As cloud adoption increases, more and more organizations are being surprised by their cloud bills. No matter how the industry changes, cloud spending and visibility will always be a main priority of cost management.
With a FinOps strategy, companies bring together multiple departments to collaborate on how to control cloud costs. This centralization increases visibility, improves predictions and enables better spending decisions.
We asked four cloud experts about the increase in FinOps' popularity, why not all enterprises have a FinOps strategy and advice for building one.
Editor's note: The following interviews were edited for length and clarity.
What has fueled the need for FinOps?
Jevin Jensen, research vice president, Intelligent CloudOps Market at IDC: The explosion of cloud growth and associated spending over the last eight to 10 years has caught the attention of CIOs and CFOs. It is now a significant budget item each year. At the start of 2022, IDC found that 60% of enterprises reported IT budgets as flat or declining, but, by July, that number was over 72%. Enterprises are getting too many surprise cloud invoices. With IT budgets now under pressure, FinOps can be a way to reduce and manage these expenses from now on.
Adam RonthalVice president analyst, data management and analytics at Gartner
Adam Ronthal, vice president analyst, data management and analytics at Gartner: The need for FinOps has largely been driven by cloud adoption and associated consumption-based pricing models. If we use the database management system (DBMS) market as a proxy for cloud adoption, we expect more than half of DBMS revenue to be associated with cloud in 2023. The move to cloud is generally associated with a decentralization of IT functions out to the lines of business. In parallel, we also see increased demand. Previously, this was controlled by traditional on-premises procurement processes which served as a natural gate to consumption. As a result, consumption is up, and increasingly decentralized, which leads to challenges with cost control. While we have an increasingly decentralized environment, there are still two primary areas where we need to apply centralized oversight. The first is traditional data governance, and the second is financial governance, which drives FinOps adoption.
Paul Nashawaty, principal analyst at Enterprise Strategy Group, a division of TechTarget: The pressures of cost optimization on organizations have driven the need to evaluate the spend of the operational projects. In fact, we see in our 2023 tech spending report that 34% of a 710-respondent survey indicate their organizations are using FinOps methodology extensively. And 31% are using FinOps in a limited fashion. This is mainly due to public cloud investments that are increasingly under the scope to be understood and analyzed.
Jon Brown, senior analyst at Enterprise Strategy Group: I believe there are a couple of factors at play. The migration of workloads from Capex compute platforms -- on-premises and owned -- into Opex platforms via IaaS. [This] makes compute and storage Opex a bigger budget impact. More scrutiny and extra management is part of a natural evolution or maturation indicator for Opex management. The second factor is the greater availability of data about resource consumption and usage, so there is enough granular data with which to make a decision. Third, the increasing complexity of applications and workloads and the increasingly distributed nature of computing -- complexity -- means we need to measure and correlate from more sources to get a view of resource consumption. This is best done with software.
The promise of cloud computing and IaaS was a promise to convert Capex into Opex. Now that this has happened, there is a greater need to manage and optimize Opex spend. As Opex consumes a larger share of the IT budget, managing it more closely begins to make sense. I look at this as a natural evolution, catalyzed by greater data availability and visibility. I expect greater emphasis on FinOps going forward as more workloads take advantage of disparate cloud compute resources.
Why don't all enterprises follow a FinOps model? Or is it not for everyone?
Jensen: Before the cloud, enterprises used steering teams to monitor projects and review return on investments for new projects. With the birth of the cloud, these were viewed as unnecessary bureaucracy and roadblocks to cloud innovation and many were disbanded. Steering teams didn't provide much value to smaller companies even before the cloud. FinOps can be successfully implemented in companies of all sizes to add guardrails and accountability to cloud spending without slowing down digital transformation. Most FinOps teams can be run by one full-time person or less.
Jevin JensenResearch vice president, Intelligent CloudOps Market at IDC
Other members of the FinOps team serve just a part-time role while performing their other day-to-day duties. The only other investment is typically a cloud cost transparency tool to provide a single source of truth for FinOps teams to see all cloud spending and areas of savings. With IDC estimating cloud spending waste at 10% to 30%, the tool can often be paid for in the first couple of months. The more complex your cloud environment, such as multi-cloud or large hybrid cloud, the more likely to find cost savings.
Ronthal: Unless an organization has completely predictable consumption patterns, and can deploy infrastructure to accommodate this, they will eventually engage in FinOps practices. It's not a question of if, but when. Early cloud adopters will get there sooner. If we look at the cloud as a massive cost optimization problem, it's a natural progression to seek out means of operating efficiently.
My working hypothesis is that the more the center of data gravity shifts to cloud, the greater the influence of those parts of the organization that care about operational efficiency will be -- specifically the CFO and the COO. The successful organization will establish clear lines of communication between each of these roles, but ultimately the CFO will emerge as the dominant player. It's much harder to engage with FinOps if a significant portion of your IT infrastructure remains on premises, because spending is tied up in large capital investments that occur in approximately five-year cycles as we upgrade and replace infrastructure. So, we don't have the flexibility to adjust to changing demands and have far less capability to optimize.
Nashawaty: This is largely due to maturity of organizations. Understanding the tool sets or awareness that the tools exist. According to our 2023 Tech Spending Intentions report, organizations that are most satisfied with public cloud and organizations using cloud heavily are more likely to leverage FinOps extensively. In fact, 58% of respondents indicate their orgs identify costs associated with public cloud meet or exceed expectations and 45% of respondents indicate more than 40% of their organization's applications are public-cloud resident.
What advice would you give to an enterprise that is starting its FinOps journey?
Jensen: FinOps is more of an organizational culture and process change than a tool. Therefore, I am careful to refer to the tool as cloud cost transparency.
Paul NashawatyPrincipal analyst at Enterprise Strategy Group, a division of TechTarget
Rothnal: FinOps is both a technical and a cultural practice. Many organizations focus on the technical aspects and build financial governance dashboards to identify hotspots and help them assess their spend. That's absolutely required. But we cannot ignore the cultural aspects, and we can set ourselves up for success with one very simple practice: transparency. People in most organizations want to do the right thing, but they don't have the required information. So, we should provide it. Show the cost and impact of each workload that runs; identify and publish the most expensive queries. Get people talking to each other about how to implement more efficient workloads and infuse this in the culture of an organization. Everything we do should go through the normal functional QA, but also an assessment of fiscal responsibility. Did we implement this workflow as efficiently as possible?
Nashawaty: Organizations are continuously reviewing the approach to operational efficiencies. We see this across most of our research but also it just means good business practices. In order to understand the modernization journey effectively, a FinOps methodology provides the insights to understand how and what the money is being spent on. Without this methodology, organizations may be investing blindly.