Get Started With FinOps

FinOps goes beyond identifying cloud savings. It empowers every cloud user to maximize the value of their spend.

Executive Brief

Analyst Perspective

The first step of FinOps is collectively realizing that maximizing value is every cloud user's responsibility.

Natalie Sansone, PhD Research Director, Infrastructure & Operations Info-Tech Research Group

As cloud adoption increases, and with it the complexity of cloud environments, managing and optimizing cloud spend has become both a top challenge and priority for IT organizations. In response, the practice of FinOps has emerged to help organizations maximize the value they get from the cloud. As its popularity surges, organizations are told they must do FinOps, but many feel their practice is not yet mature. One of their biggest obstacles is empowering engineers and other cloud users to work toward this shared goal with other teams. To grow and mature your FinOps practice, your first challenge is breaking down silos, encouraging collaboration across varying business units, and getting all cloud users to be accountable for their cloud usage and spend and to understand the shared goals of FinOps. Beyond finding ways to reduce cloud costs, FinOps is a cultural shift that enables better collaboration between distributed teams. It allows them to leverage data to identify opportunities to maximize business value from cloud investments. Whether you’re starting the FinOps journey or looking to mature your practice, this blueprint will help you organize by defining the required role and tasks. Then you can work through a collective exercise to ensure everyone understands who is involved and responsible for each activity. You’ll gain the information you need and be better positioned to continuously improve and mature your processes, but success begins with everyone understanding that FinOps is a shared responsibility.

Executive Summary

Info-Tech Insight

FinOps is not just about driving cloud savings. It’s a cultural shift empowering every cloud user to maximize the value of their spend. The first step of FinOps is therefore to help everyone understand their share of responsibility.

What is FinOps?

Definition

“FinOps is 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.”

Definition Updated: November 2021 by the FinOps Foundation Technical Advisory Council

The ultimate purpose of FinOps is to bring business value to your organization by reducing cloud waste.

• FinOps is the people, processes, and tools you use to eliminate waste and ensure you get the most value from your cloud spend.
• FinOps is the framework within which teams can operate to ensure they are optimizing their use of cloud resources.
• FinOps brings financial accountability to cloud spend.
• FinOps is a culture practice where everyone collaborates and takes ownership for their cloud usage while being supported and governed by a central group. It breaks down silos so teams that haven’t worked closely together in the past collaborate toward shared goals.
• It brings financial accountability and cultural change to cloud spend by enabling distributed teams to better collaborate and leverage data to decide where/when to invest in cloud for maximum business value.
• FinOps is not done by an individual or just one team. It’s a change in the way that many disparate teams work together, from engineering to finance to business teams.

Common misconceptions about FinOps

1 “What is FinOps?” FinOps Foundation, 2023

FinOps’ popularity has exploded in recent years

2012 - The practice of FinOps begins to emerge through early scalers in public cloud like Adobe and Intuit

2017 - Many IT departments begin to use the cloud for limited use cases, but very few enterprises are all in the cloud

2019 - Many companies begin moving to a cloud-first strategy, shifting IT spend from capital to operational expenditure (CapEx to OpEx), complicating cloud bills

February 2019 - The FinOps Foundation is born out of Cloudability’s Customer Advisory Board meeting where many cloud practitioners discuss the need for a community of practitioners

June 2020 - The FinOps Foundation merges with Linux Foundation and sets the standard for cloud financial management

Sources: Carr, 2022; Linux Foundation, 2023, Storment & Fuller, 2023.

Where did the term come from?

The term FinOps has risen in popularity over the last few years. Originally, organizations used the term cloud cost management, then cloud cost optimization, then more broadly, cloud financial management. The latter has now been largely replaced by FinOps.

Why is FinOps so essential? (1/2)

The shift from fixed to variable spend has changed the way organizations must manage and report on costs.

In the traditional data center era:

• The enterprise procured infrastructure through large capital refreshes of data center hardware.
• Infrastructure teams tried their best to avoid running out of storage before the next hardware refresh. Equipment was intentionally oversized to accommodate unexpected growth.
• IT teams would not worry about how much infrastructure resources they consumed, provided they stayed within planned capacity limits. If capacity ran low, resource usage would be adjusted.
• The business might not like laying out large capital expenditures, but it had full visibility into the cost and got to approve spending in advance using financial controls.
• Monthly costs were well-understood and monthly or infrequent reporting was acceptable because day-to-day costs did not vary.
• Mature organizations might chargeback or showback costs to application teams based on number of virtual machines or other measures, but traditional on-premises chargeback wouldn't save money overall.

Why is FinOps so essential? (2/2)

The shift from fixed to variable spend has changed the way organizations must manage and report on costs.

In the cloud era:

• Infrastructure resources must no longer be provisioned in advance through spending capital budgets.
• Capacity management isn’t a major concern. Spare capacity is always available, and savings can result from not paying for unnecessary capacity.
• Cloud services often offer pay-as-you-go pricing models, allowing more control and flexibility to pay only for the resources you consume.
• When services use more resources than they need, running costs increase. Cost reductions are realized through reducing the size of allocated resources.
• The variable consumption model can reduce operating costs but can make budgeting and forecasting difficult. IT and the business can no longer predict what they will pay for infrastructure resources.
• Billing is no longer straightforward and monthly. Resources are individually charged in micro amounts. Costs must be regularly reviewed as unexpected or forgotten resource usage can add up significantly.

Managing cloud spend remains a challenge for many organizations

Given the variable nature of cloud costs and complex pricing structures, it can be easy to overspend without mature FinOps processes in place. Indeed, 82% of organizations cite managing cloud spend as one of their top challenges.

Respondents reported that public cloud spend was over budget by an average of 18%, up from 13% the previous year.

Source: Flexera 2023 State of the Cloud Report, n=750

While FinOps adoption has rapidly increased, maturity has not

Most organizations understand the value of FinOps but are not mature in their practice.

NetApp’s 2023 State of CloudOps Report found that:

96% say FinOps is important to their cloud strategy

9% have a mature FinOps practice

92% report that they struggle with FinOps

Source: NetApp, 2023 State of CloudOps Report, n=310 IT decision makers in the United States responsible for public cloud infrastructure investments.

Flexera’s 2023 State of the Cloud report found that 72% of organizations have a dedicated FinOps team.

Flexera’s annual report also found that year over year, cloud cost responsibilities are increasingly shifting away from Finance/Accounting and Vendor Management teams and over to FinOps teams as they emerge and mature.

Source: Flexera, 2023 State of the Cloud Report, n=750 decision-makers and users around the world