What Is FinOps and How It Can Help Your Business

With the corporate world rapidly rising towards the cloud, FinOps is fast becoming a crucial cost-cutting framework.  

A McKinsey study found that in 2020, cloud migration grew 24 times faster than the previous year. While this meteoric growth stemmed from a sudden scramble to adapt to COVID-19 stay-at-home orders, FinOps is poised to remain at the forefront of financial management.

With prior planning and best practices—FinOps can help a business reduce its burgeoning cloud computing costs and bolster its bottom line.

But what exactly is this ever-evolving framework about, and how can it help your business grow?

FinOps meaning: What is Fin-Ops?

Short for Financial Operations, FinOps is a financial management framework that seeks to promote shared responsibility across an organisation for its cloud computing costs.

FinOps is fundamentally a cultural practice. The approach allows corporations to manage cloud expenses by encouraging individual teams to take ownership of their usage. 

Departments such as Finance, Engineering, Products, and Purchasing collaborate with IT and DevOps to manage cloud spending and enable faster product delivery. Ownership and expense distribution are supported by cloud FinOps best practices, ideally with a dedicated team (or a lone employee) at the helm.

FinOps brings various benefits, from vendor negotiations to license audits and forecasting expenses. The overarching aim is to prescribe cloud-computing best practices to optimise value and strategise spending.  

In the words of the FinOps Foundation, “FinOps is an evolving cloud financial management discipline and cultural practice that enables organisations to get maximum business value by helping engineering, finance, technology and business teams collaborate on data-driven spending decisions.”

Why your organisation should adopt Fin-Ops

As the benefits of cloud computing become increasingly apparent, experts predict the demand will expand.

According to Gartner, global end-user spending on cloud services will exceed $480 billion in 2022. The consultancy firm believes public cloud spending will surpass 45% of all corporate IT expenses worldwide by 2026—that figure was only 17% in 2021.

While cloud computing usage grows, so too will its complexity. Businesses that get ahead of the pack by adopting FinOps now will better adapt to this brave new cloud-computing world.

But how can the cloud actually help your business reduce its expenses?

At first glance, hosting your data on the cloud appears more expensive than traditional on-premises (on-prem) infrastructure. Monthly cloud computing subscriptions exceed on-prem hosting plans, while cloud migration costs can balloon to staggering heights.

But these are the immediate, short-term expenses. Looking at the long-term picture, cloud computing is often cheaper. That’s because on-prem infrastructure entails a slew of hidden expenses that drain your bottom line.

Even a brief system crash, for example, can cost your company more than three years of cloud subscriptions. Right-sizing your servers with flexible cloud services will save around 30% on your annual hosting costs. 

Cloud computing also helps eliminate unnecessary software licensing, which costs UK and US businesses $34 billion annually. Furthermore, companies can slash their IT resources, reduce operational expenditure, and avoid overprovisioning resources when they migrate off-prem.

By avoiding devastating downtimes, right-sizing servers, removing unnecessary licenses, and freeing up extra resources, businesses can save up to 20% on their total IT expenditure.

However, not every company will reap such immense benefits when migrating to the cloud. Only those who are strategic about their financial governance will see these savings.

Following Fin-Ops principles and best practices will help your company optimise its cloud costs,  thus maximising value and minimising spending.

Fin-Ops principles

The FinOps Foundation has developed a list of six core principles to help companies manage their finances in the cloud. The foundation presents its principles in no particular order and recommends they be adopted as a whole.

Collaboration between teams

• Financial management must move and evolve at the same speed as IT
• Practices must improve continuously to foster efficiency and innovation
• Engineering must consider cost as a metric for efficiency
• Enterprises must define governance for cloud usage

Teams take ownership of cloud usage

• Teams must have the tools to align cloud usage with their budgets
• Cloud spending must be visible at all levels for every team
• Teams must track their cloud usage targets to promote accountability

A centralised FinOps team

• Works with cloud providers to control Reserved Instances, Committed Use Discounts, and Volume/Custom Discounts
• Uses a centralised discount buying process, so the Engineering team doesn’t need to engage in rate negotiations
• Prescribes a direct or shared granular cost allocation to each team (or their cost centres)

Accessible and timely reporting

• Creating rapid feedback loops to enhance efficiency
• Visible reporting to identify under or over-provisioned resources
• Resource automation to promote ongoing improvement 

Value-based decision-making

• Adopting variance and trending analysis to understand cost increases
• Using internal team benchmarking to promote best practices
• Adopting industry benchmarking to determine company performance

Fin-Ops best practices

With these guiding principles, a business can brainstorm ways to harness FinOps’ best practices and succeed with its cloud computing initiatives.

Planning before migration

It’s crucial to start organising your FinOps before cloud migration begins. Advance planning can help you forecast future expenses like shadow IT and infrastructure scaling, and understand the differences between cloud and on-prem financial planning.

One of the critical differences with cloud-based infrastructure is software licensing. An on-prem business will invest in far more licenses than needed to allow for business growth. But with a cloud system, a company can add or remove licenses, often automatically, as their requirements evolve. It’s a significant cost management variation to consider.   

Value over savings

Cost optimisation isn’t just about saving money; it’s about getting the best possible value out of your investment. Don’t use FinOps to find the cheapest solutions. Instead, incorporate the practice to strike the right balance of functionality and value.  

Is it worth using a free software trial to save money on licensing? Or would the company be better off upgrading now to take advantage of the nifty features in the premium version? A smart FinOps analyst will weigh up the options to find the best value proposition.

Calculate costs

It’s essential to clearly understand of how much your company will spend upfront and over the long term. An accurate ongoing cost estimate is fundamental in guiding high-level decision-making.

With FinOps, the task becomes complicated as individual teams won’t always report their cloud-based expenses in sufficient detail. Management should allow plenty of time (and budget) for the FinOps analyst to calculate  the Return On Investment and Total Cost of Ownership.

Ongoing practice

FinOps isn’t a one-off job you incorporate when migrating to the cloud. To harness the full power of cloud-based computing, a successful organisation will continue its FinOps initiatives long after migration is complete.

Well-defined, ongoing roles help a company monitor and regulate cloud-computing costs in the long term. Fin-Ops staff should be prepared to conduct financial forecasting and internal audits, as well as assist in software license decision-making for the foreseeable future.

Define responsibilities

That begs the question: who should you fill in those ongoing roles? The good news is cloud migration will free up a large chunk of your IT resources. Rather than toiling away to fix endless on-prem server issues, your admin pros can spend time strategising your cloud investment.

Consider whether you should nominate a dedicated FinOps professional or pass responsibility onto a worker within the Finance or Cloud teams. Both options can be preferable in specific circumstances. Whichever way you go, ensure everyone knows theirowne responsibilities, including those reporting to the central FinOps team.  

Inform, optimise, operate

Seasoned Fin-Ops pros treat the process as a perpetually-repeating three-phase cycle.

The first step is to inform the organisation by reporting your cloud-based expenses and comparing them against objectives. Next, optimise the process, by right-sizing servers, ditching unnecessary applications, and automating processes. Finally, operate by finding ways to improve cost optimisation (value) and promote efficiency.

It’s called a cycle because high-performing FinOps teams will return to the inform phase whenever necessary.

Getting started with Fin-Ops:  Specialised software

A broad range of specially designed software suites can help a company kick-start its FinOps endeavours.

For example, Intel® cloud instances use data collection tools to help businesses conduct  cloud audits during the inform phases. The software provides valuable insight into CPU, RAM, and PCIe interface utilisation, and other cloud-based hardware resources. When it’s time to optimise, the company’s cloud optimisation tools help Fin-Ops professionals right-size instances and fine-tune workloads.

Of course, Intel® isn’t the only company offering specialised Fin-Ops software services. A whole host of developers sell their own applications, so it pays to shop around and find the right fit.

Is Fin-Ops right for your business?

Although a significant upfront investment, cloud migration can enhance cost optimisation and bolster long-term profits. Right-sizing servers, avoiding downtimes, eliminating unused licenses, and freeing up IT resources are just some of the many benefits cloud computing may entail.

Companies must plan carefully because cloud computing can lead to enormous cost blowouts if left unchecked. Fin-Ops guiding principles, best practices, and custom-built software suites can help your business keep close tabs on its investment.