DevOps, NoOps, and Now FinOps?
Why do we need an accountant in IT?
During our trip called cloud transformation, we learned a lot of new words. DevOps, NoOps, and many other terms are now used daily. The new term to introduce is FinOps.
What is FinOps? Just like DevOps is the fusion of developers and operations, FinOps is the conjunction of finance and operations. Yes, you understand correctly. We are talking about putting finance inside IT.
Does this sound strange to you? OK, I may have come to the conclusion too quickly, I admit that. So, just take a step back and start from the beginning.
The Cloud Transformation Scenario
We all understand what the cloud is and why we need it. I also hope we all know how to move into the cloud transformation from a technical point of view.
Please, try to put yourself in a business person’s shoes for a while. Two minutes is enough, just the time to reach the end of this paragraph.
When we were in the virtual machine age, which sounds like a long time ago, we couldn’t scale and we missed a lot of the cloud features, but we had a very important thing for a business person. We had cost control out of the box.
Do you need 2 CPU, 10 GB of RAM, and 100GB of disk space? Easy! Just look at the catalog and calculate your expenses. It was very easy to predict your costs, allocate a budget, and attribute the costs to the right cost center.
Anybody with a calculator and ability to use sum and multiplication operands could plan expenses, resell services, and understand how much each part of the IT infrastructure costs.
But there was a day when the customer became demanding and engineers needed help to satisfy such requests. As we all know, the cloud is the solution.
And what about costs? Vendors sell us something like “get what you want, when you need it. Pay only for what you really need”.
The cloud broke the old IT procurement. Now, developers can spend money as they will.
All true, but… how much does it cost? How much will it cost if my users double?
Those questions are legitimate, especially when you are selling a SaaS service. You need to know the cost per user to adapt the charge per user.
This goal can be achieved by modeling the price in the way that it depends directly on the cost of the cloud. Imagine a cloud service where most of the costs are about disk space and you ask your customer to pay according to disk usage. But, this is not a solution and generally doesn’t help to control costs.
Moreover, think about the scenario where you have a dedicated pool of services for your company. You get a one-million-dollar bill each month. Is that amount correct? Where is the money spent?
Such questions are legitimate and that’s why, for a company that bets on the cloud and spends a lot of money, cost control is a focal point to make the cloud work.
That’s why we need another buzzword or, better, another role in the company.
FinOps is the change that brings DevOps, finance, and business together.
What Does a FinOps Do?
Bringing financial accountability to the IT-enabled cloud, tuned to optimize quality and spend. FinOps fundamentals are:
- Cost control: Understand where costs come from.
- Performance tuning: Spend where you need to and redistribute resources.
- Real-time decision making: Having real-time data you can predict and need to make decisions.
- Predict, plan, and ensure resources: Using stats on cloud data usage, you can estimate the need for the future and negotiate a discount or pre-allocate resources.
- Put together IT and finance: Cooperation ensures the right budget, cost optimization, and avoids wastes of money.
This is a cultural shift and it’s hard to find a person that has all the necessary skills.
The best option, where budget allows, is to dedicate a multidisciplinary team composed of financial and IT people. Another solution is to have people with a very strong financial background, and it is being supported by offices already present in the company.
When the budget is smaller and the project less complex, it may be only a part-time person, but it is important to have one reference for this function.
The cloud spend rule is easy. Just spend what you use. The matter is to understand what you will use.
It depends on external factors that we cannot control. Just think about a website where the brand launched the campaign on TV. Who can predict how many people will search for the website?
If you think of this example, you will understand that it is not a new problem. As we cannot know how many people will land on the website after watching the spot, marketing people cannot know how many people will enter the shop and buy.
They spend on the campaign to get some profit back, even if they cannot know the exact amount of sales.
They predict the result of the campaign, because they have data to support their decision. In the same example, it can also have data and predict what will happen.
Based on the history of spending and information from the expected load, a FinOps can pre-allocate resources, if needed, or estimate the cost.
Black Friday cannot be a nightmare anymore. We cannot just say: “I spent thousands of euros on bandwidth, who can imagine there will be one-hundred visitors per hour?”
If you can plan your resource usage in the future, you can reserve it to be sure it is there for you and you can negotiate discounts.
What to Take Home
Summarizing in a few words, what happened outside IT is that time changes and changes quickly. We moved (or are moving) from our on-prem infrastructure to big vendors like Google Cloud, IBM Cloud, Azure, or AWS.
The most relevant side-effects of cloud on finance are:
- Localization of cost: From central management to a developer’s hands.
- Material spend: No possibility to predict the exact cost of the infrastructure.
- Variable price: spend what you use.
These changes claim for a new process and new organization. As DevOps became crucial to make things work without using witchcraft, we need a magician also for cost management.
This person is not just an accountant, but a smart person who is able to read financial data, understand the meaning of what they read, and detects issues.
It is not always easy to get the data from the public cloud system. They offer many solutions, like budgeting alerts or cost reports.
These tools are a good point to start, but it may need some integration with a cloud app to bring info into our database and get analytics on top of it.
Do I really need a FinOps on my team?
Well, for very large infrastructures, the cost of inefficiency may be bigger than their salary. Finally, if you really trust the FinOps mindset, you can take a look at the FinOps foundation.