FinOps - or how IT, finance and management find each other

FinOps – or how IT, finance and management find each other

Controlling the scope and restrictions of agile IT organizations is complex – IT, the finance department and management have their own perspectives.

In order for Cloud and DevOps to be subjected to a cost-benefit analysis at the same agile pace – which they ultimately withstand – a bridge is needed: FinOps (Financial Operations).

A ‘one-fits-all’ management does not work for an agile IT organization. In addition to the dynamics that DevOps and cloud bring with them, it is the necessary common understanding between IT, finance department and company management that makes managing agile IT organizations complex. Especially since the respective goals in software and product development differ, which requires different key performance indicators, budget planning and success metrics for a holistic evaluation.

Holistic means that the three axes of speed, costs and quality are equally recognized as success factors in order to create business added value and innovations:

    • Optimization in terms of speed instead of costs – for example, for a shorter time to market for innovations or greater added value through accelerated services.
    • Optimization in terms of quality instead of costs – for example to improve the performance of a platform through more instances in the analysis cluster.
    • Optimizing for cost rather than speed – such as switching from non-time-critical services to cheaper instances to improve margins.

In order to get this under control, more and more FinOps are establishing themselves – based on DevOps. With the help of best practices and technical methods, FinOps supports efficient and agile decision-making and reporting processes between IT, the finance department and corporate management for continuous improvement and adjustment of agile product development.

FinOps is to be understood as a continuous process which – according to Apptio’s project experience – requires the following six steps:

1. No more estimates – allocation of expenses

Once cloud and DevOps spend is mapped by cost center, application, and business unit, it can also be tracked in terms of its value proposition. It is important that the cloud tagging is structured and categorized according to development, test and production.

When it comes to costs per service unit over time, which are subject to fluctuations, it is important to use suitable average values ​​or use management tools for real-time measurement with cost consequences. Accurate cloud spend visibility requires accounting for all individually negotiated rates, discounts, and amortized prepayments from compute instances. This ensures that the finance team’s calculation is consistent with IT’s daily spend reports.

Subsequently, showback and chargeback mechanisms can be introduced to provide information about the costs incurred or to allocate them.

2. Planning without surprises – precision of budgets and forecasts

Thanks to the transparency of the full costs and the allocation based on the originator, the budgets and cost forecasts for DevOps projects can be estimated more precisely by IT, aligned with the business goals and promptly adjusted in coordination with the financial managers.

3. Knowing what’s going on – transparency through analyzes and performance comparisons

On the basis of steps 1 and 2, in addition to standard reports, ad hoc comparisons of periods and detailed reports on individual resources are also possible in order to identify cost drivers at an early stage. Scorecards can be used to benchmark how different project teams perform in terms of optimizing costs, speed and quality. This is a quick way to look for areas that can be improved.

4. Apply leverage in the right place – optimization of consumption

The optimization phase starts from step 3. This includes the system-supported detection of anomalies, exceeded threshold values ​​of expenses or unusual usage peaks. After IT teams can see their real spend and usage, they can more easily identify underutilized cloud and services resources. This also helps to predefine processes to correctly size instances and services.

5. Create room for negotiation – cost avoidance as early as procurement

Metrics generated from the collected cost and usage data make it easier for FinOps teams to analyze commitments and reservations in cloud procurement as well as the portfolio in the company to compare pricing options, commission the optimal service packages, discounts and get an overview of the expiry dates of contracts.

6. Strategic freestyle – holistic control of an agile IT organization

With these five steps, IT, finance and management now have a continuously improved, system-supported insight into the requirements and cost structures of their agile IT organization. This makes it possible to automate many processes and analyzes via suitable management platforms and to make relevant data available in almost real time based on roles – based on defined governance and goals and using machine learning and AI engines.

This applies, for example, to price-performance comparisons of computing and storage resources, the automatic cleanup of underutilized resources, intelligent recommendations for the dimensioning of instances and their scheduling in sprints.

Conclusion

FinOps builds the bridge between IT, finance department and management, creates a common understanding of the value proposition of the technology and is therefore an important tool to fully exploit the opportunities of DevOps and Cloud for more agility, better quality of IT services and ultimately more sales in business to exhaust.

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