The last few years working in the cloud have taught us not to trust future spending estimates.
If public cloud spending in 2025 reaches US$ 917 billion (Gartner), US$ 809 billion (CDI) or a mere US$ 692 billion (veritis), there's no arguing that the move to the public cloud and the shutdown of proprietary data centers is changing the face of IT everywhere.
It is no exaggeration to say that almost every organization in the world will be affected by the shift to a cloud. And, to a greater or greater degree, everyone will need to act to adapt.
Access to an almost limitless offering of cloud services fuels exciting new opportunities to deliver value faster, innovate and scale like never before. But the granularity and scale of the a cloud we use now and the speed with which we must consider them also bring new challenges.
Using the public cloud removes many of the supply constraints we've managed over the last 30 years of IT and makes every asset in our inventory more ephemeral. We are moving from a world where we centrally acquire, own and optimize our finite IT resources, to one where any of our engineers can lease hundreds of thousands of resources that can meet their needs, bypassing traditional checks and balances. And we can use these features for as long as we want.
A significant and permanent change in the way IT is delivered
For IT asset managers, it's a challenge to track the lifecycle of each IT asset and the value each one creates. This is not a small change in the way IT is delivered, nor is it a temporary one.
Indeed, a new collaborative discipline has formed to help companies work across technology, finance, and business disciplines to gain better visibility and make better decisions about spending and cloud usage. That emerging discipline is Cloud FinOps.
O FinOps enables companies to better manage this shift from central IT purchasing to distributed decision-making on the use of IT assets that supports the model where individual engineers or engineering teams build infrastructure as code and commit our organizations to spend. Gaining insights into this spend, creating transparency for everyone, and optimizing the use of the resources we use are key functions that a FinOps team supports.
The report State of FinOps by FinOps Foundation has been documenting the maturation of FinOps practices across industries, geographies and organizational demographics for two years. As a result, the community of FinOps practitioners is rapidly expanding, from less than 3,000 members last fall to nearly 8,000 in September 2022.
When using the cloud, FinOps professionals deal with many of the same challenges that ITAM teams face. Data collection, normalization, reporting, cost analysis, utilization, unit metrics are all complicated by the sheer volume and complexity of data coming from cloud providers in different formats and with different terminologies.
But there is good news here, in addition to the challenges. FinOps and ITAM are both on the same team.
To set the stage a bit, the FinOps Foundation defines “FinOps” as:
" FinOps is an evolving cloud financial management cultural practice and discipline that enables organizations to realize maximum business value by helping engineering, finance, technology and business teams collaborate on data-driven spending decisions.”
If that sounds a bit like ITAM practices, that's great! Because FinOps is intentionally set up to allow close interaction with ITAM (and other IT resources and cost management functions). As FinOps continues to evolve, mature and adapt, it will not replace ITAM roles. FinOps is a new discipline that must maintain a constant focus on spending that always has the potential to spiral out of control, and it is also bringing together isolated disciplines and practices that have become ingrained over time and are not up to the challenge of the cloud as they are. exist now.
Integrating the ITAM and FinOps frameworks
While FinOps has traditionally focused on visibility and optimization of cloud infrastructure resources, the keys to making this work involve the ability to handle large volumes of resource data quickly and consistently. To do this, we must develop the frameworks that have served us well for managing IT assets and cross these with FinOps practices to identify, pool and cost our assets over time.
But FinOps cannot work alone. teams of SAM, ITFM teams, TBM teams, Enterprise Architecture teams all become even more important in the cloud world. FinOps teams must work with all of these groups – in addition to engineering, finance and product teams, to keep the organization focused on real-time efficiency and value.
The FinOps framework was developed to highlight integration and collaboration with these other disciplines as cloud use continues. Integration with ITAM is one of the Capabilities of a successful FinOps practice in any organization that has an ITAM practice.
FinOps Resource Framework
This integration is still in its early days, but ITAM practitioners can add great value to the FinOps discipline with their knowledge and experience. As an example, FinOps practices focus on optimizing and using cloud services, recommending workload placement or service selection. But these recommendations can be made without considering the software packages used by that infrastructure and the licensing implications of moving or changing resources. This is where the knowledge and experience of ITAM professionals can pay big dividends in cost-optimizing an organization's IT resources. The team members of the ITAM team or more specifically in Software Asset Management (SAM) are aware of the organization's software and can assess potential workload placement that could result in a penny savings on infrastructure,
This example illustrates just one situation where a collaboration between ITAM and FinOps can bring financial benefits to the organization. ITAM teams may lack visibility into the cloud at a time when ITAM activities software asset management (SAM) are growing in importance and complexity.
Giving ITAM a seat at the table
Reconciling software licenses in the cloud creates potential compliance and security risks. At the same time, FinOps teams are focused on the value of the cloud and may have limited visibility into software costs, whether on-premises, used in the cloud, or through consumption of SaaS services.
This disconnect is further illustrated in the following graph from the Flexera Report 2022 State of the Cloud, which shows that for key cost-saving functions such as optimizing SaaS usage and costs, as well as controlling software licenses used in IaaS and PaaS, the SAM team rarely participates.
Cloud cost management responsibilities by IT staff for all organizations
Fortunately, more organizations are deploying centralized teams to control cloud usage and adoption. Often referred to as “Cloud Centers of Excellence,” or CCOEs, they often incorporate technical, financial, and other governance of cloud usage. FinOps teams are intimately involved in CCOEs, and so are ITAM teams. 69% of ITAM professionals reported that their organization had a CCOE, and for those that did, 83% had a SAM staff member.
It is important for ITAM professionals to have a seat at the table at the CCOE and with the FinOps team to gain visibility into cloud usage and spending and provide important information for good decision making. Or if your organization is still planning its move to the cloud, ITAM professionals can help you get started on the right foot now.
ITAM and FinOps working together add value and context to the organization's cloud usage. Here are some of the key ways these disciplines can work together to support this move to the cloud.
Three Phases of the FinOps Lifecycle:
INFORM
- Share Taxonomy – both teams will focus on categorizing, tagging and labeling the elements we are using. Share these keys so allocation is consistent
- Share Reports – It is likely that your ITAM team has been in business longer and may have established reports on asset usage and value. Reuse it when possible to coordinate messaging, terminology, and the number of reports that leadership needs to review.
- share data – FinOps teams will be experts in the big data exercise of summarizing the vast cost of the cloud and usage data that comes in each day. ITAM teams will be experts in broadly analyzing all asset costs across the organization. Join together to build common data lakes.
OPTIMIZE
- create transparency – Licensed software will affect public cloud adoption. Make sure everyone understands available licensing mobility models when making decisions to avoid (or at least understand) triggering contractual penalties.
- Coordinate cost and usage reviews – In the cloud, everyone should be responsible for using the cloud. Engineering teams, however, often need guidance and visibility to help determine how their architectural or design decisions affect cost. FinOps and ITAM teams can support engineering decision making by providing analysis and insights into the optimization that may occur.
OPERATE
- Scale your processes – ITAM professionals can work with FinOps teams to adapt organizational processes to the scale, speed and granularity of the cloud.
- support each other – the last thing, but the first step. If you're on a FinOps or ITAM team and you don't know your counterpart, find them and start breaking down any silos that exist within the IT group itself. To be successful, both ITAM and FinOps rely on good and consistent communication across disciplines across the organization. Make it happen in your own group to model this behavior.
FinOps practitioners appreciate the value that ITAM teams bring to an organization and need to be strong allies to help manage the widespread adoption of using the public cloud. Both disciplines are focused on helping leadership understand the total cost of our IT environment and the value it creates for us and our customers.
ITAM and FinOps provide a richer understanding and ultimately allow us to get better value by working together.
FinOps Capabilities
Cost Allocation (Metadata & Hierarchy)
Cost Allocation is the set of practices for dividing an invoice or consolidated invoice among those who are responsible for its various component parts. In the context of FinOps, this typically involves splitting the Cloud Service Provider's consolidated invoices among various cloud-using IT groups within the organization.
Data Analysis and Showback
Data analytics and showback is the ability to leverage data, along with metadata about cloud resources and resource hierarchies, to create a near “real-time” reporting engine for stakeholders that captures attention: Total costs for the desired business entity, cost avoidance opportunities and KPIs for financial health (e.g. performance of cost reduction commitments, unit cost measures for key services, Efficiency metrics aggregated by desired “team”, organizational unit, etc. …).
Anomaly Management
Anomaly Management is the ability to detect, identify, clarify, alert and manage unexpected or unforeseen cloud cost events in a timely manner in order to minimize detrimental impact to the business, cost or otherwise.
Anomalies in the context of FinOps are unforeseen variations (often increases) in cloud spend that are greater than would be expected given historical spending patterns.
Shared Cost Management
A fundamental principle of FinOps is: “Everyone is responsible for using the cloud”. The real key to understanding total cost of ownership is built on transparency and accuracy, but unallocated shared costs make both difficult. Without properly sharing the costs that are shared, engineers and product managers do not have a complete picture of how much their products are actually costing.
The goal of Cost Sharing is to be full allocation; however, it can also be taking an informed ignore approach. The latter is where a business decision is explicitly made about shared platform services coming from a central budget versus a share of each cost center's budget.
Forecasting (cost forecasting)
Forecasting or forecasting is the practice of forecasting future spend, usually based on a combination of historical spend and an assessment of future plans, understanding how future changes to cloud infrastructure and application lifecycle may impact current budgets and influence budget planning and future cloud investment decisions.
This capability also involves collaboration between teams of stakeholders such as Finance, Engineering and Executives to build agreed forecast models and KPIs from which to establish budgets that align with business goals.
Budget Management
Budgeting for cloud (or other IT expenses) is a process of collecting estimated expenses for a specific period of time. Decisions about how to operate as a business, what to invest and other strategic decisions are made based on budgets. If actual expenses do not match the budget, it can impact operations and other decisions that were made based on those budgets.
Workload Management and Automations
Workload Management & Automation focuses on running resources only when needed and creating mechanisms to automatically adjust which resources are running at any given time. This capability gives finOps teams the ability to match supply to demand more efficiently and effectively optimize cloud usage by dynamically measuring workload demand and provisioning capacity.
Management of Commitment-Based Discounts (RI's and Savings Plans)
Cloud services have different approaches that leverage the commitment to spend to offer discounts on services. These range from custom commercially negotiated discounts, to spend-based commitment discounts such as AWS savings plans, resource-based commitment discounts such as Google CUDs, and others.
Spend-based commitment discounts and resource-based commitment discounts are the most popular rate optimizations that cloud service providers offer. This is in part because CSP and FinOps native tooling platforms allow you to plan, manage, and benefit from these types of discount builds.
Use and Efficiency of Resources
In the context for finOps, resource utilization is about ensuring there is enough business value for the cloud costs associated with each class or type of resource being consumed. You need to look at a resource's utilization over time to understand whether performance, availability, or other quality metrics are worth the expense incurred.
Measuring unit costs
A common definition for unit savings are direct revenues and costs associated with a particular business model that are specifically expressed per unit. Metrics allow you to determine the revenue you will earn from a single unit of your business and the cost associated with maintenance, ultimately revealing the business value of the spend.
For a customer-facing application, more common today in the SaaS, this unit can be a user or customer subscription; for an e-commerce platform it could be a transaction; and for an airline, it might be a seat.
Data Ingestion and Normalization
Data ingestion and normalization in the context of FinOps represents the set of functional activities involved with processing/transforming datasets to create a questionable common repository for your cloud cost management needs.
In this context, data ingestion and normalization occurs by bringing together cloud billing data, cloud usage data, cloud usage and performance data, on-premises CMDB or ITAM data, business-specific data, and other data points. from a variety of cloud providers and IT data repositories to create a queryable collection of cost and usage information to support and enable finOps Capabilities.
IT Financial Integration and Chargeback
Chargeback and IT Financial Integration are about bringing accountability to the confines of the organization responsible for creating the expense.
Once chargeback is in place and visibility is given to teams, mature FinOps professionals then programmatically integrate this data into their relevant internal reporting systems and financial management tools.
Chargeback is the focus of this capability, but Showback is a fundamental part of any FinOps practice. The difference is that Chargeback sends expenses to a product or P&L department and Showback shows the charges by product or department but keeps expenses in a centralized budget. In any case, it should not be considered more mature than the other, as which method used depends entirely on organizational accounting policy and preference.
Workload Onboarding
This capability is about establishing a cloud front door process for onboard brownfield and greenfield applications through financial feasibility criteria and technical feasibility assessment.
Establishing the FinOps Culture
The word “Kuleana” is Hawaiian for “Responsibility”. Kuleana encourages us to be responsible for everything we do and is the “ability to respond” to what is happening.
With that in mind, this capability is about creating a movement to establish cultures of accountability so your organization understands that the practice of cloud cost management is really about leveraging finOps to accelerate business value creation.
Integration with ITAM
This resource examines the necessary integrations between finOps and ITAM (ITAM), including software asset management (SAM), and with the related but separate ITSM (IT Service Management) discipline, including managing of configuration.
Cloud Policy and Governance
Policy and governance can be considered as a set of declarations of intent, with associated guarantees of adherence, always using good practices or a consolidated rule such as ISO 19770.
A “Cloud Policy” is a clear statement of intent, describing the execution of specific cloud-related activities according to a standard model designed to provide some improvement in business value.
“Cloud Governance” is a set of processes, tools or other guardrail solution that aims to control the activity described by the Cloud Policy to promote desired behavior and results.
The combination of good policy and governance provides us with a mechanism to orchestrate and direct our FinOps Activity in the cloud.
FinOps Education & Training
FinOps Education & Enablement enables all participants in FinOps practices to increase business value from the cloud by accelerating FinOps adoption.
FinOps Education & Training includes:
- Internal communications, events and learning experiences. These may focus on specific technical, financial or business topics or a combination of all three;
- Training – either role-based, technology-based, or focused on FinOps processes per se;
- Initiatives aimed at improving the business value of the cloud that give participants the opportunity to use the knowledge they have gained;
Curation, Translation and Content Addition by 4Matt Technology . ANDthis article was co-written by Rob Martin , Director of Learning at the FinOps Foundation and Brian Adler , member of the FinOps Foundation Board of Directors and Senior Director of Cloud Market Strategy at Flexera.
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