practices or tools while simultaneously enhancing work performance and validating expertise.
By following through with one of the FinOps Foundation’s industry-recognized training programs, individual professionals have the opportunity to obtain any of the following certifications:
- FinOps Certified Practitioner
- FinOps Certified Platform Engineer
- FinOps Certified Professional
- FinOps For Containers
The FinOps Foundation also offers five training programs for organizations, vendor members, and training partners. These programs have certain prerequisites that prospective organizations must meet in order to be approved for the certification. The five certifications include:
- FinOps Certified Platform
- FinOps Certified Specialty Solution
- FinOps Certified Service Provider
- FinOps Certified Training Provider
- FinOps Certified Enterprise
FinOps certifications can also be obtained directly from cloud vendors, such as AWS or Microsoft Azure. FinOps certifications are a great way to validate either an individual’s FinOps expertise or bring recognition to an organization’s adoption of FinOps best practices and successful cloud financial management.
Conclusion
Cloud computing is an indispensable resource that is cherished by many companies. However, when spending and usage data is clouded in uncertainty and stacked hidden fees are launching surprise attacks on an organization, this service can become quite problematic, especially for the finance department. With FinOps, these issues can be incrementally identified and eliminated, cloud usage and spending can be right-sized and optimized, and finally, teams throughout the company can share common FinOps principles to deliver maximum business value for their cloud costs.
Now you have a comprehensive understanding of what FinOps is, its benefits, and how you can choose and implement a suitable solution in your company. The FinOps framework provides a holistic guide for businesses to transform company culture, establish cross-organizational collaboration, streamline workflows, and promote financial accountability. Optimizing cloud usage and spending leads to improved organization, efficiency, more accurate forecasting, and increased cloud ROI.
FAQ
Do I need FinOps for my business?
FinOps is not compulsory for a business; however, by implementing cloud FinOps to optimize and allocate cloud usage across an organization can cut unnecessary spending, increase organizational efficiency, and significantly reduce a business’ total cloud computing expenditures. The need for FinOps should be determined by each company by identifying whether or not their current cloud usage and spending are resulting in costly losses.
What are the three pillars of the FinOps framework?
The three pillars (a.k.a. phases) of the FinOps framework are:
- Inform: identification of the usage and cloud costs associated with specific data sources
- Optimize: identification of where to optimize cloud usage based on information provided by the Inform phase
- Operate: implementation of operational changes to improve organizational efficiency and accountability based on the information gathered from the Inform and Optimize phases
What’s the difference between DevOps vs. FinOps?
DevOps and FinOps play two separate roles in IT. DevOps is short for Development and Operations. This methodology is implemented to improve the development and deployment of high-quality software solutions. On the other hand, FinOps is short for Financial Operations; it’s a framework used by businesses to optimize cloud usage and spending.
Do I need a FinOps license?
The short answer is: no, you don’t need a FinOps license. FinOps is not a software, it is a framework for cloud cost management and optimization. However, some FinOps capabilities are responsible for the management of cloud licensing and other SaaS licensing. There are many FinOps tools available to help manage these licenses in the most cost-efficient ways.