What is FinOps? A Complete Overview

Cloud Computing has revolutionised how businesses operate, offering them scalability, flexibility, and innovation. However, Cloud Computing also comes with a new set of challenges, such as managing and controlling cloud costs. This is where FinOps comes in. In this blog, we will answer the question: What is FinOps? We will also discuss the framework, principles, and pillars of FinOps and the challenges and best practices of FinOps reporting. 

Table of Content 

1) Understanding What is FinOps 

2) The framework of FinOps 

3) Core principles of FinOps 

4) The three pillars of FinOps 

5) FinOps challenges 

6) What is FinOps reporting? 

7) Conclusion 

Understanding What is FinOps 

FinOps is a portmanteau of Finance and DevOps, stressing the communication and collaboration between business and engineering teams. FinOps vs DevOps highlights the different focuses—while DevOps centers on software development and operational efficiency, FinOps emphasizes aligning cloud spending with business value. FinOps is not just about saving money but about maximising revenue or business value through the cloud. FinOps facilitates organisations in managing cloud expenditures while upholding the essential levels of performance, reliability, and security required to sustain their business operations. FinOps typically involves using cloud Cost Management tools, like Microsoft Cost Management, and best practices to:  

a) Analyse and track cloud spending 

b) Identify cost-saving opportunities 

c) Allocate costs to specific teams, projects, or products 

FinOps involves collaboration across finance, technology, and business teams to establish and enforce policies and processes that enable teams to track, analyse, and optimise cloud costs. FinOps seeks to align cloud spending with business objectives and strike a balance between cost optimisation and performance so organisations can achieve their business goals without overspending on cloud resources.
 

The framework of FinOps  

The FinOps Foundation, a non-profit organisation hosted at the Linux Foundation, is dedicated to advancing people who practice the discipline of Cloud Cost Management and optimisation via best practices, education, and standards. The FinOps Foundation has developed a framework that outlines the key components of FinOps. Let’s explore them below:
 

a) Culture: The culture of FinOps is based on the values of transparency, accountability, and empowerment. It fosters a shared understanding and ownership of cloud costs across the organisation and encourages teams to make data-driven decisions on allocating and managing cloud resources. 

b) Capabilities: The capabilities of FinOps encompass the essential skills and processes required for teams to implement FinOps practices effectively. They include cloud cost visibility, optimisation, budgeting and forecasting, allocation and showback/chargeback, anomaly detection, and cloud cost governance and compliance. 

c) Maturity: The maturity of FinOps is the degree to which an organisation has adopted and integrated FinOps practices into its operations. The FinOps Foundation has defined a maturity model describing the stages of FinOps adoption: "Inform, Optimise, and Operate”. Each stage has different goals, challenges, and best practices. 

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Core principles of FinOps 

The FinOps Foundation has also identified six core principles that guide FinOps practice. These principles are as follows: 

a) Teams need to collaborate: FinOps requires cross-functional collaboration between finance, technology, and business teams to ensure alignment and accountability on cloud spending and value creation. 

b) The unit of work needs to align with the value: FinOps helps teams measure and optimise the unit economics of cloud services. They include cost per transaction, cost per user, or cost per feature. It helps teams understand the value they deliver to the business and the customers and optimise their cloud architecture and investment decisions accordingly. 

c) Everyone takes responsibility for their cloud usage: FinOps empowers teams to take ownership of their cloud usage and costs, supported by a central best practices group. It enables teams to have visibility and control over their cloud resources. This, in turn, allows teams to strategically balance speed, cost, and quality in their cloud delivery. 

d) Data drive decisions: FinOps leverages Cloud Cost Management tools and data to provide teams with timely and accurate information on their cloud spending and performance. It enables teams to make informed and proactive decisions on how to optimise their cloud costs and value. 

e) A centralised team enables decentralised decision-making: FinOps establishes a centralised team or function that provides guidance, governance, and support to the decentralised teams that use cloud services. The centralised team helps to define and enforce policies and processes. Moreover, it also provides tools and training and facilitates communication and collaboration across the organisation. 

f) Continuous improvement is essential: FinOps is an iterative and evolving practice that adapts to the changing needs and goals of the organisation and the cloud environment. FinOps encourages teams to continuously monitor, measure, and improve their cloud costs and value. It also helps to share and learn from best practices and feedback.  

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The three pillars of FinOps 

The FinOps practice can be summarised by three pillars that represent the main activities and outcomes of FinOps Strategy. Let’s explore these three pillars:

Inform 

The inform pillar gives teams visibility and insight into cloud spending and performance. It involves collecting, analysing, and reporting cloud cost and usage data and allocating costs to the relevant teams, projects, or products. The inform pillar helps teams understand cloud spending patterns, trends, and drivers. Besides, it also helps to identify opportunities for cost optimisation and value creation. 

Optimise 

The optimise pillar is about helping teams reduce or avoid unnecessary cloud spending and maximise the value of their cloud investment. It involves applying best practices and techniques to optimise the cloud architecture, configuration, and operations. This includes rightsizing, scaling, reserving, and spotting instances. The optimise pillar helps teams improve their cloud efficiency, effectiveness, and elasticity. It also helps them align their cloud spending with their business objectives and customer needs. 

Operate 

The operation pillar is about enabling teams to manage and control their cloud spending and value in an agile and responsive way. It involves the following tasks: 

1) Setting and enforcing cloud budgets and forecasts 

2) Establishing and monitoring cloud cost and performance metrics and KPIs 

3) Implementing and automating cloud cost governance and compliance 

Furthermore, the operating pillar assists teams in planning and executing their cloud strategy and delivery. It enables them to adjust and adapt to the evolving cloud environment and changing business requirements. 

FinOps challenges  

FinOps is not without its challenges. Some of the common challenges that organisations face when implementing FinOps are listed below: 

a) Lack of visibility and transparency: Many organisations lack the FinOps Tools and processes needed to collect, analyse, and report cloud cost and usage data. Additionally, they struggle to allocate costs to the relevant teams, projects, or products. This results in a lack of visibility and transparency regarding cloud expenditure and value. Consequently, tracking and optimising cloud costs and performance becomes challenging. 

b) Lack of collaboration and alignment: Many organisations have siloed and disconnected teams that use cloud services, such as finance, technology, and business teams. It results in a lack of collaboration and alignment regarding cloud expenditure and value creation. Additionally, it fosters conflicts and inefficiencies in cloud decision-making and delivery. 

c) Lack of ownership and accountability: Many organisations adopt a centralised and top-down approach to Cloud Cost Management. In this model, the finance team or the IT department assumes responsibility for managing and controlling cloud costs. The absence of ownership and accountability for cloud usage and costs within teams reduces their motivation. This also affects their ability to optimise the expenses and benefits associated with cloud services. 

d) Lack of skills and knowledge: Many organisations lack the skills and knowledge to implement FinOps practices and to use Cloud Cost Management tools effectively. It results in a lack of competence and confidence in cloud Cost Management and optimisation. Consequently, teams are prevented from leveraging the full potential of the cloud.   

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What is FinOps reporting? 

FinOps reporting is the process of providing teams with relevant and actionable information on their cloud spending and performance. FinOps reporting enables teams to monitor, measure, and enhance their cloud costs and value. Additionally, it facilitates communication and collaboration with other stakeholders regarding cloud decisions and delivery. FinOps reporting typically involves using cloud Cost Management tools, like Microsoft Cost Management. Let’s explore the benefits of using these tools: 

a) Collect and aggregate cloud cost and usage data from various sources, such as cloud providers, cloud services, and cloud accounts. 

b) Analyse and visualise cloud cost and usage data to generate insights and trends, such as cost breakdown, cost drivers, cost variance, and cost optimisation. 

c) Report and share cloud cost and usage data with the relevant teams, projects, or products through various formats and channels. These can include dashboards, reports, alerts, and notifications. 

FinOps reporting can be done at different levels and frequencies, depending on the organisation's and teams' needs and goals. For example, FinOps reporting can be done at the organisational, team, or project levels and can be done daily, weekly, monthly, or quarterly. FinOps reporting can also be customised and tailored to the specific context and audience, such as finance, technology, or business teams. 

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Conclusion 

In this blog, we have discussed “What is FinOps?” FinOps helps organisations align cloud spending with business objectives and strike a balance between cost optimisation and performance. So, let's embrace FinOps to maximise our cloud resources effectively. To prepare for roles in this area, reviewing FinOps Interview Questions can provide you with valuable insights and ensure you’re ready to discuss the intricacies of cloud financial management in your interviews.