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Why FinOps Should Be an Organisation-Wide Initiative

Technology

Apr 13, 2022 - 5 minute read

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Rafał Imielski Content Marketing Specialist

He has two years’ experience in copywriting, translation and proofreading. His goal is to help people communicate in a concise and understandable way. Rafał is an archaeology graduate who’s fascinated by both prehistoric and modern technologies. 

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As the popularity of cloud services continues to increase, more and more organisations can access greater-than-ever levels of visibility of expenses associated with specific resources and workloads. FinOps is a practice able to thrive in this environment. It utilises the improved visibility, matches the costs with tangible business outcomes, and introduces greater financial governance. But for all that to happen, your organisation needs to put the right people in charge of the right processes, give them the agency they need to succeed in these roles, and promote cross-department cooperation.

Even though cloud provides the ability to track costs on a level that’s never been seen before, organisations still struggle with forecasting their cloud budgets. In their recent paper on financial governance, Gartner points out that 30% of organisations that expected to reduce their IT infrastructure cost by moving to public cloud have failed to do so.

Visibility as the Catalyst for Financial Governance

The idea of FinOps is often illustrated as a circle with three distinct phases. Their names can slightly differ across publications, but the idea is consistent. Gartner calls them reporting, remediation and optimisation.

The goal of the first phase is to leverage the visibility provided by the cloud to accurately track spending, analyse it and produce insights for improvement. The second part focuses on implementing fixes in the identified areas — eliminating workloads that bring next to no business value, rescaling and swapping to cheaper cloud resources, or making reservations for resources when there’s an opportunity to do so. The third phase is devoted to larger, overarching changes enabled by the cloud, such as more accurate budgeting, performance engineering of the existing solutions, and negotiating discounts with cloud providers. Since governance is a process that needs to be continuously monitored and improved, the cycle then starts over again.

This granular, workload-level visibility is a true game changer that hasn’t been fully embraced by many organisations yet. The traditional on-premises IT infrastructure introduced an extra layer that obscured the costs of individual workloads. Budgeting was limited to ensuring that the infrastructure would be able to support multiple departments, projects, and workloads. As an enterprise aimed to fully leverage the on-premises infrastructure, assigning workloads to infrastructure was completely detached from costs.

Moving to the cloud allows organisations to change that process. They just need to set up the correct tools and adjust their culture to the new reality. There are no more ‘free’ workloads — every resource comes at a cost. On the other hand, purchasing additional resources is significantly easier, it can be done with a single press of a button. The person making this decision just needs to make sure that it’s beneficial for the business.

Organisation-Wide Change

While it’s important that the FinOps initiative has formal support from the top of the organisation, Gartner points out that creating a dedicated financial operations team is not the optimal approach. Building a centre of excellence (or making FinOps a part of the cloud CoE) is a vital part of the journey, management should ensure that all the necessary skills are distributed across multiple departments and the FinOps practice remains a collaborative project.

Implementing FinOps in the form of a single, dedicated team, without proper education across departments, presents a risk of focusing solely on reducing costs, which is an oversimplification of the entire concept. Organisation that only wants to cut cloud expenses may achieve some quick wins, but won’t be able to fully leverage the potential of FinOps. It’s true that many companies adopt this practice as a response to decentralised use of cloud resources, which often takes the form of delivering business value regardless of the cost. However, doing the exact opposite and compromising on quality, release date, or other business-critical areas to save money is rarely the answer. The involvement of domain experts and key stakeholders is the best way to retain or even strengthen the focus on business value, while optimising finances.

Besides, the need for FinOps stemmed from the agile nature of cloud spending and moving the procurement process from finance to the technical departments. It’s not something that can be effectively solved by creating a single finance operations team — it likely will fall short in the same ways that were true for traditional finance and procurement teams. As the adoption spreads, the FinOps unit should provide standards, best practices, and support to various stakeholders, but it can’t be expected to solve all financial governance issues on its own.

Going Beyond Quick Fixes

The distribution of responsibilities over finance, cloud experts, and, in the best-case scenario, data & analytics leaders produces the most substantial results. This combination of perspectives and competencies allows the FinOps practice to use the improved visibility to prioritise business outcomes. The goal is not to only spend less money on cloud resources, it’s knowing what exactly you’re spending on, and optimising it according to your organisation’s needs and objectives.

Elimination of wasteful spending is an important part of the journey, but there’s much more to be done. The cultural change that comes with FinOps places the responsibility for financial responsibilities on the stakeholders and enables them to perform their own optimisation activities. The combination of financial awareness and deep knowledge of the specific project gives the decision-maker all the information they need to optimise their cloud spending. Gartner believes that spreading this perspective across the technical teams is the best way of introducing cloud cost governance in an organisation.

At the same time, strategic cloud partnership decisions and using commitment as a bargaining chip to negotiate discounts can also contribute to reduced costs. In their 2022 predictions regarding negotiating cloud infrastructure, Gartner recalls that 76% of organisations use multiple IaaS and PaaS providers, but most of them are doing so as a result of multiple disjointed tactical decisions, not a coherent multicloud strategy. The research agency predicts that by 2024, organisations can reduce their spending on cloud resources by up to 5% through strategic and smart negotiations.

Conclusion

FinOps is an effective way to introduce cloud cost governance into an organisation. However, an organisation-wide cultural change is needed to fully leverage its potential. This may require the introduction of more data & analytics skills to your cloud practice and education on efficient spending.

Adopting this practice necessitates building collaboration between parts of your organisations that didn’t have to work closely together before. The finance department, data experts, and cloud practitioners will have to cooperate and align their efforts so you can create value in a cost-effective way. Only then your FinOps practice will be able to achieve longevity and continuously adapt to the changing business requirements.

References

  1. CDOs and CFOs Must Join Forces in the Cloud to Connect Business Value With Cost, Gartner, 2021
  2. Financial Governance Is Essential to Successful Cloud Data and Analytics, Gartner, 2022
  3. Is FinOps the Answer to Cloud Cost Governance?, Gartner, 2021
  4. Predicts 2022: Negotiate Cloud Infrastructure and Platform Services Contracts Fit for Growth, Gartner, 2021
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Rafał Imielski Content Marketing Specialist

He has two years’ experience in copywriting, translation and proofreading. His goal is to help people communicate in a concise and understandable way. Rafał is an archaeology graduate who’s fascinated by both prehistoric and modern technologies. 

See all Rafał's posts

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