The Importance of FinOps (with everything you need to know for the FinOps Certified Practitioner Exam)
However, life got busy, and I gradually forgot that my AWS account over time. I knew that the Free Tier would go away after a year, but a year is a long time, right?
Now sitting more than a year later, the Free Tier expired without me knowing, and boom: a charge of $1.14, which is well, $1.14 more than I would have liked to spend.
But now, instead of me simply forgetting about my running instance, what if I did intend to run some buckets and even a Terraform build within my startup, and me being inexperienced with AWS, didn’t really know what I was doing. What do you think the reaction from my peers when they receive the five figure bill for leaving an instance running for a single day? What if no one noticed and left that instance for an entire month before noticing? That’s already a million dollars out of the window!
These scenarios and many more from newbies like me and experienced developers highlight the potential pitfalls of using cloud services like AWS without careful monitoring and management. The accidental charges resulting from forgotten resources underscore the need for effective cloud financial management, which is where the concept of FinOps comes into play.
But first off… what even is FinOps?
FinOps, a portmanteau of “Finance” and “DevOps”, as defined by the FinOps Foundation, is a cultural practice for both business and engineering teams to bring financial accountability to the variable spend model of the cloud. It provides set methodologies and frameworks for managing cloud costs and optimizing resource utilization to align cloud spending with business goals.
The first instance of “FinOps” was back in 2012 when early scalers of the cloud such as Adobe and Intuit paved the way for what we eventually would come to know as FinOps. With that, many other companies who were beginning to adopt the cloud such as Quantas and Sainsbury’s began to develop their own approaches to cloud management. And as we know it, FinOps become more and more relevant as scaling the cloud presented many challenges.
However, it wasn’t called “FinOps” then. Back then, the practice was simply referred as “cloud cost optimization” and it was not until big cloud providers such as AWS began using the phrase “cloud financial management” which was replaced by “FinOps” as a catch-all title. The term “DevOps” resonated with the crucial cross-functional and agile dimension of the movement, highlighting its significance.
Soon enough, practitioners from various industries recognized the need for a standardized approach to cloud financial management and so the FinOps Foundation was founded in 2019 to provide a platform for collaboration, knowledge sharing, and the development of best practices.
In their development of establishing the best practices of managing the cloud, The FinOps Foundation defined the principles, practices, and methodologies of the FinOps Framework as well as accompanying resources, case studies, training, and networking opportunities for individuals and organizations looking to optimize cloud spending.
And while FinOps can be defined within the framework, it is important to distinguish that FinOps is ultimately a cultural mindset that fosters an alignment among various departments from the executive, finance, and engineering sectors within an organization to drive value from the cloud.
Accomplishing FinOps: The FinOps Framework
As mentioned before, the FinOps Framework provides a model to effectively manage a culture of FinOps within a team and/or organization broken down into five categories: Principles, Domains and Capabilities, Personas, Phases, and Maturity Model.
Principles
The first category, the FinOps Principles, provide six principles as a guiding framework, a “north star” almost, for effective cloud financial management.
- Teams Need to Collaborate: The first principle underscores the importance of cross-functional collaboration. Teams from finance, technology, product, and business domains work closely in real time to drive efficency and innovation, core values of continuous improvement, from the cloud’s per-resource, per-second billing nature.
- Decisions are driven by business value of cloud: The second principle emphasizes that cloud decisions should align with business value. Balancing cost, quality, and speed is essential, and understanding the economics and value-based metrics that come with cloud innovation are more informative than aggregate spending.
- Everyone takes ownership for their cloud usage: The third principle advocates for individual ownership of cloud costs. For example, engineers take charge of costs from architecture design to ongoing operations while feature and product teams manage their cloud usage within budgets. This decentralization encourages cost-effective design and elevates cost as an efficiency metric from the software development’s start.
- FinOps Data should be Accessible and Timely: The fourth principle emphasizes accessible and timely cost data sharing. Consistent, Real-time visibility and insights throughouttps://www.oreilly.com/library/view/cloud-finops-2nd/9781492098348/
- the organization enhances cloud utilization, enabling efficient behavior.
- A Centralized Team Drives FinOps: The fifth principle introduces a centralized FinOps team that facilitates best practices in a shared accountability model. Centralizing rate, commitment, and discount optimization to a single team leverages economies of scale and frees engineers from rate negotiations, focusing on usage optimization.
- Take Advantage of the Variable Cost Model of the Cloud: The final principle, and probably the most important, highlights the cloud’s variable cost model as an opportunity, not a risk. Rather than seeing cloud as a potential cost pitfall , see cloud usage as an opportunity to drive further value from the business.
You can view more information on the principles below.
Domains & Capabilities
Domains represent a sphere of knowledge in FinOps. While the domains are defined exclusively into six categories, on a high level they are interdependent and together highlights the functional activities needed to run FinOps.
- Understanding Cloud Usage and Cost: This Domain focuses on gathering and normalizing information about cloud usage and cost, making it accessible for review and use. By providing consistent data on current usage and historical trends, it supports the Performance Tracking and Benchmarking Domain, answering questions about cloud expenditure and usage.
- Performance Tracking & Benchmarking: In this Domain, organizations map usage and cost to budgets, forecast using historical data, and establish performance metrics and benchmarks to ensure that spending aligns with goals.
- Real-Time Decision Making: After understanding spending and performance, real-time decision-making is made possible so stakeholders, executives and other subsequent domains within the organization can answer questions and support organizational objectives.
- Cloud Rate Optimization: As the domain name suggestions, this domain focuses on managing pricing for cloud services by defining pricing model goals and adjusting models using historical data. It enhances how cloud services are purchased and aligns pricing models with objectives so model performance is improved.
- Cloud Usage Optimization: Compared to the previous domain, this domain focuses more of matching cloud resources with actual demand by predicting rightsizing, scaling, and turning resources on/off as needed. By optimizing resource usage to align with workloads, resources can have its value maximized and running efficiently to meet organization objectives about resource utilization efficiency.
- Organizational Alignment: Lastly, this domain supports integrating FinOps capabilities within existing organizational processes. It ensures cloud use benefits the organization by improving training, processes, and persona-centric enablement for optimal cloud usage.
Within each of these domains are capabilities that encompasses more information about the specific areas of focus. Outlining all the capabilities for each would take a while, but you can view more information about the specific capabilities of each domain below.
Personas
Now that we’ve defined FinOps and its importance, who is affected and who is responsible for ensuring that a FinOps culture is maintained? As mentioned before in the six core principles: everyone!
The framework addresses seven personas to understand and implement the framework’s operating model: the FinOps Practitioner, Executives, Business/Product Owner, Engineering & Operations, Finance, Procurement, and ITAM Leader/Practitioner
- FinOps Practitioner: As the vital medium for FinOps culture, the FinOps Practitioner acts as a bridge between business, IT, and finance teams, facilitating real-time evidence-based decision-making to optimize cloud usage and enhance business value. Serving as a guiding force, they follow the framework model of actions and best practices to drive effective implementation.
- Executives: Executives, ranging from VPs to CEOs, play a key role in ensuring accountability, transparency, and budget adherence. Their focus lies in promoting efficient operations, managing resources effectively, and avoiding budget overruns, while aligning cloud practices with strategic objectives.
- Engineering & Operations: Engineers, Cloud Architects, and Operations team members play perhaps the most critical role in designing and maintaining cloud services. They consider cost as a key performance metric and contribute to optimizing spending by activities like rightsizing resources, tracking container costs, identifying unused resources, and addressing spending anomalies.
- Finance: Finance professionals, including Financial Analysts and Managers, utilize reporting provided by the FinOps team to allocate costs, forecast spending, and support budgeting efforts to help align cloud expenses with broader financial strategies.
- Business/Product Owner: Members of the Business and Product Owner teams, such as the Directors of Cloud Optimization and Cloud Analysts, collaborate to optimize cloud usage and enhance business operations by relying on insights from the FinOps team to make informed decisions and drive cloud spending and resource allocation efficiency.
- Procurement: Procurement Analysts and Managers, as well as Vendor Management specialists, work in tandem with the FinOps team by leveraging insights for strategic sourcing and contract fulfillment within cloud platform vendors.
- ITAM Leader/Practitioner: IT Asset Managers, Analysts, and Compliance Specialists focus on maximizing asset value and minimizing risk through effective asset management strategies to align with organizational goals while adhering to compliance standards and optimizing contracts.
By building strategies for these personas to work together such as defining a common language and developing communication programs, everyone can effective contribute and work together to optimizing the company’s cloud management.
You can view more information on them below.
Phases
While addressing everyone who is addressing FinOps, we also need to acknowledge that rather than a polar yes or no concept, FinOps Adoption is a journey and comes in three phases: Infom, Optimize, and Operate.
- Inform: In the initial phase of the FinOps journey, organizations align themselves to take advantage of the on-demand and elastic nature of the cloud. With proper visibility, allocation precision, and benchmarking, teams set the foundation to ensure they learn and follow best practices to drive ROI from their cloud usage.
- Optimize: After initial onboarding to the cloud, teams can start to align themselves to optimize their cloud footprint. Some common examples cloud providers provide these cost-saving levers include downgrading their on-demand capacity, historically the most expensive instances, to reserved or committed-use instance or rightsizing or automatically turning off any wasteful use of resources.
- Operate: Finally, organizations can operate to continuously evaluate and improve their cloud usage against business objectives to ensure the highest speeds and quality without driving down costs. By navigating through these phases, teams can effectively manage cloud spending, enhance operational efficiency, and align cloud usage with business objectives.
Maturity Model
While the phases address the sequential stages organizations go through to adopt and implement the FinOps methodology, the FinOps Maturity Model, on the other hand, focuses on assessing and measuring an organization’s level of maturity in cloud financial management practices. Just as a baby starts from crawling all the way to a run, organizations are advised to go through the “Crawl, Walk, Run” approach to start off small and grow in scale and complexity as blue value warrants a further improvement.
- Crawl: The Crawl phase represents the starting point for a organization’s FinOps Journey where they begin to recognize the importance of aligning it with business goals with the cloud, but are often limited in the monitoring and coordination between teams. However, the goal is to evolve from a reactive approach to cost management to a proactive and strategic approach that aligns cloud spending with business objectives.
- Walk: In the Walk phase, capability is generally understood and followed with the organization and some automation istaking place. Although some edge cases may be not addressed in their processes, organizations can begin to measure their success and continuously improve their cloud adoption.
- Run: The Run phase represents a pivotal point in an organization’s FinOps journey. By progressing through the initial stages of cloud financial management, the organization has a functioning system that allows them to actively work through optimizing costs, establishing governance practices, and aligning cloud spending with business objectives.
You can view more information on the Maturity Model below.
The FinOps Framework, overall, provides a structured path organizations can follow to manage their cloud financial operations. By fostering collaboration between technical, financial, and business teams, FinOps aims to optimize cloud spending, align it with strategic objectives, and drive efficient resource utilization. Through its three core phases — Inform, Optimize, and Operate — FinOps empowers organizations to navigate the complexities of cloud cost management, from raising awareness and visibility to actively optimizing expenses and maintaining operational efficiency.
The FinOps Certified Practitioner Certificate (and whether you should get it)
As a practitioner exam, the FinOps Certified Practitioner Exam offers individuals from a diverse range of cloud, finance, and technology roles the opportunity to validate their expertise in FinOps and bolster their professional credibility in FinOps. While the exam caters more to professionals seeking a foundational understanding of FinOps and its application to enhance business value derived from cloud expenditure. The exam is a non-proctored 50-question, hour long exam and the certificate is particularly beneficial for individuals working in organizations who wish to gain recognition for their competence in FinOps practices.
You can view more information about the exam as well as sign up for the exam below.
While taking the exam for yourself is your choice, I do strongly advocate for gaining a solid understanding of FinOps itself, particularly if you’re planning to work in the tech industry.
FinOps is rapidly gaining prominence as cloud technology becomes increasingly integral to various tech-related fields. Understanding the core concepts of Finops will equip you with the skills to navigate the evolving landscape of cloud financial management, which is essential for optimizing costs and resources in tech environments from the smallest self startup to the largest corporatations in the world. By grasping these principles, you’ll be well-prepared to contribute effectively to teams that deal with cloud services, irrespective of the certification’s cost.
If you want to learn more about FinOps, I recommend checking out the FinOps Foundation’s website, the Cloud FinOps Book, and the FinOps Foundation Slack Channel for any additional questions you may have.
Good luck to those taking the exam, and happy learning!
Sources:
The FinOps Foundation Official Site:
The FinOps Foundation Framework:
Cloud FinOps, 2nd Edition by J.R. Storment & Mike Fuller:
The FinOps Foundation’s Slack Channel:
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