Laying the Groundwork for an Effective FinOps Organization
Learn what FinOps is and how to effectively lay the groundwork for an effective FinOps organization. Being able to manage cloud spend is extremely important for Finance and Engineering teams.
What Is FinOps?
FinOps is many things: it’s a team; it’s a culture; it’s a governing structure. As with DevOps in the 2000s, it’s a way of operating across multiple teams with different goals but similar priorities. Where DevOps brings together Development and Operations teams, resulting in SRE and DevOps teams, FinOps brings together primarily Engineering and Finance teams, with the resultant FinOps and Cloud Center of Excellence teams.
FinOps is the new hotness at rapidly-growing organizations. Cloud costs continue to grow, financials need to be understood, and financial controls need to be put into place - and FinOps is at the center of it all. Whether organizations have a dedicated team or not, that work is getting done.
In fact, it’s such a big topic that the FinOps Foundation was founded to create an open-source community around solving the problems in the space. With over 2,500 members, the FinOps Foundation community is growing rather quickly, and that indeed reflects what’s happening around cloud spend. Quick plug: Harness is a proud vendor member of the FinOps Foundation, seeking to support FinOps practitioners based on the principles espoused by the foundation.
The Goals of FinOps
Yes, it’s as simple as that. FinOps ultimately aims to drive cost excellence at organizations that use the cloud. The devil, however, is always in the details. How do you actually create cost excellence? And, what is it?
Cost excellence is the tail end of the journey to cloud cost management. It’s what happens when the core use cases of cost management are solved for. Taking that one step further, it’s when organizations can make business decisions related to the effective management of cloud costs continuously. The concept of being continuous is a crucial element; it’s one thing to be able to create governance, optimization, and transparency at a point in time, and something else entirely to have that available in real time to support any stakeholder in their decision-making process.
To achieve such a goal, in addition to finding the right tools and solutions, a cultural practice needs to be implemented that includes best practices, governance, and accountability measures at the same time as allowing engineering teams to continue to leverage their operating models. After all, agility and accelerating the business are core reasons that organizations move to the cloud, and good financial management should account for that.
Core Principles of FinOps
Towards the end goal of cost excellence, the FinOps Foundation shares several principles that an effective operating model must abide by. Roughly speaking, these are what they are:
- Individual ownership;
- FinOps centralization;
- Transparency, or accessibility;
- Tying cost to business value;
- Actually pay for what you use.
By espousing these principles, an organization and its FinOps team can create an effective FinOps practice and drive towards cost excellence.
Interestingly enough, these principles are not entirely unique. The AWS Well-Architected Framework speaks to many of these same things, and in fact, cost optimization is a key pillar of having well-architected cloud infrastructure on AWS. Indeed, FinOps itself is a key part of being considered well-architected!
The Phases of FinOps
In order to achieve cost excellence, the FinOps Foundation has even laid out the three phases of FinOps that organizations need to go through. When all three are in place, an organization has created a feedback loop that ultimately gets at the holy grail of cost excellence.
At each of these phases, there is a different set of capabilities that are required and different stakeholders that are involved. By the time an organization has matured through all three phases, cloud cost management is truly a collaborative team sport. And through this, they have achieved cost transparency, cost optimization, and cost governance. Ultimately, cost excellence is the result.
Key Stakeholders of a High-Functioning FinOps Organization
A core principle is the centralization of the FinOps practice at an organization. This is where FinOps teams and the Cloud Center of Excellence stem from. However, because of the centralized nature of the team, it is also by nature a cross-functional team, and designed to avoid silos. There may be core FinOps owners, but the stakeholders (and the people who actually have to implement changes or actions) live elsewhere.
At any stage of an organization’s FinOps journey, there are going to be multiple stakeholders involved. In the Inform, Optimize, Operate model, as well, there are different folks involved that are critical to moving through the three phases. Let’s take a look at who these are.
We used the magic word: money. Of course Finance is involved! For many organizations, this stakeholder is exactly where the FinOps journey gets started. They want to drive financial accountability in the organization around cloud usage and ensure that the business is effectively and efficiently spending money. The key for these finance professionals is predictability in cloud costs.
Here is what’s important to the Finance stakeholders. These need to be solved for in order to achieve cost excellence with FinOps.
- Accurate forecast of cloud costs;
- Being cost-efficient in the cloud;
- Accurate cost allocation;
- Governance practice/cultural shift around cloud costs;
- Creating guardrails to minimize unexpected cost surprises.
Who actually consumes the cloud resources? It’s the same team that’s responsible for creating an efficient cloud (and great products, obviously): Engineering. This team is critical to actually making any changes to the infrastructure and helping move the needle on costs. They want to create highly-performant applications and deliver innovation quickly. The key for these folks is making it easy for them to validate and implement cost savings, ideally without an interruption to their usual workflows.
Here is what’s important to the Engineering stakeholders. These need to be solved for in order to achieve cost excellence with FinOps. These are broken out by both the Developers as well as the Engineering budget owners.
Engineering Budget Owners
- Accurate forecasts of their cloud costs to do capacity planning and budgeting;
- Staying within budget;
- Performance and speed of delivery of software;
- Accurate chargeback and showback (cost transparency);
- Governance practice/cultural shift around cloud costs.
- High quality code at high velocity;
- Application performance;
- Resources to do their job without roadblocks;
- Simplifying manual cost-related tasks (tracking costs, analyzing costs, recommending "optimal" infrastructure);
- Being able to see their costs.
For such a strategic investment, Executives such as the CFO, CTO, or CIO are bound to be involved. While Finance and Engineering stakeholders focus more on making sure they meet business objectives day-to-day, Executives care about this in addition to how they can make better decisions that drive the business in the right direction. They want to maximize the value they’re getting from the cloud and drive shareholder value. The key for these folks is being able to make strategic decisions based on the business value of cloud.
Here is what’s important to the Executive stakeholders. These need to be solved for in order to achieve cost excellence with FinOps.
- Maximizing efficiency of cloud spend relative to revenue;
- Using cloud cost data as part of business intelligence;
- Governance practice/cultural shift around cloud costs;
- Business continuity.
Key Capabilities of a FinOps Organization
Rather than looking at capabilities as a long list of things that need to be done, it’s more effective to bucket them into the core use cases that need to be solved for in order to achieve cost excellence.
If you want to learn more about key capabilities and how different cloud cost management tools stack up, you can also check out our comprehensive Cloud Cost Management Buyer’s Guide.
Cost transparency relates very closely to cost visibility. It is the notion that there should be visibility of cloud costs across every layer of the organization, from Executives to Developers. All stakeholders should be able to understand cloud costs in the context that is relevant to them.
The key capabilities within cost transparency are as follows:
- Costs understandable in relevant contexts for each stakeholder;
- Visibility across multiple cloud providers and Kubernetes;
- Business intelligence - analytics, reporting, dashboards;
- Resource inventory management;
- Business mapping.
Cost optimization is the notion that organizations want to live up to the promise of the cloud - paying only for what they use. Organizations regularly spend too much with their cloud providers (average is 35%) and they want to bring down the costs to only what they need to pay for.
The key capabilities within cost optimization are as follows:
- Cost savings recommendations;
- Automation in cost savings / active cloud cost management;
- Anomaly detection;
- What-if analysis.
Cost governance is the notion of creating guardrails around cloud costs, essentially creating processes to ensure that costs stay under control.
The key capabilities within cost governance are as follows:
- Budgeting and forecasting;
- Cross-functional collaboration;
- Policy enforcement;
Key Measures of FinOps Effectiveness
Of course, nothing is complete without measures of success - how do you know that you’re successful? For FinOps, it’s the same. There are key metrics and business objectives that need to be measured to track towards success.
Because there are hundreds of potential KPIs, and because these can vary from one organization to another, here the focus is on 5 KPIs we have seen used by our own customers from a high-level organizational operational perspective.
- More cost transparency across the org – all stakeholders can see costs in the appropriate business context, less time and effort.
- Reduction in overall cost to operate in the cloud.
- Reduction in cloud cost run rate.
- Fewer incidents of bill shock due to unexpected cost spikes.
- Fewer incidents of going over budget.
Depending on the team, these may vary as well, and it is worth calling out some other common KPIs across Finance and Engineering.
- RI coverage;
- RI utilization;
- Purchasing effectiveness;
- Usage efficiency;
- Potential vs. realized cost savings;
- Unused assets percentage;
- And many more...
Note that if you extrapolate out what this latter set of KPIs says, they can easily be rolled up into the five high-level metrics above. This highlights what it takes to create truly operational cost excellence: each team needs to own their own set of efficiency metrics, and as an organization, those need to be looked at holistically as well. Nobody said this would be easy.
Harness Customers Using FinOps
All organizations are at different stages of their FinOps journey. Recall, there are three phases, and there are lots of things to do to move through each stage. Customers of Harness are also implementing FinOps thinking as part of their cloud cost management processes.
It would be prudent to share some of these real-world examples to show how FinOps creates real-world value for organizations.
- Discover Dollar saved 70% on their cloud bill with Intelligent Cloud AutoStopping.
- Relativity saved $3M over 5 months with visibility into their utilized, idle, and unallocated costs.
- GoSpotCheck reduced cloud spend by 80% in minutes and gave developers contextualized visibility into their costs.
Take the Next Step in FinOps
Want to adopt FinOps thinking and processes at your own organization? You can request a demo or sign up for free for Harness Cloud Cost Management.
We’d love to learn more about the challenges you’re facing and how we can support you in creating an effective FinOps organization. In the meantime, if you want to continue learning about Cloud Cost Management, download our Cost Management Strategies for Kubernetes eBook for free. We’re all in this cost saving journey together!