As organizations scale in the cloud, it’s clear they need a new approach to managing and optimizing cost (in addition to managing security and streamlining operations). The problems of distributed teams, coupled with the rapid pace of change and limited visibility and accountability, are real and painful—especially when they lead to unpredictable cloud bills that eat into gross margins.
From time to time, our customers ask us if we've heard of the FinOps Foundation. And the answer is, of course we have! We have many customers who are part of it—it’s a platform for great conversations and a resource for solid best practices. Anything that gives organizations a place to collaborate and solve tough challenges together is generally a good thing (although unfortunately, we’ve applied numerous times to join the FinOps Foundation, only to be continuously declined with no explanation).
There are a lot of good ideas in the FinOps “movement,” for example, the concept of enabling distributed teams to make informed decisions and be held accountable for their cloud spend is a powerful one (although not particularly new, this is just budgets right?). I also think that many of the cost optimization tactics that they offer are valid. And collaboration! Everyone likes collaboration.
It’s important to remember, however, that FinOps is only one piece of the story, a stop along the way, towards a more strategic initiative that is a key component of the much broader Cloud Center of Excellence (CCoE). When I look at the most advanced users in the cloud, they’ve gone beyond FinOps and set up a framework that enables them to transform their infrastructure across cost, operations, and security in relation to business goals. FinOps doesn't do that.
In short, I think we can do better than FinOps, and I know I’m not the only one. Self proclaimed cloud economist Corey Quinn tweeted last year:
"Finops" is fatally flawed conceptually and I shan't be using the term. pic.twitter.com/eT41ZcKLx3— Corey Quinn (@QuinnyPig) December 19, 2019
What I’m proposing here is an alternative to FinOps: Cloud Financial Management. Read on to learn more about what it’s all about.
What is Cloud Financial Management?
When it comes to driving success in the public cloud, many organizations find that the biggest hurdle they must overcome isn’t related to technology. Some of the most significant challenges organizations face are getting their people, processes, and tooling to adapt to a faster-paced cloud-centric world. To help close this gap, leading organizations are establishing a formalized Cloud Center of Excellence (CCoE), sometimes known as a Cloud Business Office, Cloud Strategy Office, or Cloud Program Office. The CCoE is a cross-functional working group that governs the usage of the cloud across an organization and drives best practices across functions. One of these three key areas of excellence is Cloud Financial Management (CFM).
The goal of a CFM is to align and develop financial goals, drive a cost-conscious culture through best practices, establish guardrails to meet financial targets, and gain greater business efficiencies. This is what I mean when I say FinOps is just a small piece of a larger, more strategic financial initiative:
Going a level deeper, a mature CFM function will:
Drive financial accountability and ownership across groups
A CFM function is a small cross departmental group with representatives from finance, operations, and development leadership (versus individuals). One of the core tenants of FinOps that I find problematic is that engineers should consider cost and margins when they are deploying infrastructure. Developers are the lifeblood of technology organizations. Our goal should be to have as little friction as possible between them and their ability to deliver value for customers. That’s why a mature CFM function establishes guardrails to asynchronous govern costs, while ensuring no sacrifices are made to developer productivity.
Make business decisions based on accurate ROI analysis
Contrary to what some proponents of FinOps would like you to believe, businesses are not exclusively driven by cost savings. If you save costs at the expense of delivering innovation that could drive top line revenue, was that really the right choice? In other words: cost savings are the byproduct of executing a strategy, not a strategy unto themselves. Instead of just focusing on cost, the CCoE’s job is to remove friction to be more efficient, whether these efficiencies come from operations, security. A CFM function starts with identifying business KPIs in the context of your technology stack and what actions you should take.
Identify best practices and scale those across the organization
Documenting and sharing best practices and successes from one function can provide a significant advantage for another. One of the responsibilities of the CCoE, and the CFM arm in particular, is to collect, document, and share best practices across the business. In other words, define governance policies that provide guidance on topics like budgets, unacceptable cost increases, On-Demand ratios, zombie infrastructure, and set benchmarks such as cost per customer or cloud spend as a percentage of revenue. All of these governance policies will likely vary from team to team, but it helps to set an organization-wide standard and give teams a starting place for defining standards that work for their group.
In short, CFM should be focused on continuously optimizing and aligning cloud investments to strategic business initiatives, within the context of the broader CCoE. Don’t confuse this for FinOps, which is a much narrower focus on the specific tactics you can take to reduce cloud spend.
With CFM, you can take the tactics of FinOps and apply them as part of your CCoE strategy, which goes broader, incorporating business context, and focuses on all ways to improve efficiency, across cost, operations, and security. The CCoE governs the usage of the cloud across an organization and drives best practices across functions.
Take the next step
Want to learn more about Cloud Financial Management? Read our whitepaper to dive into how you can build a successful CFM function for your organization.