FinOps: why and how to get started?

With the explosion of Cloud-related expenditure and the legitimate need to control all budgets – CIO included – the FinOps approach – which aims to better understand and control these expenses – is of growing interest. This is all the more true given the rapid pace of change, and the fact that these new costs are often misunderstood. The CIO is well placed to address this issue: he or she has just as much technical mastery of the cloud as the ability to engage in strategic dialogue with the CFO on the financial aspects. It’s easy to see why FinOps has become so popular in recent years, particularly in France. But what’s the point? Does it apply to all CIOs? What are the prerequisites for getting started? We take stock!
With a testimonial at the end of the article from Claude Carvalho, DSIT at Galian.

1. FinOps, what are we talking about?

The word “FinOps” is quite transparent: it’s a contraction of the terms “Finance” and “Operations”. Intuitively, it’s about bridging the gap between the financial and operational dimensions of the cloud, in the same way that the DevOps approach – which preceded it – was about “de-siliconizing” the world of development and operations in CIOs.

It’s the same “battle” with FinOps: it’s all about bringing together and closely meshing financial objectives with the functional and technical needs of the cloud, and ensuring that they are addressed jointly. The main objective is to understand cloud costs and seek to optimize them, without losing sight of the effectiveness of the strategies deployed.

Inspired by Agility methods, the FinOps approach is both a profession, and sometimes a profile, but above all a more cross-functional steering model that tends to establish a new method of collaboration between the CIO, Business Units and Finance.

This is what makes the approach so interesting, beyond its technical aspects: the FinOps approach is based on a set of best practices that contribute to an open and decompartmentalized vision and conception of IT’s contribution to the company, and in so doing, contribute to its cultural change and positioning within the company.

As developed by the FinOps Foundation – an organization that offers a number of guidelines on the subject – the Finops approach is based on 6 principles:

• Collaboration: this is a direct extension of the above: it is advisable to set up a multi-disciplinary team within the CIO, and a permanent exchange between departments (CIO, Finance, Business) with mutual acculturation.
• Responsibility: every stakeholder involved in the use of the cloud must feel committed to its use, and accountable for the consumption of its Resources and the associated budgetary impact.
• Centralization: for the approach to be efficient, it is advisable to set up a core group (one or more people, depending on the context of each company or organization) to make decisions, support stakeholders and contribute to their training on the subject.
• Reporting: they must be regular and shareable, and the data collected must be made available to all stakeholders.
• Value: spending is driven by the value created by the cloud (and not simply by a reductive “cost” approach).
• Opportunity: based on the cloud’s variable-cost pricing, which enables us to constantly optimize expenditure

2. FinOps: what’s it all about?

We need to look at the context. If the cloud has rapidly gained ground in companies and organizations compared with traditional “on premise” approaches, it’s mainly because it has enabled access to infrastructure and services on demand, with variable consumption and pay-as-you-go pricing, providing flexibility in managing and steering investment commitments.

On the other side of the coin, this new model of outsourcing has had a number of perverse effects: decentralization and dispersion of decision-making, with a profusion of suppliers scattered across the various business departments (Shadow IT), lack of accountability for financial control, and loss of clarity over cloud operator pricing. To such an extent that most studies agree that a third of cloud spending is wasted, often due to a lack of knowledge or a lack of tracking and management.

Regaining control over cloud purchasing and aiming to rationalize it is therefore becoming essential, all the more so in the current climate of inflation and tight budgets. That’s why the FinOps approach serves several purposes:

• Identify and monitor cloud spending to gain visibility: what are cloud costs, how are they distributed and consumed? What is each person/each team/directorate spending, and for what use? For what associated workload?
• Master and optimize cloud cost systems and identify often complex billing methods
• Generate savings, either through more profitable investments, or by tracking down any unnecessary infrastructure spending to reduce the volume of Resources paid for but not used or misused.
• Manage the application lifecycle and ensure that the right technological choices are made on a long-term basis, in line with performance, quality and cost considerations.
• Involve and empower the project owners behind cloud spending, and enable CIO staff to control cloud costs during the application or infrastructure design phase. More broadly, share a culture of purchasing control linked to the deployment of cloud services (CIO, business units, CFO).
• Highlighting the cloud’s return on investment and enhancing the performance and profitability of IT investments; a completion perfectly conceivable as long as the FinOps approach enables the implementation of ” best practices in budgeting, procurement, reporting, control and management.”

In addition to these direct objectives, there are a number of positive side-effects:

• Contribute to a more open, cross-functional organization of the CIO in its relationship with the business units.
• Gain a better understanding of the overall costs of IT operating infrastructure, and therefore the CIO’s budget.

3. Four best practices for bringing a FinOps approach to life

• Get organized and set up a governance structure that guarantees the Finops culture

In its ideal version, the FinOps approach sees the creation of a dedicated body – a Cloud Centre of Excellence (CCoE) – which will bring together several multi-disciplinary managers, including the “Lead FinOps”, conductor and guarantor of the FinOps methodology and culture. He or she will be responsible for interfacing with the CIO and the CFO, and will be in charge of Teams training, etc.

Obviously, this organization with an established body may be over-dimensioned, depending on the CIO’s Headcount and the volume of the company’s cloud consumption. However, the simple fact of identifying a dedicated person and clarifying his or her role with the various stakeholders – in collaboration with the other members of the CIO, and in particular the Dev and Ops departments, the Business Units, and the CFO department in the broadest sense (management control, purchasing) – is essential to ensure the success of the approach.

• Realistic ambitions and clear objectives

Rome wasn’t built in 1 day, and it would be illusory to think differently with the FinOps approach. We need to be realistic about the level of maturity and resources available within our own organization: what is the financial steering culture within the company, and particularly within the CIO? What size team? All the more so as this is a process and a cultural change that needs to be instilled and sustained over time.

But in any case, the FinOps approach is a sound one. Its foundation – the desire to control cloud costs – is already a fine objective. In phase 2, we can focus on perpetuating this approach within the company, with dedicated bodies, before aiming – in the most ambitious and accomplished conception of FinOps – “to establish digital sobriety as a pillar of the organization”.

In fact, this is probably another reason why this approach is so popular: it reflects some of today’s most pressing concerns: in a context of sobriety, we need to move towards responsible, reasoned use of the cloud, for greater performance.

• An iterative approach, between information, optimization and operation

This is one of the special features of cloud spending: its cost is variable. To maintain a FinOps approach over time, it is advisable to maintain three flows:

• Information: understanding the structure of cloud costs is key to optimizing them and measuring return on investment. This means breaking down costs, tracking changes in resources consumed over time, comparing solutions and setting up alert and permanent control systems. But it’s also about collecting quality data to share the right information with all stakeholders in the FinOps approach, enabling them to make the right decisions, each within their own sphere of responsibility.
• Optimization: this takes place on two levels: firstly, in terms of costs (for example, by working on subscriptions, commitment times, the distribution of expenses between different cloud operators), but also in terms of resources allocated and actually used. In other words, how to reduce or eliminate what is not consumed, has become useless or is insufficiently exploited, optimize allocations and forecasts, make occasional performance adjustments, and so on.
• Operations: this involves constantly assessing the performance, quality and cost of the “workloads” of each Cloud expense. But to be relevant and sustainable, FinOps must also be able to intervene upstream, right from the application design phases, to keep future consumption in mind, or in cloud transition strategies to optimize Resources consumption.

• A comprehensive view of the cloud spending ecosystem.

The major players in the Cloud have taken the lead in making it easier for their users to do business. Whether it’s Amazon (AWS – Amazon Web Services), Microsoft (Azure) or Google (Google Cloud Platform – GCP), all these major operators are seeking to provide a differentiating service to companies using their infrastructures, and are making available facilitating tools that have in common the need to steer costs (by embedding Dashboards, alerts in the event of overruns…) but also to offer assistants that identify under-utilized applications or make parameterization recommendations aimed at optimizing costs.

However, few organizations – even small ones – opt for a single-cloud approach. From the moment you use several suppliers, having a single budget management solution makes perfect sense: it enables you to centralize information, and in particular invoices, to capitalize on a detailed breakdown of the budget (according to your company’s analysis axes and not those proposed by the suppliers, and without being dependent on their tool), and therefore to compare cloud costs by expense item and not by supplier. In short, it’s all about getting a clearer picture so you can act more effectively. All the more so as the cloud is only one part of the CIO’s budget; many other categories of expenditure come into play and will be tracked judiciously to obtain a comprehensive view of IT costs.

4. Some concrete steps in a FinOps approach

Prerequisites :

• Designing an efficient cloud architecture
• Centralize use of cloud resources (to avoid overlaps)
• Setting up steering bodies

Setting business objectives for cost optimization and activity reporting

• Based on the IT budget forecast, define cloud cost optimization objectives and associated KPIs (to be included in business reporting).
• Assign these objectives to the operational and development Teams (this clearly demonstrates the collaborative approach that prevails).
• Monitor, measure, optimize and report on their application

In parallel, manage purchasing and rebilling policies

• Define a purchasing policy with recommendations for cloud offerings, including centralized purchasing (better price negotiation).
• Define an internal Chargeback policy

Reporting via a Dashboard shared with the CFO

• Define the right level of detail, budget forecasts

5. What role for the CIO?

The CIO, with his technical expertise, strategic vision and “business partner” stance, is naturally often the initiator, sponsor and driving force (arbitration, validation) behind the FinOps approach. As we have seen, such an approach cannot be implemented overnight, nor can it bear fruit overnight.

It often starts with persuasion (to get on board and support senior management, the CFO, the Business Units, and the CIO Teams themselves – because they are all concerned and affected), and follows implementation closely and over time.

It’s in the CIO’s best interest to wear this hat:

• Remain in the driver’s seat, overseeing a subject that is neither strictly financial nor strictly technical, and which can involve sensitive issues such as security, strategic choices – sometimes involving sovereignty – and carbon footprint, and defend your vision of IS urbanization.
• Pave the way (particularly in terms of setting an example for your own team) for a financially aware CIO, able to make a commitment to enhance the value of an investment, recommending one technology over another not because it’s the cheapest, but because it will bring the most value and benefit to the company.
• Strengthen our relationship with the CFO, going beyond simple discussions of Opex and Capex management, and adopting a broader approach based on value rather than cost.

The FinOps approach seems to have a bright future ahead of it, and it’s easy to see why there’s so much interest in the subject.

The FinOps approach put to the test in a CIO: the testimony of Claude Carvalho, Director of Information Systems and Transformation at Galian.

With this cloudification approach, coupled with a FinOps approach, we expect to be able to improve – at constant cost – the quality of service and resilience of the IS.

“At Galian, we’re beginning a transition to public Cloud in hybrid mode.” It is in this context that the implementation of a FinOps (Operations Finance) approach becomes crucial. Our FinOps objectives are twofold:

The ^1st motivation is financial. In the current inflationary context, we are particularly vigilant about controlling our costs. As the cloud brings with it the concept of pay-per-use, the cost of a 24/7 service becomes more explicit. This new prism enables us to review our architectures differently, and to discuss expected Availability rates and ranges with our users.

In addition, using the public cloud for our hosting, even if only partially, gives us points of comparison between different suppliers. Beyond questions of sovereignty and quality of service, this comparison between suppliers goes beyond the amount in euros: as most cloud providers are American, we find that we have to factor into our Budgets the risks of variations in the €/$ exchange rate. This is no easy task when you’re planning your Budgets in € for a full year(using Abraxio 😉 ). To protect ourselves against these variations, we are considering taking out appropriate insurance, a new cost to be integrated.

This FinOps approach, coupled with a transition to the cloud, brings us to a final question about the benefits of acquiring and maintaining dedicated hardware. In addition to the direct impact on Capex, there is another indirect impact on Opex: no longer having to systematically purchase and maintain our own hardware (usually in non-working hours), we can progressively refocus human time on other tasks without increasing Headcount (in our case, the transition to DevOps). At the same time, this shared hardware, hosted in different datacenters offered by the cloud, will improve the resilience of our information system, a state that is harder to achieve by our own means.

The^2nd motivation is part of a CSR rationale. The FinOps approach indirectly leads to reflections on energy sobriety. The frugality of our information systems and their environmental impact are reflected in our invoices. Today, we size our infrastructures and the energy they require by taking into account the maximum possible use that can be made of them. Even if it remains difficult to measure, it’s clear that this has a major impact on our scope 2* carbon footprint. Pay-per-use will enable us to influence this maximum usage, and therefore our energy consumption. For example, allocating more machine power only during seasonal peaks, and not all year round.

In addition to its benefits for scope 2, the FinOps approach can also influence the carbon footprint of scope 1 and 3*. Indeed, as the acquisition of dedicated equipment is no longer an end in itself, the carbon footprint for equipment manufacture and recycling is reduced.

So, with this cloudification approach coupled with a FinOps approach, we don’t necessarily expect huge financial gains, but rather to be able to improve – at constant cost – the quality of service and resilience of the IS. And, of course, to accelerate the time-to-market of new Projects.

For the Teams concerned within DSIT Galian – and in particular the architects, production and infrastructure teams – FinOps generates new missions requiring both financial and technical Skills. This influences the architecture of our new Projects. Right from the design stage, we try to integrate a cloud hosting/accounting cost dimension, which encourages us to think about the application’s operating cost.

The fact remains that, while it offers many advantages, the cloud still raises questions of sovereignty in our industry, and a certain mistrust associated with it. But I’m betting that once we’ve demonstrated that this approach frees up bandwidth to devote to new Projects, instead of the time necessarily spent maintaining existing infrastructures, the approach will naturally arouse more interest!

* Scopes refer to the scope within which an organization’s greenhouse gas emissions are analyzed. Scope 2 directly concerns electricity and heat consumption. More information on the Ademe website.