Getting Started With FinOps —Building A Business Case

Abstract

In this article I will discuss about building a business case to get started with the FinOps effort

Any robust project starts with articulating its value proposition and FinOps. As a FinOps leader, you should be clear about what the success of this effort would look like and how you will measure it. The long-term success of these efforts would require a lot of change management and cultural and habitual changes across multiple teams. You need to rally troops behind you. So you must have a clear business case, KPIs, and ROIs defined and well understood at different organizational levels.

Secure Executive Sponsorship

FinOps, or Cloud Financial Management, is a cross-functional effort with several key stakeholders. Hence. These efforts must have executive sponsorship. CIOs and CFOs need to be fully vested in this initiative’s success, which would help this initiative the right level of priority and support. Though initial success can come in a few months, FinOps is a continuous process. It may require a structural change in the organization. The organization needs to adopt a new cost-conscious culture. All these won’t be possible without executive-level support.

Identify your stakeholders

Often, these initiatives are joint initiatives between IT and Finance teams. Different roles in the organization would have different concerns, frustration, and challenges. Every organization is different, and you should take these cross-functional teams in confidence, understand their pain points and objectives from this initiative, and explain the benefits of your efforts to them and their team. In one of the organizations where I drove these efforts, we formed a FinOps steering committee to make sure that we do a periodic review of the progress, take inputs, and pivot when necessary.

The key stakeholders are listed in the following table.

FinOps Stakeholder Concerns(Adoption from FinOps.org)

Organizations’ Goal Alignment

You would be doing a world of good to yourself by aligning FinOps efforts to the organization’s goals. Doing so is way easier to communicate the relevance of what you are doing. You can better articulate the priority of these efforts vs. several other projects in the organization.

Every organization wants to be more profitable or maximize ROIs, and connecting FinOps outcomes to those priorities would be crucial to getting traction. A leading mortgage lender is looking for ways to reduce the cost of originating loans to become more profitable. We tied the cloud cost to the number of loan applications processed by the lender and articulated how reducing the cloud cost by over 25% impacted the bottom line.

FinOps, on the outset, looks like a cost-saving exercise, but you can go beyond strictly cost-saving goals and other advantages your company or business unit may enjoy. A struggling retail company, they were unable to find dollars for their future growth. We made a business case to re-invest the money saved from FinOps in their R&D. It was a win-win situation, bringing additional revenue for the organization.

With FinOps in place, forecasting future cloud costs should be far more accurate, allowing for better budgeting and spending decisions. The CFO and the finance team would love this predictability, and you will be only making friends with them with your efforts.

Bring the Cost Visibility

Once high-level benefits are identified and quantified, bringing cost visibility at multiple levels will be a good idea.

Based on cloud adoption and governance maturity, different organizations would be at other ends of the spectrum regarding cloud cost visibility. In many organizations, cloud cost is internalized in IT expenditure, and in fact, that was the state where I started the efforts in two organizations. In some cases, where the chargeback model is used, there may be a big chunk of the shared costs that could not be allocated to the business units. Irrespective of the maturity level, the CFOs, business unit leads, CIOs, and other key stakeholders may not have complete visibility. So it will be crucial that these stakeholders get a good handle on the spending.

All cloud providers provide good tooling to visualize the cost. You can do basic trend analysis. You can dissect cloud bills further based on your cloud set up — different accounts, projects, or subscriptions. Tagging would allow you to be more granular and allocate your costs further to a business unit or an application. However, the granularity you can achieve primarily depends on the current state of tagging, resource grouping, or other schemes. You should fine-tune the information per your stakeholders to explain trends, anomalies, variance from the budget, etc.

As you mature in your practice, having the unit economics perspective, in which you will tie the cloud spend to the business outcome, would be helpful.

Understanding the cloud bill section would cover Azure cloud bill, tactics to drive visibility, and some executive dashboard examples you can build to increase the cost visibility.

Build your initial hypothesis.

Based on your collected data, it’s time to derive inferences and create a hypothesis around the cost saving. Having some level of hypothesis would help you to streamline your efforts in identifying the focus areas, estimates on cost savings, the investment needed, and immediate ROIs of your FinOps program.

Your FinOps exercise’s goal should not be limited to cost reduction but deliver a better business value or improve unit cost performance. Hence, I would highly recommend starting with a Well-architected framework analysis. Cloud-native tools like Azure Advisor (Azure), Trusted Advisor (AWS), etc., provide insights and actionable recommendations into the well-architected pillar — Cost, performance, security, reliability, and operational excellence.

These tools spit out several cost optimization recommendations like right-sizing environments and spotting unused capacity. You also get recommendations towards rate optimization by purchasing reserved instances (RIs) for AWS and Azure or secure committed use discount(CUD) for Google cloud.

This analysis would also help you make the right cloud investment decision. E.g., you need to improve the reliability of a certain application, which may require adding redundancy to the infrastructure, which will have cost tradeoffs. But in this case, you are purposeful in making investment decisions.

Additionally, you can analyze several of your cloud practices to determine at a high level what potential savings could be. You can explore the following areas as a low-hanging fruit

1. Non-production environment optimization: You can analyze the expenses spread between prod vs. non-prod if you have the proper tagging or naming policy. By building automation to turn off the non-prod environment during of-working hours, you could save considerable cost
2. You can also analyze your committed cloud cost vs. on-demand expense for your compute needs. Though there is no standard percentage for committed usage, you can target the high 70s -80s.
3. It is not uncommon to find a few unused applications and cloud resources running in most large cloud footprints. Sometimes scanning the cloud resources and working with a few SMEs, you can quickly identify some of them.

The success factors.

You’ll need to have specific KPIs in mind for how you’ll measure and evaluate your FinOps practice. These matrices may vary from organization to organization and depend on the type of business they are in. Following are some thoughts on the KPI

• Cost savings: The hard saving delivered as part of this effort would speak for themselves.
• Cloud cost as a percentage of the revenue: For internet-based companies or SaaS software providers, this could be a very important matrices that would determine their profitability
• Cloud cost per customer: Typically, for a B2C business, this could be a matric to show cloud cost elasticity based on a new customer.
• Forecasting Accuracy: Before the FinOps effort, the finance team had a significant pain point around cloud cost forecasting and budget accuracy. Measuring it post the efforts will be a good idea.

The charter on Unit economics provides additional pointers on linking the cloud cost to business outcomes.

The cost of implementing FinOps

As discussed earlier, FinOps is a continuous process that will require dedicated efforts in the organization. So far, we have discussed the benefits, but it is essential to be aware of the costs. Here are a few costs to consider when implementing a FinOps practice:

• Resource Cost: You will need to hire FinOps practitioners who have balanced skills in Cloud technologies and can communicate finance language with the stakeholders. You may source them internally from a cloud team or augment your existing cloud center of excellence (CCoE). You may start with one or two resources and scale organically as the practice grows.
• Opportunity Cost Besides the FinOps team, you would also need help from your existing engineering organization. So there would be an indirect opportunity cost against pursuing other projects.
• Tools and technologies: Several software products can support your FinOps journey from inform, optimize and operate state. These products can simplify and streamline your efforts.
• Consulting or professional services: Several consulting companies have FinOps consulting services. You can hire them to lay the solid FinOps foundation
• Other indirect costs: FinOps require building cost-conscious culture. You need to identify trailblazers who would champion the efforts across multiple teams. There is a certain amount of communication and training involved. Leaders at different levels need to dedicate their quality time to drive awareness and cultivate the mindset. FinOps can be a career path for a few individuals. This is a new and evolving area. So organizations serious about these efforts should be ready to invest in the training and development of the individuals who would be passionate about it.

Of course, you will scale the FinOps efforts through the crawl, walk and Run phases. So you will not incur these costs right from the start, but having visibility would be necessary. You can define your crawl or MVP stage and focus on delivering ROI or save the cost to self-fund the later stages of the FinOps lifecycle.

The cost of not adopting FinOps

You should also clearly articulate what the organization stands to lose if it takes no action and continues with the status quo. The following could be the downstream impact of not acting on FinOps

• The cloud cost could continue to grow, and the company would be increasing waste, resulting in lower profit margins
• The unregulated inefficiencies could also lead to technical debts that could prove to be very costly in the future to maintain or eliminate
• You are unnecessarily spending more that means you now have fewer dollars for investing in growth and innovation. So you are in danger of missing out on certain critical business opportunities
• Inaccurate financial forecasts on cloud costs, leading to missed budgets
• By Not adopting FinOps, you will miss out on maturing cloud operating models. In the way organizations have broken the silos between development and operations through DevOps, it’s time for organizations to break silos with Finance and development organizations by embracing FinOps practices.
• You will risk falling behind your competition who would adopt FinOps

Pitch your Initiative.

Once you collect all this information, you can build a compelling business case for implementing FinOps in your organization. Aligning the FinOps to organizational goals and broader alignment with stakeholders will set you on the path to success. Once you have all the data together through the above process, you can easily convince your decision-makers about the business value of FinOps, and I am sure they will be ready to fund your efforts.

Conclusion

As any project, FinOps also needs a strong business case by aligning it with the organization’s initiative. The efforts that you put in to build a business case would help you to demonstrate the potential value and rally the organization’s resources around. This would also help you to secure the budgets, measure the success, and prioritize your efforts.