What is Finops and Why Does it Matter?

Nick Lumsden
December 23, 2022
5 min read
What is finops, and why does it matter? We answer all your questions in this article

FinOps, short for financial operations, is a cloud financial management discipline that enables companies and organizations to obtain the maximum business value from cloud computing by helping finance teams and IT teams collaborate on data-driven financial decisions. FinOps creates best practices for cloud technology utilization and then depends on everyone involved taking personal ownership.

It is both a cultural and financial practice that brings together cross-functional teams of finance, business, and technology personnel, allowing for better management of cloud vendors, rates, and pricing in a cloud environment as opposed to unique, separate procurement teams operating in silos to identify and approve expenses.

Benefits of FinOps: What Does FinOps Achieve?

Implementing FinOps practices offers a reliable and agile approach to cloud finance management by offering several advantages. Those advantages include the following:

Cloud Cost Optimization

Cloud cost optimization is a major benefit of cloud financial management. Deploying cloud resources is pretty easy, but cloud usage expenses can quickly spiral out of control without adequate supervision. Cloud cost management involves constantly examining and adjusting cloud costs.

A cross-functional team with finance and technical roles will have the right FinOps tools, expertise, and power to investigate and optimize costs and unused resources. This reduces or eliminates unnecessary recurring costs.

By integrating FinOps principles, organizations will have insights into resources available or reserved at a competitive price for immediate deployment. This promotes optimal cloud resource purchases and prevents needless spending.

Data-Informed Decision-Making

How to cross-charge and/or allocate cloud resources to the right business unit or division is a critical challenge for medium and big enterprises with cloud installations. The ability to 'tag' AWS, Azure, and Google resources offer some clarity, but it's only effective with a company-wide tagging policy.

Implementing a tagging policy will require input from multiple business stakeholders to achieve this criterion. When effectively administered, it will allow for appropriate cost allocation or cost-sharing. A FinOps team with finance and technical functions should be able to manage policy generation, distribution, and management.

Accurate Forecasting

Forecasting Cloud consumption is nearly impossible without procurement and deployment management. The lack of data on current cloud spending, deployment activities, and future needs only exacerbates the problem. How can you forecast cloud usage without knowing current usage?

Accurate predictability requires a good data-gathering tool and the right people to analyze the metrics. A cross-functional team of cloud FinOps practitioners can understand data and determine what controls to put in place to monitor proactively. Automation with required budget and overspending warnings is crucial.

FinOps Stakeholders

Because FinOps promotes a company-wide culture shift, everyone is a stakeholder. FinOps stakeholders include:

Corporate Executives

Corporate executives lead by example in adopting the FinOps culture. They serve as a precaution against teams going over budget by putting a strong emphasis on financial accountability and transparency across the board.

Finance and Procurement Specialists

Cost management is a crucial component of the cloud, and financial experts, including procurement specialists, financial planners, and corporate financial consultants, will support budget creation, accounting, and cloud forecasting.

Typically, continuous billing is used in this process to develop more precise cloud cost models. It's possible for finance experts to negotiate prices with cloud service providers.

Operations and Engineering Teams

Software engineers, systems engineers, cloud architects, and engineering managers are just a few of the professionals FinOps needs. These are the members of the FinOps team who translate spending plans and specifications into useful cloud infrastructures where workloads are deployed.

The majority of the rightsizing, automation and troubleshooting required to optimize a cloud workload is likewise handled by the engineering team.

FinOps Product Owners

Product owners, like CEOs, typically represent the department heads or project leaders who are directly in charge of developing, delivering, and managing the cloud workloads for the company. Examples of these product owners include managers of business operations, directors of cloud optimization, and  cloud analysts.

FinOps Best Practices

As previously stated, FinOps is a culture shift that requires organization-wide support and accountability. Here are some best practices for implementing FinOps:

  • Analyze Spending and Allocations — Determine which teams, apps, and company divisions are using specific resources. Having insight into existing costs and current spending will give you a starting point for cloud management implementations and cost-efficiency optimization.
  • Cut Unnecessary Losses — Businesses involved in FinOps must be able to operate efficiently without room for unnecessary cloud costs, so cut them out as soon as they're identified. However, don't settle for trade-offs. FinOps isn't strictly about cost savings — it's about getting the best value for the money invested.
  • Have Multiple Vendors — Using multi-cloud services from different members is a great way to improve your cloud infrastructure capabilities and cost efficiency.
  • Look for Discounts — While working with multiple providers might offer more advantages, some vendors offer bulk discounts, with significant potential savings on cloud services.
  • Use Reserved Instances — Comparing reserved instances to on-demand options, reserved instances are frequently more affordable and can help cut expenditures, so consider buying them when they become available.

FinOps Lifecycle

Three phases — inform, optimize, and operate — make up the FinOps cycle. An organization may be in various phases of the cycle at once, depending on the business unit and applications. Here's the breakdown of each phase:

  • Inform — The first step of the FinOps lifecycle improves visibility, allocation, benchmarking, budgeting, and forecasting. Due to customizable pricing, discounts, and the cloud's on-demand and elastic nature, intelligent decisions require time-accurate cloud insight.
  • Optimize — The next step is to optimize the company's cloud footprint. Cloud service companies offer on-demand capacity, resources, and discounts to encourage early booking and commitment. Businesses can also optimize for the environment by rightsizing and automating unnecessary resource use.
  • Operate — Analyzing corporate objectives and the measures used to attain them is crucial for every business organization. These goals are monitored based on cost, quality, and speed.

Try Tenacity Cloud for FinOps

In conclusion, FinOps is about getting the best value from your cloud computing services for the money invested. Tenacity can provide you with total insight into your cloud expenditure, allowing you to know where your spending goes, how it is spent, and why it is spent that way. Try Tenacity's cloud cost optimization tool and get started in five minutes or less.

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