Technology
The positive impact of FinOps on business operations
Global Banking & Finance Review®
Company
By Darryl Sackett, Managing Director of Cloud FinOps & ITAM at SoftwareONE
At the start of the pandemic, more than 50% of organisations moved their workloads to the cloud to manage their digital infrastructure whilst adapting to hybrid working models. As it stands today, many businesses are still dealing with the challenges associated with the impact of COVID, and cloud technology is no longer a choice – it is a necessity for business continuity and even survival. In fact, 70% of these businesses are expected to scale up their cloud capabilities in 2022 with cloud spending set to reach nearly $500 billion by the end of the year.
However, with rapid market growth comes choice, challenge and change – the challenge being effectively managing cloud infrastructures and staying within budgets. One of the main challenges companies consistently face is a lack of visibility in their spending practices.
Enter FinOps.
FinOps 101
FinOps is a model that cross-functional teams should use to manage their cloud spending while promoting a faster product delivery. FinOps uses tools such as trending and variance analysis to examine cloud costs – and simultaneously benchmarks cloud workloads and costs to gain meaningful insight into how the business performs.
Ultimately, it’s about maximising every dollar spent, executives seeing a real return on their cloud investment and increasing the business value of the cloud.
Increasing the business value of the cloud with FinOps
A typical FinOps journey starts with defining KPIs that focus on cloud costs which will eventually translate to defined business value metrics. Outlining quantifiable targets will enable businesses to measure success.
During the early stages of the FinOps journey, a culture of cost awareness must be built across the different teams to create a philosophy of shared accountability. Business, IT, and finance are the three most important departments that must be trained on how to effectively manage and understand cloud resources. That shared understanding will lead to allocating costs to the specific cloud resources, providing the transparency that companies require. Once visibility is available, decision-makers can cut out redundant applications, licenses, or tools that may be going unnoticed. Reducing wastage is a tenet of FinOps to optimise the usage of cloud resources and cut down on costs.
By taking these measures, companies will have a more detailed analysis of their cloud spend and ongoing deployment activity. This will provide businesses with the ability to accurately forecast costs by looking at cloud consumption trends. Utilising these forecasts to set realistic budgets is vital for long-term financial stability and will ultimately improve business operations and drive innovation.
Bills, bills, bills: understanding the costs.
One of the main challenges companies consistently face is a lack of visibility in their cloud spending practices, and up 84% of organisations claim that tracking costs and cloud cost allocation is burdensome and time-consuming. This visibility problem is compounded by the fact that most organisations don’t simply use one cloud provider, but instead employ a multi-cloud strategy.
Varying billing practices and invoices from different providers have resulted in overly complex cloud bills. This is yet another barrier to cost optimisation of the cloud, as cloud pricing structures are difficult to unpack and comprehend. A lack of understanding of these bills means companies will struggle to forecast future costs and spending, and without accurate forecasting, it is tough to create a realistic cloud budget to avoid those hefty bills.
Without an effective cloud management practice businesses do not have a holistic view of what exactly they are spending on, and if they do not have that breakdown on spend, companies may also incur hidden costs.
Maturity levels of FinOps
To quantify the business value received as a result of implementing FinOps, companies must assess the level of maturity at which they are currently operating for all aspects of FinOps: The FinOps Foundation classify these levels as Crawl, Walk and Run.
This maturity scale allows businesses to start small with quick actions, which then enables FinOps teams to measure the outcomes of their actions. Through this companies can visualise the impact of developing their tactics further. FinOps is a constantly evolving practice that requires mastering capabilities and subsequently working upwards. It is important to note that businesses should not focus on achieving the highest level of maturity for each capability within FinOps. Rather the focus should be on the capabilities that will provide the best business value.
The goal of FinOps isn’t necessarily to spend less money, but rather to ensure optimisation of cloud spend, create better visibility across the business, and drive innovation and cloud transformation. The whole process requires a cultural change across a business with all teams working in a siloed manner. Once the standardised best practices of FinOps are effectively integrated within a company, then they will start to see real value to their business.
FinOps, or Financial Operations, is a management practice that combines finance, technology, and business to optimize cloud spending and improve financial accountability across organizations.
Cloud costs refer to the expenses incurred from using cloud services, including storage, computing power, and data transfer fees, which can vary based on usage and provider.
Key Performance Indicators (KPIs) in FinOps are measurable values that help organizations assess their cloud spending efficiency and the return on investment from cloud services.
A multi-cloud strategy involves using multiple cloud computing services from different providers to enhance flexibility, avoid vendor lock-in, and optimize costs.
Cost optimization is the process of reducing expenses while maintaining performance and quality, often through efficient resource management and eliminating waste.
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