What is FinOps and what FinOps isn’t?
FinOps, sometimes referred to as Cloud Financial Management, or even sometimes Cloud Economics (which is in my eyes a broader term/topic) is currently on a lot of peoples lips.
Why? Well firstly because there’s an economic climate and people have heard it’s the thing to do, but secondly because more and more organisations are realising they don’t really understand the costs and usage of their cloud estates.
There are many great groups, organisations and materials out there to help you find out more, I’m a member of a few myself and would confidently say the widest known is the FinOps foundation, so why don’t we start with their 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.
Being totally honest, you could go to their homepage and get a really good explanation of FinOps in general, so I won’t be insulted if you stop reading this and head there now! But here’s some of my opinions on the subject (in case you care).
What FinOps Isn’t
FinOps isn’t just about cost optimisation, or as some people view it - taking costs out of cloud. While optimisation is absolutely a big part of the value that FinOps brings to your organisation, if you’re just looking for this alone you’re going to miss the most important learnings that can be found in FinOps and because of this, end back up in a position in the not too distant future where you realise you’re back in the same place you started. In short, a cost optimisation drive (even a company wide one) is a tactic, not a strategy. As such its impact will be short lived in its effectiveness.
FinOps also isn’t something for just the technical community (or just the financial community for that matter). It’s about creating a cross functional capability (team/culture) that can work to improve the organisations understanding of the cloud. When this becomes specifically silo’ed in either of the teams mentioned above, the wider benefits of real FinOps never materialise.
So What is FinOps?
FinOps is in my eyes a culture that results in a strategy being met across the whole organisation when it comes to cloud. While this does absolutely include cost optimisation and input from both Finance and Tech, it’s far more about understanding the value that cloud is bringing. If you speak to anyone in the FinOps Foundation they will absolutely argue this exact point. Here’s a simple example of why value is more important than cost:
An organisation’s cloud usage increases by 2x, the CFO sees this and is understandably concerned and requests that the CTO/CIO immediately put a cost saving exercise in place. At the same time, the increase is actually because the platform has had an upgrade to allow 4x more users to use the platform, which is inline with the growth expectations of the business. Is this a good change or a bad change? Is the CFO right? That all depends on business context. If the organisation knows it can sell those users, then it’s fantastic. Your cost per user has actually halved if you fill the capacity. While if the users doesn’t go up, and you have spare capacity sat there, then it’s a bad change, because your cost per customer has actually gone up. This in itself means decisions have to be made based on what’s the business’ plans are in terms of growth. This is a far more impactful conversation than “the bill’s gone up”.
Hopefully that shows some of the nuances of value rather than cost. More than this, it brings in a concept of unit economics which I’ll be talking about in my next article.
So why is FinOps important?
FinOps is the best way of getting an organisation to understand what benefits cloud is bringing to the organisation and for what cost. As well as this it helps drive sustainability (discussed in a later article) and creates a culture of understanding and cost consciousness, helping keep spend under control while making sure that projects are delivering value.