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FinOps
August 26, 2022

Term Explanation: FinOps

Shungo Arai
COO/CFO
Translations are provided by machine translation. In the event of any discrepancy, inconsistency or inconsistency between the translation provided and the English version, the English version shall prevail.
Table of contents

As mentioned in the previous article "Why Your Cloud Cost is Difficult to Understand", as companies and organizations increasingly consider and actually use public clouds for their IT infrastructure selection, challenges related to costs have been growing. Against this background, "FinOps" (Cloud FinOps), a portmanteau of Finance and DevOps, has been gaining attention. This article will clarify the definition of FinOps (Cloud FinOps), and similar concepts. As explained later, FinOps (Cloud FinOps) is not just about one-off (singular) cost optimization and reduction actions. It's a concept involving various internal stakeholders related to cloud spending (investment) working together to continuously improve business value, much like DevOps, from which the term partly originates.

It should be noted that the term "FinOps" has been used in a different context traditionally, which is different from the concept explained in this article. Here, "FinOps (Cloud FinOps)" is used to clarify its meaning, though generally, the term "FinOps" alone is increasingly being used to mean "Cloud FinOps". The first book on this concept, co-authored by J.R. Storment and Mike Fuller, founding members of the FinOps Foundation, is titled "Cloud FinOps" (Storment & Fuller, 2019).

What Cloud FinOps Is Not

Before explaining "FinOps (Cloud FinOps)", it's important to understand what it is not. Cloud FinOps, as mentioned later, is still a relatively new concept and, as of the writing of this article (August 2022), the number of people involved in Cloud FinOps worldwide is still very small. However, a search for "FinOps" on LinkedIn brings up profiles seemingly unrelated to "Cloud FinOps", sometimes even outnumbering those related. This indicates that before the emergence of the "Cloud FinOps" concept, people were using the term "FinOps" for different specific activities and products.

So, before "Cloud FinOps" emerged, "FinOps" meant two things, which are different from FinOps (Cloud FinOps) explained in the next chapter.

Finance Operations

When people see the term "FinOps", many think of it as a contraction of "Finance" and "Operations". For example, Amazon employs many employees in the Philippines with the title "FinOps Manager", which refers to Finance Operations. These employees are responsible for tasks like payments to suppliers, billing customers, and reporting financial information internally, but these are outside the scope of "Cloud FinOps" discussed in this article.

Microsoft Dynamics 365 FinOps

Microsoft Dynamics 365, a core business application provided by Microsoft, has several modules covering various areas of corporate activities. The part dealing with Finance & Operations applications is sometimes referred to as FinOps, but again, it is not directly related to "Cloud FinOps".

What is Cloud FinOps?

This chapter will briefly examine the definition and framework of FinOps (Cloud FinOps). The explanation in this chapter is based on the FinOps Foundation's (F2, mentioned later) website and Storment & Fuller (2019).

Definition

The FinOps Foundation (F2, mentioned later), the organization leading FinOps (Cloud FinOps), defines FinOps as a discipline and cultural practice still in development for cloud financial management. It enables organizations to gain the maximum business value by making data-driven cloud spending decisions jointly by departments of development, finance, IT, and business (Source: What is FinOps by FinOps Foundation).

Furthermore, the origin of the term "FinOps" is described as "a portmanteau of 'Finance' and 'DevOps', emphasizing communication and collaboration between the business and development sides." It is not a contraction of "Finance Operations" (same source). In Storment & Fuller (2019), one of the authors, J.R. Storment, recounts the first time he spoke about the concept of FinOps was at the AWS Public Sector Summit in Washington DC in 2016. There, he defined FinOps (Cloud FinOps) as a trend among recent professionals that emphasizes the importance of collaboration between DevOps and finance personnel. This involves iterative, data-driven management of infrastructure spending, which results in improved cost efficiency and ultimately, profitability in cloud environments (Storment & Fuller, p.6).

FinOps Framework

The FinOps framework advocated by F2 consists of principles, personas, stages, maturity, proficiency, domains, and capabilities. This section will delve a little deeper into the principles, personas, and stages (Source: FinOps Framework by FinOps Foundation).

FinOps Framework by FinOps Foundation
Fig.1: FinOps Framework by FinOps Foundation (under CC BY 4.0 license)[/caption]

Principles

The principles guiding the practice of FinOps (Cloud FinOps) were created and refined through experience by members of the FinOps Foundation. There are six principles, which are understood as one whole rather than a hierarchy. These principles are as follows (Reference: FinOps Principles by FinOps Foundation

  • Collaborate among teams.
  • Everyone owns their cloud usage.
  • A centralized team drives FinOps.
  • Reports should be accessible and timely.
  • Decisions are made based on the business value of the cloud.
  • Take advantage of the variable cost model of the cloud.

As we look at these in order, it becomes clear that the six principles are inseparable.

Different teams within the business, such as development, finance, and business units, each with their own responsibilities but sharing a common goal of maximizing business value, need to collaborate. For this collaboration, a centrally leading 'FinOps Team' is essential. This team facilitates the establishment of a data infrastructure that allows for immediate access to necessary information. It undertakes the current situation assessment, analysis, and benchmarking required for decision-making, advancing team collaboration while ensuring cost-effective use of the cloud. This is what these principles intend to achieve.

Personas

The "personas" in the FinOps framework show who in an organization is involved in the activity of FinOps (Cloud FinOps) (Reference: FinOps Personas by FinOps Foundation). Storment & Fuller (2019) answer the question "Who does FinOps?" by saying, "Everyone in the organization, from finance to operations, development, architecture, and even management, has a role to play" (p.21).

FinOps Team Structure by FinOps Foundation
Fig.2: FinOps Team Structure by FinOps Foundation (under CC BY 4.0 license)[/caption]

The green circle in the center labeled 'FinOps Team' represents the 'centralized team' mentioned in the previous section on 'Principles'. Having a neutral FinOps team within the organization allows for the sharing of objective best practices and recommendations, and ensures that each business (project) is managed according to the same standards.

Furthermore, in the courses for preparing for the FinOps Certified Practitioner certification, which is mentioned later, this FinOps Team is described as either 'a standalone team or part of a cross-functional CCoE (Cloud Center of Excellence)'. It is explained that the team may be organized virtually, with members working full-time on FinOps or in combination with their departmental roles. As for the organizational positioning, according to the 'The State of FinOps 2022' report published by the FinOps Foundation and Storment & Fuller (2019), the team is usually placed under the CTO or Head of Technology.

Phases

The journey of FinOps (Cloud FinOps) consists of three iterative stages—"Inform", "Optimize", and "Operate" as shown in the diagram below (Reference: FinOps Phases by FinOps Foundation

FinOps Phases by FinOps Foundation
Fig.3: FinOps Phases by FinOps Foundation (under CC BY 4.0 license)[/caption]

The initial 'Inform' stage involves showing each team how much and why they are spending as-is, which aids in cost allocation (allocation) and cultivating a culture of shared responsibility through data visualization within the organization. In the subsequent 'Optimize' stage, various cost optimization measures are considered and implemented.

However, it is recommended that these be automated in the 'Operate' stage. At the same time, the numerical metrics tracked within the organization are constantly evaluated and reviewed to ensure they align with business goals, leading to continuous improvement of FinOps (Cloud FinOps) activities within the organization. As depicted in a cycle (loop), these three stages are not linear.

Similar Concepts

Cloud Financial Management (CFM)

Cloud Financial Management (CFM) is a concept very similar to FinOps (Cloud FinOps). AWS lists the main four areas of CFM as

  • Measurement and Accountability
  • Cost Optimization
  • Planning and Forecasting
  • Cloud Financial Operations

The operations recommended by CFM, which automate and drive the cycle of the first three items, are very similar to the "Inform → Optimize → Operate" cycle in FinOps (Cloud FinOps).

AWS positions CFM as one of the two main areas of Cloud Economics, alongside Business Value. Broadly speaking, Business Value in Cloud Economics is about the upsides and competitive advantages that can be pursued through cloud migration and utilization (hence TCO is a major topic), while CFM is about enhancing ROI after cloud migration.

FinOps Foundation(F2)

The FinOps Foundation (F2) is a program under the Linux Foundation, with a mission to advance practitioners of cloud financial management through community, education, and standards. Established in 2019 by US tool vendors and their client companies, it moved under the Linux Foundation in the following year and is now operated in a vendor-neutral manner. In the Linux Foundation, programs such as the Cloud Native Computing Foundation (CNCF) exist in parallel.

FinOps Foundation Mission
Fig.4: FinOps Foundation Mission (under CC BY 4.0 license)[/caption]

Discussions and practice sharing in FinOps (Cloud FinOps) are led by user companies, with participation from tool vendors being restricted. Currently, F2 has over 7,300 individual members from all over the world.

To Learn More

The most basic way to learn FinOps (Cloud FinOps) is to take certification courses offered by F2. The courses teach what F2 defines as FinOps (Cloud FinOps), summarizing the common understanding within the industry. For beginners, the FinOps Certified Practitioner (FOCP) certification course is recommended, and having knowledge at the level of an AWS Certified Cloud Practitioner is advised.

Books

As mentioned in this article, a comprehensive book on this topic is Storment & Fuller (2019), co-authored by J.R. Storment and Mike Fuller, founding members of F2 (not yet translated into Japanese). In the F2 community, it's also known as "the FinOps Book".

  • Storment, J.R. & Fuller, Mike (2019). Cloud FinOps: Collaborative, real-time cloud financial management. California: O’Reilly.

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