In recent years, the rise of cloud computing has revolutionized the way organizations operate, providing unprecedented flexibility and scalability. However, the transition from CapEx to OppEx investments in technology has also brought considerable financial challenges, highlighting the critical need for an effective approach to cost management in cloud environments. In this context, the central concept of FinOps emerges: a constantly evolving framework aimed at optimizing financial management in this new technological paradigm.
This article sheds light on FinOps, providing a clear understanding of what it is, why it was created, its importance in today’s business landscape, and tips on its implementation.
The imperative of FinOps
Before the cloud computing era, implementing new solutions required a complex and time consuming process. Development and Engineering teams had to request servers to the procurement department, which then acquired the infrastructure. During that time, it was common for the demand to change and when the servers were bought, they might not be the ideal ones anymore. Finally, the infrastructure team had to configure the operating system, security policies, networking, and give access to the development team. Although this allowed for a high degree of control over costs, the result was often a considerable slowdown in the innovation process.
The rise of cloud computing flipped this model on its head. Teams can now quickly set up infrastructure and experiment with new solutions, accelerating innovation. However, this freedom often led to unchecked spending and reduced visibility into costs. The FinOps concept was created to address this issue by fostering a partnership between tech and finance teams to manage cloud expenses effectively.
What is the definition of FinOps?
The FinOps Foundation describes FinOps as “an operational framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making, and creates financial accountability through collaboration between engineering, finance, and business teams.” (Learn more about the FinOps definition) FinOps, therefore, is an organizational practice that aims to ensure that companies are using their cloud resources efficiently and effectively.
In summary, FinOps helps organizations:
- Bring financial accountability in the variable cost model in the cloud;
- Enable distributed IT, finance, and business synchronization for agility, costs, and quality;
- Allocate technology costs linked to the generation of business value for the organization.
An Electricity Bill Analogy
By definition, Cloud Computing is the on-demand availability of computer system resources without direct active management by the user. With that in mind, we can draw a connection to how we consume electricity: it’s (almost) always available, there is a huge network of cables that takes care of getting electricity to us, and at the end of the month, we pay only for what we’ve used, with no need for upfront payments or commitment.
In the context of our electricity usage, some services are essential (like refrigerators), justifying their expense. Others (like microwaves) save time and money. Even non-essential services (like TV) can offer benefits in certain scenarios, such as entertainment that isn’t crucial for our survival, and small, unnecessary expenses (like leaving lights on) can add up. Choosing which cloud services to use is similar to selecting which appliances to plug in, considering their return on investment. We can decide that it is worth turning on the AC on a hot day because we have an important meeting and need a good night’s sleep, for example. It’s always about trade-offs and return on investments.
The FinOps Landscape
The ‘State of FinOps Survey 2024’ sheds light on the current landscape, drawing from insights of 1,245 tech managers overseeing an average annual cloud spend of $44 million. The survey reveals a notable shift in priorities, with a heightened focus on reducing waste and managing cloud commitments effectively. This pivot reflects a growing recognition of the importance of financial prudence alongside technological innovation.
Key findings include:
- Key Priorities Shift: Reducing waste and managing commitments have become the top priorities for FinOps practitioners, surpassing empowering engineers to take action.
- Optimization Focus: Compute spending remains the most heavily optimized area, with optimization efforts expanding to other spending categories like storage and databases.
- Forecasting Challenges: Forecasting capabilities need considerable improvement, with many desired features yet to be implemented.
- Value from Self-Service Reporting: Engineers are getting the most value from self-service reporting, indicating successful empowerment within the FinOps framework.
- Impact of Artificial Intelligence: While AI/ML adoption continues to rise, only a minority of organizations are currently managing AI/ML costs within their FinOps practice.
These challenges highlight the urgent need to adopt FinOps practices in every organization, providing a balanced approach between agility and financial responsibility.
Embarking on the FinOps Journey
Adopting FinOps involves several initiatives across the FinOps journey, including:
- Implementing tools and processes to manage cloud costs, avoiding excessive and unnecessary investments, identifying areas where there is potential for savings, and optimizing the use of existing resources;
- Fostering collaboration between finance and technology teams to establish policies and practices that help ensure effective cloud cost management, including setting budgets and incentives to ensure conscious consumption without sacrificing speed.
For a successful FinOps adoption in your organization, there is a lot of material and documentation related to the best practices, especially based on the FinOps Framework. This framework delineates the roles and responsibilities of each of the FinOps personas and incorporates fundamental principles that guide the FinOps journey across its various phases. By embracing this structured approach, organizations can more readily integrate the principles of FinOps into their culture, achieving a harmonious balance between technological innovation and financial accountability.
e-Core: Your Partner in Implementing FinOps
At e-Core, we’ve helped several organizations improve their FinOps culture, starting with quick wins and increasing complexity as maturity evolves. After understanding your current challenges and goals, we work together to design an adoption plan specific to your needs, creating a FinOps adoption strategy that ensures a smooth and successful transition to a more financially accountable cloud management model.
Interested in taking your cloud financial management to the next level? Get in touch with our experts and boost your FinOps strategy.
