What is FinOps?

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Often, when you have experience in a subject you make that age-old mistake of assuming other people inherently know what it is. Living in the world of FinOps, dwelling in its intricacies on a daily basis it’s easy to ignore that initial look people give you when you say you’re in FinOps. And we’ve all seen that look at some time in our lives when talking about one of our passions. The “What on earth are you on about?” look, or more often in business, the “I’m just going to pretend I know what that means and hope you explain in a minute” look.  

How often do any of us take the time to bring people from the very beginning of the journey with us? Sadly not too often. I think that’s because sometimes we don’t have a good answer. We’re so in the detail that we don’t always have the simple answer that perhaps we should. So when I was asked to write an article titled “What is FinOps?” I decided to take a big step back and start at the very beginning. That’s my excuse for this blog being delivered much later than I promised…

Where does the name ‘FinOps’ come from?

FinOps as a term is a shortening of Financial Operations. Often this is made to mean Cloud Financial Operations because that’s the forum in which it’s most popular, but I don’t personally think it solely belongs there. You can take the learnings from FinOps and apply it to your general IT financial operations and perhaps arguably beyond that. Maybe one day I’ll try to apply FinOps principles to hospitality based on my own experience and see how well it fits.  

To give a little context to those reading this who aren’t from an IT background, the shortening and compounding of words in this way has been around a long time in IT.  Most in IT will think back to the DevOps (development and operations) revolution, where suddenly people realised it wasn’t sensible to keep the people developing software and those who look after it in life, in separate camps. There was this concept of people “throwing it over the fence”. If it stops working once it’s developed, it’s operations fault and it couldn’t be due to poor development. While operations were thinking that it’s due to poor development. No matter what job you do, you’ve seen similar things, right? Anyway, this method of naming things has brought us SecOps (Security Operations), DevSecOps and now FinOps to name but a few.

Understanding cloud FinOps

So now we understand what the name means, and we have an idea that it’s largely used in the context of cloud. To get a little more specific, most would say that FinOps is to do with cloud cost management or the financial accountability of cloud. I don’t think either of those is unfair. In a lot of my podcasts and webinars, I simply describe it as when cloud computing meets money. I would probably expand this to say that the concept of usage (how much resource you’ve used) is just as important as the amount you’ve spent, and these are some of the key data points in FinOps. But let’s not get too hung up on my very basic definition, let’s look at how our friends at the FinOps Foundation define FinOps:

“FinOps is shorthand for “Cloud Financial Operations” or “Cloud Financial Management” or “Cloud Cost Management”. It is the practice of bringing financial accountability to the variable spend model of cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.”

I think this is an excellent definition and one of the keywords to point out is accountability. I think often (especially for those who use RACI) we consider accountability to be a little negative. We imagine those Hollywood movie moments where “If anything happens to her I’ll hold you accountable” is obviously meant to be a threat. However, I want us to look at it a little differently, I feel that being accountable, also empowers us. It allows us to use our judgment to make a call where when we get it right, it can be celebrated. FinOps gives us the procedures, backdrop and guard rails to be successful in implementing cloud to the benefit of our organisations/business.  

The importance of cloud FinOps

Let’s look back to how IT was (and in many cases, still is) managed in the data centre and how this impacts financial and cost management of IT. Prior to cloud becoming widely available and accepted as a hosting option for organisations, they would often buy their own server hardware to run their applications (such as websites, accounting software and customer relationship management tools). You were constrained by how many servers you could run and by how much hardware you had run. Hopefully, even for those not in IT, that seems sensible.  

This meant you’d buy enough capacity (resource) to be able to manage your busiest periods (peaks). This was not very efficient, but it meant you were managing capacity and you had a top limiting factor which was basically how much money you were willing to spend upfront on hardware. You couldn’t suddenly add more because it took time. As such, your financial management was often based on long-term forecasts with very fixed spend levels and used capital expenditure (Capex) to purchase the equipment upfront.

With cloud computing, you suddenly had the ability to “burst” into what seems like limitless compute. You can go and switch on servers that you need, for as long as you need and then switch them off when you’re done. In terms of financial efficiency, I think we can all see the benefits of this but let’s think about the risk it creates. Suddenly the control is with the engineers who can build as much as they want/need and the bill just turns up at the end of the month and having done experiments on this, trust me when I say, they can create one heck of a bill! So why is this important? Well, hopefully you can see that when it comes to cloud financial management, it’s about cost management, not capacity management as it once was.

With the risk this brought, governance was soon to follow, but for many not as quickly as you’d imagine. Out of this deficit in financial governance came FinOps and many like-minded people created a community of financial experts and engineers (often more financially minded). From this, community best practices have been put forward and shared with anyone who wants to learn from the mistakes we’ve all made. FinOps is the set of processes and concepts that those of us in the field believe give you the best chance of success at creating value in using the cloud while maintaining a steady financial footing.

So going back to the question, what is FinOps? It’s the chance to empower your talented IT and financial teams to make the very most out of the power of cloud technology.

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