Adopting and implementing FinOps within your organization requires an understanding of a few crucial concepts, namely FinOps Domains, FinOps Capabilities, and FinOps Maturity Assessments. In essence, FinOps Domains represent a sphere of activity or knowledge, covering every facet of cloud financial management.
Within each domain, you’ll find a suite of FinOps Capabilities. These capabilities serve as building blocks for constructing a robust FinOps strategy, helping you to monitor, measure, and optimize your cloud expenditures effectively.
Why is this important? Because FinOps isn’t just about cutting costs—it’s about gaining operational efficiency and business agility, aligning your cloud investments directly with business value. This article aims to be your comprehensive guide, dissecting these critical FinOps concepts.
What are FinOps Domains?
FinOps Domains can be best understood as the building blocks of an effective FinOps practice. These domains are multi-faceted areas of activity that are integral to mastering cloud financial management.
What makes FinOps Domains particularly noteworthy is that they aren’t siloed or exclusive to one another. Instead, they often overlap and interact, functioning more like an interconnected web than a linear pathway.
How do FinOps Domains work?
During any phase of an organization’s FinOps journey, multiple domains may be in focus concurrently.
- For instance, while you are concentrating on cloud usage optimization, you may also need to keep an eye on performance tracking and real-time decision-making.
- It’s this interdependence of domains that provides a holistic view of the functional activities needed to run a FinOps practice effectively.
The impact of adopting these domains is multifaceted. Not only will they manifest in your cost and usage reports, but they will also influence performance metrics and open the door to new opportunities. These opportunities can then be incorporated into subsequent iterations through the various FinOps phases, allowing for continual improvement and refinement.
FinOps Framework by FinOps Foundation
What are FinOps Capabilities?
In the context of FinOps, capabilities refer to the functional activities that can be performed within each domain. These are the tactical moves that bring your FinOps strategy to life.
In other words, while domains offer you a high-level view, capabilities dive deep into the nitty-gritty of what actually needs to be done.
Interdependence of Capabilities
Every organization will naturally lean on each domain to some extent in their FinOps practice. However, the specific mix of capabilities implemented within each domain can be quite unique and will largely depend on an organization’s level of FinOps maturity.
- For example, a company in the early stages of FinOps adoption may focus on basic capabilities like cost allocation and budget management.
- In contrast, a more mature organization might delve into advanced practices like workload automation and anomaly management.
Understanding these capabilities is critical, as they ultimately shape how effective your FinOps practice will be. They are the mechanisms through which you can monitor, measure, and manage your cloud costs and usage, offering both breadth and depth to your financial operations in the cloud.
The 6 FinOps Domains
Understanding FinOps means diving into its six core domains, each with its unique capabilities. The domains offer both high-level overviews and specific functional tasks, allowing organizations to customize their approach based on their maturity level in FinOps.
1. Understanding Cloud Usage and Cost
This domain lays the groundwork for all subsequent FinOps activities by systematically collating and normalizing data relevant to your cloud expenditures. By delving into this domain, organizations can discern what’s driving their cloud spending, thereby enabling more FinOps actions in other domains.
Essentially, it answers two pivotal questions: What cloud services are you using, and what are their associated costs?
Capabilities for Understanding Cloud Usage and Cost
Cost Allocation
Cost Allocation is the practice of breaking down and assigning portions of your consolidated cloud bill to specific departments or projects. The core focus here is not on actioning costs but on clearly understanding who owns what.
- Hierarchies & Metadata: Utilize account hierarchies and resource-level metadata to divide costs.
- FinOps Platforms: Employ cloud native (AWS Cost Allocation Tags, GCP Cloud Tags) or third-party FinOps platforms for advanced allocation capabilities.
- Compliance: Address resources with no metadata as a compliance issue.
Managing Shared Costs
Managing Shared Costs involves the fair distribution of shared cloud resource expenses across the organization. The aim could be full allocation or adopting an ‘informed ignore’ approach based on business priorities.
- Transparency and Accuracy: Central to FinOps, these are hampered when shared costs are not allocated properly.
- Business Units: Consider the varying needs of different business units when dividing shared costs.
Data Ingestion and Normalization
This capability centers on collecting, transforming, and standardizing vast datasets relevant to your cloud expenses. The process harmonizes billing data, usage information, and even business-specific metrics into a queryable repository.
- Data Sources: Pull data from multiple cloud and IT repositories.
- Timeliness & Granularity: Ensure data is up-to-date and at the needed level of detail for decision-making.
2. Performance Tracking and Benchmarking
This domain serves as the operational backbone for organizations aiming to align cloud costs with strategic objectives. By setting and mapping usage and costs to budgets, leveraging historical data for forecasting, and establishing measurable KPIs, organizations can answer a crucial question:
Does our spending and usage align with our strategic and organizational goals?
Capabilities in Performance Tracking and Benchmarking
Forecasting
Forecasting is an art and science of predicting future cloud expenditures. It involves a combination of historical data and future planning, scrutinized through different models that are often created in collaboration with Finance, Engineering, and Executive teams.
- Multi-disciplinary Collaboration: Teams across departments collaborate to agree upon forecast models and KPIs.
- Variable Nature: Cloud spend is inherently variable, making it essential to adopt flexible forecasting models.
- Data Dependency: The accuracy of forecasting models is highly dependent on the robustness of other FinOps capabilities like cost allocation.
Budget Management
Budgeting for cloud operations involves collecting estimated expenses over a specific period and making strategic decisions based on these budgets. Whether expenses are ‘favorable’ or ‘unfavorable’ to the budget can significantly influence operational and investment decisions.
- Expense Accumulation: Estimate and accumulate expenses for a specific time frame.
- Tracking & Forecasting: Keep track of actual expenses and forecast remaining spend, identifying variances to the budget.
- Investigation: Dive deep into the causes of budget variances to make informed decisions.
Resource Utilization & Efficiency
This capability focuses on extracting maximum value from every unit of cloud cost. By closely observing resource utilization over time and considering performance, availability, and other quality metrics, organizations can make educated decisions about cloud spend.
- Compute Resources: Evaluate whether the performance or availability gains justify the extra expenses, or if performance expectations can be adjusted to improve costs.
- Storage Resources: Estimate latent inefficiencies in stored data to realize potential gross savings through rightsizing or removal.
- Tailored Approaches: Different types of resources, like compressible data or high-cost storage tiers, require specific strategies for optimization.
3. Real-Time Decision Making
The crux of effective cloud cost management lies in the ability to make real-time, data-informed decisions. By cultivating an environment that offers timely, reliable, and stakeholder-specific data, organizations can optimize their decision-making velocity and align their operational goals more precisely to cloud realities. This domain essentially addresses:
What immediate actions can your organization take to align cloud usage better with its goals?
Capabilities in Real-Time Decision Making
Measuring Unit Costs
Unlock profitability with metrics that correlate cloud spend to business value, focusing on Cloud Unit Economics. This capability helps determine the break-even point for cloud operations.
- Business Value Metrics: Link cloud expenses directly to revenue or specific business units.
- Marginal Analysis: Calculate the difference between marginal cost and marginal revenue to identify break-even points.
- Alignment with Business Growth: Ensure cloud spend scales with the rate of business expansion.
Managing Anomalies
Anomaly Management is about quickly detecting and resolving unanticipated spikes in cloud spending. The capability is crucial for minimizing negative impacts, financial or otherwise, on the business.
- Automated Detection: Use machine learning-based tools to identify spending anomalies.
- Triage Anomalies: Prioritize high-impact alerts for immediate resolution.
- Resolution Paths: Take appropriate actions to either adjust the environment or acknowledge the spending anomaly.
FinOps Decision & Accountability Framework
This capability emphasizes establishing a structured decision-making and accountability hierarchy within the organization. It provides clarity and consistency in handling financial decisions related to cloud costs.
Here is a sample RACI model from the FinOps Foundation:
- Clear Lines of Authority: Document who holds decision-making authority and who has an advisory role.
- Cross-Functional Teams: Encourage collaborations between different teams for balanced and informed decision-making.
- Scalable Framework: Maintain relevance across organizations of different sizes, whether it’s a 20-person startup or a larger enterprise.
4. Cloud Rate Optimization
At the core of financial prudence in cloud computing is Cloud Rate Optimization. This domain delves into the art and science of refining how you purchase and manage cloud services to ensure alignment with your business and financial objectives. Essentially, it tackles the pivotal question:
How can you modify your cloud expenditure and purchase strategy to achieve optimum price performance?
Capabilities in Cloud Rate Optimization
Intersection of Cloud FinOps and Sustainability
Incorporate sustainability as a pillar in your cloud financial strategy, balancing both economic and environmental costs. This capability sets a path for long-term, eco-friendly cloud management.
- Lifecycle Analysis: Scrutinize the complete environmental impact, from resource sourcing to disposal.
- Eco-Friendly Technologies: Implement technologies powered by renewable energy sources.
- Dual Sustainability: Align both business and environmental goals for a comprehensive approach.
Managing Commitment-Based Discounts
Optimize your organization’s Effective Savings Rate (ESR) by utilizing commitment-based discounts offered by cloud service providers. This capability brings clarity and efficiency to how discounts are managed and applied.
- Rate Optimization Types: Employ spend-based or resource-based commitment discounts. AWS offers Savings Plans, while GCP offers CUDs and SUDs.
- Provider-Specific Rules: Understand each cloud service provider’s unique discount offerings.
- Impact on ESR: Regularly monitor the effects of commitment levels on your Effective Savings Rate.
Data Analysis & Showback
Turn data into actionable insights by offering real-time reporting tailored for stakeholder needs. This capability leans heavily on proper data collection and normalization, serving as the bedrock for other financial management processes.
- Data Ingestion: Acquire and normalize cost and usage data from cloud services.
- Stakeholder Reporting: Create near real-time reports spotlighting total costs, cost avoidance opportunities, and financial KPIs.
- Tool Utilization: Choose between native cloud-provider tools and third-party solutions for data analysis and reporting.
5. Cloud Usage Optimization
The essence of Cloud Usage Optimization lies in the real-time alignment of cloud resources to workload demand. By employing techniques like predictive rightsizing, dynamic scaling, and resource turn-off, organizations can achieve unmatched efficiency. The fundamental question this domain addresses is:
How can we adapt what and when we’re using cloud resources to better align with our organizational goals?
Capabilities in Cloud Usage Optimization
Workload Management & Automation
One of the cornerstones of cloud usage optimization is the capability to run resources only when they’re genuinely needed. It bestows FinOps teams with the tools to dynamically match supply with demand, thereby optimizing cloud usage.
- Dynamic Provisioning: Adapt resource provisioning in real-time according to workload needs. A developing practice, Augmented FinOps automates provisioning and management with ML models.
- Auto-Scaling: Automate the scaling of resources to meet fluctuating demands.
- Resource Turn-Off: Implement automated turn-off mechanisms for idle resources.
Onboarding Workloads
This capability focuses on establishing financial and technical criteria to evaluate the viability of onboarding new or existing applications to the cloud environment.
- Financial Assessment: Evaluate the economic feasibility of onboarding new workloads.
- Technical Feasibility: Assess the technical aspects like performance, security, and scalability.
- Brownfield & Greenfield: Apply the same assessments for both existing (brownfield) and new (greenfield) projects.
FinOps Intersecting Frameworks
FinOps doesn’t operate in isolation; it intersects with various other organizational frameworks. This capability captures these interactions, setting the stage for a more unified operational approach.
- Framework Synergy: Identify the synergies between FinOps and other frameworks like ITSM, ITFM, PMO, and ITAM.
- Maturity Assessment: Distinguish between FinOps Run and FinOps Walk maturity levels based on framework integration.
- Challenges & Solutions: Address new challenges that arise when traditional processes meet the cloud.
6. Organizational Alignment
The bedrock of efficient cloud management, Organizational Alignment, enables seamless integration of FinOps into broader IT financial strategies, existing processes, and organizational structures. This domain is designed to drive a cultural transformation in cloud usage, aimed to boost value. It essentially asks:
What internal organizational changes can be made to utilize the cloud more effectively?
Capabilities in Organizational Alignment
Cloud Policy & Governance
Policy and Governance provide the underpinning structure for effective FinOps activities. A finely crafted Cloud Policy sets the organization’s intent regarding specific cloud activities, designed to enhance business value. Meanwhile, Cloud Governance involves the tools and processes that ensure policy adherence.
- Statement of Intent: Clearly articulate cloud-related activities aligned with organizational standards.
- Control Mechanisms: Employ tools and processes that monitor activities to ensure they align with policy.
- Outcome Monitoring: Regularly assess whether the intended business outcomes are being achieved through governance measures.
Object expiry architecture flow in AWS Lifecyle Policy Management
Establishing FinOps Culture
The journey towards a FinOps culture is a carefully orchestrated movement that instills a mindset of accountability. It involves multiple facets from winning over detractors to defining common languages and metrics.
- Culture Transformation: Transition from traditional data center culture to a FinOps-centric culture.
- Accountability Framework: Establish roles and responsibilities for cloud cost management.
- Long-term Roadmap: Develop a strategy for ongoing transformation across all FinOps domains.
Adopting FinOps: FinOps Foundation
FinOps Education & Enablement
This capability focuses on elevating the FinOps understanding across the organization through targeted education and enablement initiatives.
- Internal Communications: Conduct events and learning experiences on technical, financial, and business topics.
- Training Modules: Offer function-based or technology-based training focused on FinOps processes.
- Value-Added Initiatives: Implement programs that allow team members to apply their FinOps knowledge to boost the business value of cloud usage.
Conducting FinOps Maturity Assessments with the Maturity Model
What is the FinOps Maturity Model?
The FinOps Maturity Model builds upon a “Crawl, Walk, Run” approach, allowing organizations to gradually develop their FinOps capabilities. This iterative method focuses on quick, small-scale actions that provide insights into the value of more extensive efforts. The intent is not to rush to ‘Run’ in every capability but rather focus on areas that offer the highest business value.
- Crawl: In this stage, organizations focus on cloud-only cost-per-customer metrics. This approach may involve direct and shared cloud costs, depending on the complexity of the application.
- Walk: At this stage, organizations include Cloud, Software-as-a-Service (SaaS), and license-based cost-per-customer metrics. This could involve tools like Datadog, ServiceNow, or PagerDuty, or Bring Your Own License (BYOL) solutions like Windows or SQL Server running on cloud infrastructure.
- Run: Advanced teams consider a comprehensive range of costs, including Cloud, SaaS, Hybrid Costs, and Human Capital-based cost-per-customer. This stage typically involves collecting multiple metrics for different parts of a complex system, becoming more granular over time.
How to Assess Your FinOps Maturity Level?
Achieving optimized cloud cost management is an evolving journey, one that follows a structured FinOps Maturity Model. With roots in iterative improvement, the model aims to elevate your organization’s capabilities in a pragmatic, value-driven manner.
- Assessment: Evaluate your organization’s current FinOps capabilities and domains. Understand what works and what doesn’t.
- Prioritization: Zero in on the capabilities that promise the highest business value. Focus on those first.
- Action Plans: Develop detailed plans for each capability, starting with ‘Crawl’ and gradually moving towards ‘Run’ as you realize business value.
- Review & Adapt: Continuously measure the success metrics and adapt your plans accordingly.
FinOps Maturity Model Guidelines
| FinOps Maturity Level | Maturity Level Characteristics | Sample Goals/KPIs (Source: data.finops.org) |
|---|---|---|
| Crawl | – Minimal reporting and tooling – Basic KPIs and processes – Plans to address “low hanging fruit” | – 50% cost allocation – 60% resource-based commitments discount target coverage – 20% forecast to actual spend variance |
| Walk | – Automation for most capability requirements – Medium to high goals/KPIs – Decision made not to address difficult edge cases | – 80% cost allocation – 70% resource-based commitments discount target coverage – 15% forecast to actual spend variance |
| Run | – Full organizational adherence- Automation preferred – High KPIs and goals | – Over 90% cost allocation – 80% resource-based commitments discount target coverage – 12% forecast to actual spend variance |
Remember, achieving a ‘Run’ maturity level in every capability is not the end goal. The emphasis should be on deriving business value from your FinOps practices.
FAQs and Also Asked
What are FinOps Domains?
FinOps Domains are the broad areas of focus within FinOps, such as “Cloud Usage Optimization” and “Organizational Alignment.” These domains help define the structure for FinOps practices within an organization.
What do FinOps Capabilities refer to?
FinOps Capabilities are the specific functionalities or skills within a FinOps Domain. For example, within the Domain of “Cloud Usage Optimization,” capabilities might include “Workload Management & Automation” and “FinOps Intersecting Frameworks.”
Can I focus on improving just one Domain or Capability?
While it is possible, the interconnected nature of Domains and Capabilities often means that focusing on one will have ripple effects on others. The goal is to achieve a balanced development across all Domains and Capabilities.
How do I assess my organization’s FinOps Maturity Level?
You can use the Maturity Model Guidelines to evaluate where you currently stand in terms of FinOps practices. Each level has specific KPIs and characteristics to help you identify your current maturity stage.
Can I have different maturity levels for different Domains and Capabilities?
Yes, it’s quite common for different Domains and Capabilities to be at different levels of maturity. The key is to focus on improving the areas that will bring the most business value.
How often should we reassess our FinOps maturity?
Given the evolving landscape of cloud services and FinOps practices, it is advisable to conduct a reassessment at least once every quarter. GCP’s FinOps Hub allows you to assess your cost optimization efforts with industry benchmarks.
Conclusion
Domains and Capabilities serve as the fundamental building blocks for constructing a robust FinOps strategy. They act as guideposts that orient you toward specific areas of focus within the larger FinOps landscape—from Cloud Usage Optimization to Organizational Alignment.
However, it’s not a “set it and forget it” scenario; FinOps is a continually evolving discipline. Regular maturity assessments serve as a crucial part of maintaining an effective FinOps strategy. These assessments, structured around the “Crawl, Walk, Run” scale, help organizations identify their current operational efficiency and areas of improvement.
In the end, building a sustainable FinOps culture is about continuous refinement and improvement, always aiming to align your cloud spend with business value. It’s a journey that necessitates the collaboration of finance, technology, and executive leadership, all geared towards a common objective of operational excellence and cost optimization.
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