What is FinOps?

FinOps (a combination of the words “Finance” and “DevOps”) is a management practice that organizations use to optimize the financial performance of their cloud computing infrastructure. It promotes shared responsibility for cloud costs across information technology (IT), DevOps, and other cross-functional teams in order to improve decision making processes and drive greater business value.

Cloud computing is a top operating expense (OpEx) for an increasing number of organizations—which means it’s essential for them to implement FinOps. With FinOps, organizations can gain a thorough understanding of their cloud computing costs to optimize those costs, boost profits, and gain a competitive edge.

A big problem today is that approximately one-third of all cloud spend is going to waste. Cloud vendors are more than happy to tell you all the ways you can cut cloud costs. But until you fully understand the variable spend model of public clouds, and implement solutions accordingly, savings will be slow to come. Fortunately, there is a way to cut cloud waste and control cloud spending. Enter FinOps.

The goal of FinOps is to ensure that an organization's cloud spending aligns with its business objectives and that cross-functional teams work harmoniously to gain more financial control and predictability, reduce friction, and deliver products faster.

In this guide, we'll explain all the basics you need to know about FinOps, its core principles, and the key areas of the practice.

What is the philosophy of FinOps?

To better understand Cloud FinOps and cloud financial management, let's first dissect the FinOps philosophy.

FinOps is a way of managing your company's OpEx. It focuses on:

• Efficiency: Wasting money is bad for business. To be efficient, businesses need to use their resources wisely and get the most value out of every dollar they spend.
• Optimization: There's always room for improvement. To optimize their finances, businesses must constantly strive to do more with less.
• Continuous improvement: The best way to improve is to learn from your mistakes and successes, then use that knowledge to continuously improve your financial processes.

It's important to note that FinOps is not just a set of isolated processes or tools. It is more than that. FinOps also represents a set of best practices, a culture, and mindset that should be adopted in an organization across teams, including the C-suite, and individual contributors.

Another defining feature of FinOps is that it is driven by a centralized cross-functional team [e.g., Cloud Center of Excellence] that directs and governs the adoption of FinOps, its outcomes, and strategic changes that may be needed to maximize the value derived from the cloud.

With FinOps, organizations can better manage their cloud spend to improve profitability and make better informed decisions regarding trade-offs between cost, speed, and quality.

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What are the 3 tenets of Cloud FinOps?

Cloud FinOps practitioners focus on three key areas: cost optimization, forecasting, and accounting. In each of these areas, they use automation and cloud cost management solutions to improve efficiency and control costs.

Throughout the lifecycle journey, there are three phases of FinOps—Inform, Optimize, and Operate—that describe the processes of FinOps in a structured way. Let’s take a closer look.

1. Inform

The Inform phase is the first in the FinOps journey. It enables organizations to gain cloud spend visibility, accurately budget and allocate costs, and get forecasting insights. This phase promotes a better understanding of cloud costs, analyses, and benchmarking of performance both internally and against peers.

Each cloud provider (e.g., Microsoft Azure, AWS, Google Cloud) offers their own cloud consumption data, insights, and billing. However, for a clearer and united view across clouds, with additional trusted insights for forecasting and more, a FinOps–cloud financial management dedicated solution may be required. Visibility is the very foundation of FinOps, and such a solution tells you exactly who is spending what, where, and why across all your clouds. You no longer fly blind in the complexity of multiple clouds.

Developers and engineers are the biggest users of cloud resources, so it’s especially important that they have timely visibility into their costs, along with budget alerts. The goal is to prevent reckless spending and promote a culture of financial responsibility. Cloud FinOps practitioners use cost monitoring and reporting tools to give developers the information they need to optimize costs.

2. Optimize

The optimize phase includes multiple optimization levers. Organizations can, for example, leverage rightsizing insights, automate on and off times for workloads that don’t need to run continuously, and improve reservation planning (taking advantage of the discounts that cloud providers offer in exchange for longer-term commitments).

Cost optimization is a key focus of Cloud FinOps. Practitioners use automation and cloud cost management solutions to help implement the actions required for realizing optimization opportunities and reduce wasteful spending. Practitioners aim to reduce costs while managing sufficient use of the cloud for all project shareholders.

3. Operate

Organizations continuously evaluate business metrics, measure business alignment, define policies, and build processes and workflows to further optimize the value of cloud.

Through logistics and a cloud management platform, practitioners aim to keep the cloud running smoothly and efficiently.

By focusing on these three areas, practitioners can help organizations save money on their cloud bills and get the most out of their cloud investment.

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The 6 principles of FinOps

We can break down Cloud FinOps into six core principles, including:

1. Team Collaboration
2. Ownership
3. Central Control
4. Accessible Reports
5. Business-Driven Decisions
6. Variable Cost Model

1. Team collaboration

One of the essential principles of Cloud FinOps is team collaboration. To effectively optimize an organization's financial performance in the cloud, it's essential to have a strong team that can work together towards a common goal. Therefore, adopters place a strong emphasis on communication, collaboration, and breaking down silos. By working together, teams can more effectively identify opportunities for cost savings and develop more efficient processes in the cloud.

2. Ownership

Another vital principle of Cloud FinOps is ownership. The entire goal of Cloud FinOps is for everyone to take responsibility for their actions.

To that end, Cloud FinOps practitioners encourage all members of an organization to take ownership of their own cloud use against their budget. By taking responsibility for their own cloud utilization, they can more effectively identify and eliminate waste.

3. Central control

While FinOps practitioners encourage all members of an organization to take ownership of their own cloud utilization, they also recognize the importance of central control. To leverage FinOps is to oversee all aspects of the cloud. FinOps is driven by a centralized cross-functional team [e.g., Cloud Center of Excellence] that is made up of various roles that can include: finance, IT, engineering, business, procurement, and more. The team directs and governs the adoption of FinOps, its outcomes, and strategic changes that may be put in place to improve cloud cost-effectiveness and performance in their organization.

4. Accessible reports

Another vital principle of Cloud FinOps is accessible reports. To make informed decisions about an organization's cloud spending, it's essential to have access to accurate and up-to-date reports.

Developers and engineers are an especially important target. As cloud’s biggest consumers, they need timely visibility into their costs, along with budget alerts. The goal is to prevent reckless spending and promote a culture of financial responsibility.

5. Business-Driven decisions

FinOps is much more than providing visibility and controls around the usage of cloud and its costs. It also addresses best practices, disciplines, and a culture around why and how the spending occurs. Taking into account various aspects of economics determines the overall value returned to the business for a specific spend amount. We must not assume that the dollar saved will be a dollar value created. Rather, we must look at the overall return of the saved dollar. For example, $X in savings may also result in a decline in production speed, which could ultimately mean that the “dollar saved” was a dollar lost when looking at it from the overall perspective of a business.

This is why it is crucial to take into account multiple dimensions and consider trade-offs between speed, cost, and quality.

FinOps addresses this complex issue and facilitates an intelligent evaluation of what the best overall cloud business decisions are for a specific organization.

6. Variable cost model

The final principle of Cloud FinOps is to leverage the variable cost model of the public cloud. To that end, organizations using Cloud FinOps strive to minimize their unused capacity and match their utilization to their business needs.

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What are the benefits of FinOps?

There are several benefits you can achieve by practicing Cloud FinOps, including:

• Reduced cloud computing costs
• Improved financial performance (profitability)
• Better decision-making based on data and collaboration
• Increased transparency

Reduced cloud computing costs

One of the most important benefits of Cloud FinOps is that it can help reduce your overall cloud computing costs. By identifying and eliminating waste and inefficiencies, you can save your organization a significant amount of money, which can in turn be used to fuel innovation or other key initiatives.

Improved financial performance

Related to the previous point, another benefit of FinOps is improving your organization's financial performance. This can lead to increased satisfaction among stakeholders and can lead to more investment opportunities.

Better decision-making

FinOps can also help improve your decision-making processes. By understanding how you’re allocating your money, you can make better informed decisions about allocating your resources.

Overall, the central control aspect of FinOps leads to increased accountability, which creates better outcomes.

Increased transparency

FinOps can also increase transparency within your organization. By tracking and understanding your cloud spending, you can provide greater visibility into the inner workings of your business. This increased transparency can help facilitate fruitful discussions across various teams and lead to harmonious or profitable ideas and outcomes that would not have occurred in a more siloed organization.

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Learn about HCMX FinOps from OpenText

The FinOps philosophy helps organizations cut costs and make efficient business decisions. Putting Cloud FinOps into practice requires a platform that can provide you with a full-picture view into how your company utilizes the cloud.

OpenText™ HCMX FinOps Express makes it possible to cut cloud waste and control what you spend.
Through holistic and granular visibility into your cloud usage, you can:

• View all useful cloud usage metrics and data from one platform
• Analyze cost savings opportunities
• Reduce reckless acts of overprovisioning with controls in place
• Leverage cross-team decision making and collaboration

If you want to see how HCMX FinOps Express can make the difference in optimizing your company’s cloud costs, request a product inquiry today.

Get more cloud for your money with FinOps

One-third of cloud spend is going to waste. Cloud vendors are more than happy to tell you all the ways you can cut cloud costs. But until you fully understand the variable spend model of public clouds, savings will be slow to come. Fortunately, there is a way to cut cloud waste and control cloud spend.

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