What Is FinOps?
FinOps, short for financial operations, is a management practice that promotes shared responsibility for an organization’s cloud computing infrastructure and costs.
Within a FinOps framework, information technology (IT) and DevOps groups collaborate with purchasing, finance, and other teams to address cloud costs across the entire organization.
FinOps Meaning and Definitions
In an October 2021 FinOps summit, this definition was proposed in the keynote presentation:
FinOps is a public cloud management discipline that enables organizations to get maximum business value from cloud by helping technology, finance, and business teams to collaborate on data-driven spending decisions.”1
FinOps proponents and practitioners emphasize that theirs is a philosophy of cloud financial management. The core element of this management practice is the application of cost controls to cloud deployments while preserving the developers’ access to cloud resources.
FinOps Framework and Principles
The FinOps approach brings financial, IT, and DevOps leadership together to manage the total cost of cloud deployments collaboratively across the enterprise. Operating under FinOps principles, the organization empowers cross-functional teams to manage cloud costs. Often, the FinOps effort also establishes governance procedures with a team or council to enforce best practices for cloud financial management.
A FinOps framework can be implemented in a series of four steps:
- Analysis. Audit all cloud expenses, with visibility into IT budgets and allocations by team.
- Benchmarking. Measure performance of cloud instances to detect over- and underprovisioning.
- Optimization. Rightsize instances, reposition workloads, and tune applications to improve cost/performance.
- Negotiation. Consolidate cloud services provider (CSP) purchases and align cloud service allocations with organizational strategy.
These steps should be repeated periodically to maintain efficiency and enable innovation while reducing costs.
Cloud Financial Management
Typically, an organization initiates the FinOps discovery process at the behest of the finance department. That’s because higher-than-expected CSP bills are likely to trigger scrutiny by purchasing managers and finance executives.
The IT and DevOps teams may prefer not to involve nontechnical managers in their technology decisions, but a collaboration can prove beneficial. Technology solutions also play a role in cloud financial management. Optimizations and strategic workload placement adjustments can enable significant cost savings without sacrificing application performance.
With the maturation of cloud adoption, cross-departmental teams have been formed typically incorporating four groups of stakeholders: corporate executives, finance and procurement specialists, engineering and operations managers, and application or product owners. These teams are often led by a cloud procurement specialist. Their primary objective is to promote a culture of responsible spending without hampering innovation or business velocity.”2
FinOps Challenges and Solutions
Cloud operations are becoming integral to the information technology and DevOps landscapes, and most corporate finance managers welcome the transition. A cloud migration replaces the fixed expenses of a capital equipment infrastructure with operational expenses associated with CSP contracts.
Cloud operational expenses can be highly variable, however, and they can quickly spin out of control. For example, individuals or groups throughout the organization may purchase cloud services or instances independently from one another, without higher-level oversight or coordination.
That disconnect can lead to overprovisioning for one set of workloads and underprovisioning for another. Either of those outcomes can cause substantial cost overruns, where a more coordinated effort might have produced a rightsized solution at a lower cost. Organizational silos and geographic dispersal may further compound the mismanagement of cloud resources, especially in multinational companies and conglomerates.
In a more traditional, on-premises computing model, hardware purchases are tightly controlled. In most organizations, only senior managers are authorized to approve such capital expenses. Cloud services, on the other hand, can be purchased in small, relatively inexpensive increments. That means first-level managers or individual contributors may be authorized to sign CSP contracts.
The cultural change of running in cloud moves ownership of technology and financial decision-making out to the edges of the organization. It flips long-held, forward-looking capacity planning methodology on its head to become rate-optimization analysis for technology that’s already been used. And it forces IT, finance, and business professionals to work together in unfamiliar ways.”3
This democratization of computing resources is beneficial when it enables flexibility and agility in cloud migrations. However, the lack of coordination and oversight can lead to unnecessary spending and duplicative efforts. In large organizations, especially, the cost overruns can become very significant.
The purpose of a FinOps framework is to establish governance policies with oversight by a multidisciplinary team. A successful FinOps effort will achieve a suitable balance between performance and cost across the entire organization’s cloud engagements.
Getting Started in FinOps
A successful FinOps effort requires a detailed understanding of cloud utilization and performance. A cloud audit is a good place to start.
With cloud instances powered by Intel® Xeon® Scalable processors, a cloud audit is facilitated by a variety of data collection features and tools. For example, the Intel® Telemetry Collector can provide insight into the utilization of CPUs, memory, PCIe interfaces, and other hardware resources in the cloud.
Following up on a cloud audit and assessment, DevOps and IT teams can tune cloud workloads and rightsize instances using Intel® cloud optimization tools and libraries.
Intel also offers a variety of benchmark options that can help FinOps teams understand and manage price/performance expectations for their workloads. These benchmark tools and protocols can be deployed across various cloud services providers and instance types to support decision-making on workload placement and optimization needs.
Once optimization goals are reached, FinOps will want to continue monitoring cloud workloads. Needs and usage are likely to change over time, and repeated optimizations will help to maintain the best possible balance between performance and cost.
FinOps and the Future of Cloud Financial Operations
Cloud computing is expected to continue the current trends of expanded adoption and increasing complexity. According to Gartner,4 these four trends will drive cloud computing in the coming years:
- Cloud ubiquity. By 2026, Gartner predicts public cloud spending will exceed 45 percent of all enterprise IT spending, up from less than 17 percent in 2021.4
- Regional cloud ecosystems. Regional and vertical cloud services are on the rise, says Gartner, as companies diversify their cloud strategies by adding cloud providers outside of their own countries.4
- Sustainability. “New sustainability requirements will be mandated over the next few years, and the choice of cloud services providers may hinge on the provider’s ‘green’ initiatives,” according to Gartner.4
- Programmable cloud infrastructure. Gartner expects the broad adoption of fully managed, AI-enabled cloud platforms and services from CSPs.
These and other trends add to the stress on cloud financial operations and increase the urgent need for a comprehensive FinOps approach.