What is FinOps? Your guide to cloud cost management

With the cloud becoming such an integral part of the IT strategies of so many enterprises, it’s natural that managing the expense of all these services would be an emerging priority for executives.

Although the cloud is touted by providers as a way to potentially save money because of greater efficiencies and shared expenses, an abundance of cloud-based resources can also lead to cost runaways if not managed properly. That’s where FinOps comes in.

What is FinOps?

Blending the terms finance and operations, FinOps is a business discipline and set of best practices and technologies for optimizing enterprise cloud spend.

The FinOps Foundation’s Technical Advisory Council further defines FinOps as “an evolving cloud financial management discipline and cultural practice that enables organizations to get maximum business value by helping engineering, finance, technology, and business teams to collaborate on data-driven spending decisions.”

The foundation, a program of the Linux Foundation dedicated to advancing people who practice the discipline of cloud financial management through best practices, education, and standards, says at its core FinOps is a cultural practice for managing cloud costs — one in which everyone takes ownership of their cloud usage supported by a central best-practices group

The term “FinOps” comes from the DevOps software development model, with the addition of the financial component, and emphasizes communications and collaboration among various teams involved in the use of cloud services.

“The FinOps market is white hot today, growing faster than both IT general and public cloud spending,” says Jevin Jensen, research vice president of Intelligent CloudOps Market service at IDC. “I expect this to continue as IT budgets will be under increasing pressure in 2023. FinOps culture change and the rapidly advancing cloud cost transparency tools offer an excellent opportunity for enterprises to realize tremendous cost savings.”

How does FinOps work?

As a practice, FinOps operates by bringing together representatives from IT operations, development, finance, and procurement, as well as business unit leaders, Jensen says. Doing so gives the organization a central, cross-functional team focused on optimizing the enterprise’s outlay in the cloud.

“Enterprises can create a single source of truth for cloud spending,” Jensen says. “Additionally, they can develop metrics and set goals for each metric, including forecasting cloud spending, targeting saving opportunities, and benchmarking future cloud projects before approval.”

Agreeing on the charge-back method of cloud spending is another important task for a FinOps team, Jensen says. “FinOps is more about people and processes than a technology tool,” he says. “The tool is still an important enabler for the FinOps team. The FinOps culture change is about collaboration, spending accountability, and ensuring anticipated return on investment.”

The FinOps Foundation lists six principles of FinOps:

• Teams need to collaborate
• Everyone takes ownership of their cloud usage
• A centralized team drives FinOps
• Reports should be accessible and timely
• Decisions are driven by the business value of the cloud
• Take advantage of the variable cost model of the cloud

Why do organizations need FinOps?

“FinOps brings financial accountability — including financial control and predictability — to the variable spend model of cloud,” says J.R. Storment, executive director of the FinOps Foundation. “This is increasingly important as cloud spending makes up ever more of IT budgets.”

It also enables organizations to make informed trade-offs between speed, cost, and quality in their cloud architecture and investment decisions, Storment says. “And organizations get maximum business value by helping engineering, finance, technology, and business teams collaborate on data-driven spending decisions,” he says.

Aside from bringing together the key people who can help an organization gain better control of its cloud spending, FinOps can help reduce cloud waste, which IDC estimates between 10% to 30% for organizations today.

“Moving from show-back cloud accounting, where IT still pays and budgets for cloud spending, to a charge-back model, where individual departments are accountable for cloud spending in their budget, is key to accelerating savings and ensuring only necessary cloud projects are implemented,” Jensen says.

And because FinOps facilitates improved collaboration and communication among groups around cloud use, organizations can reduce or eliminate redundant applications and cloud initiatives, Jensen says.

FinOps “is the management of cloud economics,” says Lydia Leong, distinguished vice president and analyst at Gartner. “Ideally, it should not merely be cloud financial operations, but a broader perspective that maximizes the value of cloud computing rather than minimizing the cost. Properly done, FinOps helps an organization contemplate the business value it is receiving — or not receiving — from its cloud use, so it can decide how best to optimize its investments.”

What are some best practices for adopting FinOps?

When implementing FinOps, one best practice is to create a cloud center of excellence (CoE) to centralize the organization’s FinOps approach. “Neither technology nor finance can go it alone; this needs to be a cross-functional initiative,” says R.J. Hazra, senior vice president and CFO of global technology and security at consumer credit reporting agency Equifax.

The multinational consumer credit reporting company is using Apptio’s Cloudability platform integrated with a general ledger system and configuration management database for enterprise reporting on cloud usage, trending, and anomaly detection. It created a cloud CoE composed of sourcing, financial planning and analysis, and site reliability engineers, Hazra says. The CoE set up a strategy to better align cloud spending with the firm’s goals, and set targets for all of its cloud platforms to drive shared accountability.

Still, FinOps needs to be a cultural practice across the organization, not something that’s solely the responsibility of a “FinOps team,” Gartner’s Leong says. “It requires collaboration between business leaders — the business owners of applications — application developers or application management teams, cloud operations, finance, and sourcing/procurement/vendor management,” she says. “FinOps is a continuous process, not just a monthly cycle of playing whack-a-mole with the cloud bills.”

Designating a FinOps practitioner is an essential first step, IDC’s Jensen says. “This person is the evangelist of FinOps for your organization, and should have a solid understanding of IT and financial constructs.”

This individual will need sponsorship from a C-level executive, such as a CFO or CEO, to establish a cross-functional team and hold them accountable for meeting regularly and hitting metrics, Jensen says.

“Selecting a tool and getting buy-in for using it as a single source of truth for all cloud spending and its recommendations is the next logical step,” Jensen says. “The FinOps teams should then set metrics and provide a transparent company-wide dashboard to facilitate control of cloud spending.”

To adopt and deploy a successful FinOps strategy, enterprises should look to the FinOps community to learn through events, meetings, and other channels, Storment says. “No one needs to do this alone and FinOps practitioners will get farther, faster by sharing learnings and best practices,” he says. “Also, to have a viable and thriving FinOps culture and practice, invest in career development of practitioners through training and certification.”

What role should the CIO play in an organization’s use of FinOps?

“Executive buy-in has a massive influence in building successful FinOps practices, and the role of a CIO or CFO is often to ensure that the FinOps strategy and deployment are well crafted and carried out,” FinOps Foundation’s Storment says.

The CIO has several pivotal roles to play in the use of FinOps, he adds. One is as a promoter and vocal supporter. “The CIO sets the tone for the IT resources in the business,” Storment says. For the past two years the foundation’s survey of FinOps practitioners indicates that encouraging engineers to take action on cost optimization is the primary challenge facing organizations. “If the CIO is not supportive — through words, actions, incentives — it is very difficult to get an engineer to consider cost in their daily work.”

CIOs can also inspire collaboration. “The CIO doesn’t operate in a vacuum separately from the CFO, COO, and other C-level executives,” Storment says. “When using the cloud, the CIO’s resources are also not able to operate in an isolated silo.” The CIO should work to demonstrate cross-discipline collaboration by working with other senior executives to communicate about the cloud’s role in the organization and to reinforce the need to understand cost, he says.

While CIOs don’t have to lead FinOps initiatives, they should play an important advisory role. “CIOs are critical sponsors of FinOps efforts,” Leong says. “But in order to make it work as a cultural practice, [they] must have the cooperation of their peers in the business, and preferably the CFO as well.”

How can someone become a FinOps professional?

FinOps continues to proliferate around the world and there will be growing demand for people with related skills. “In the coming years, innovative technology solutions will be built using the cloud,” Storment says. “But cloud is a very different delivery model from traditional data center IT and requires FinOps” in order to be used effectively.

A recent survey by the FinOps Foundation showed that FinOps team sizes are expected to increase to an average of eight people over the next year, up from five.

“FinOps isn’t just a technical discipline nor solely finance-based,” Storment says. “It’s a cultural one that brings together finance, engineering, product, and management, and so roles and responsibilities encompass all of those arenas.”

One way to gain the proper skills is through certification programs, such as those offered by the FinOps Foundation.

“We see a need to certify people to be ‘certified practitioners’ to validate their FinOps knowledge and enhance their professional credibility,” Storment says. “Certified practitioners are enabled with key concepts and terminology to be contributing members of this community and interact with other practitioners and disciplines in their companies in detailed and meaningful ways.”

The foundation also offers a training course designed for engineers to understand how to work effectively with FinOps teams to manage cloud use and costs more efficiently, and to derive more business value from cloud, Storment says. “This is important, because [the] biggest challenge among organizations is getting engineers to take action on cost optimization.”

What are the top FinOps technology providers?

Based on IDC research, some of the top FinOps vendors in terms of market share include:

• VMware
• ServiceNow
• BMC,
• Morpheus
• Densify
• NetApp
• Apptio
• Flexera
• IBM