Translating Cloud Computing Costs Into Business Value – A CIO’s Guide to FinOps
How FinOps is allowing all members of the organisation to understand the true costs, benefits, opportunities and savings of cloud computing
Following the dot com crash, technology teams and their CIOs must balance between the business wanting efficiencies and velocity from technology to drive growth against finance and procurement leaders seeking reductions in cost. In addition, there are increasing levels of expectation of new technology from customers to improve their experience. The culmination of these factors has led to the largest and fastest move to the digitisation of the enterprise in recent memory, and many organisations believe there will be a continued need for digital services for customers and internal operations.
However, this demand carries with it a risk. As organisations digitise their domains using the almost infinite capacity of the cloud, they are losing control of technology operating costs and wasting resources. CIOs and technology teams must prevent the damage to their credibility by being able to professionally manage all cloud computing costs but not stifle innovation.
Increased adoption of cloud computing is cited as central to technology strategies in the post-pandemic economy; business research group Frost & Sullivan, for example, found that 31% of CIOs in a survey of over 3000 business technology leaders stated cloud was a central part of their digital transformation plans.
Analyst house Gartner finds that technology spending will reach $3.9 Trillion this year as organisations continue to accelerate digitisation that increased in pace during 2020. “With the economy returning to a level of certainty, companies are investing in IT in a manner consistent with their expectations for growth, not their current revenue levels,” says John-David Lovelock, a distinguished research analyst at Gartner. “Digital business, led by projects with a short time to value, will get more money and board-level attention going into 2021.” Enterprise software (largely cloud-enabled) will see the biggest area of growth, the Gartner research finds.
For CIOs and CTOs, this is an opportunity to truly transform their organisations as enterprise cloud computing underpins new ways of working and is the infrastructure for the online services customers will demand. But, this demand for growth cannot be a trap that leads to the CIO role and technology teams being labelled as profligate and a cost centre. CIOs have an opportunity to not only deliver transformational technologies but to also develop financial and technology sustainability that will allow organisations to prosper.
Gartner research has already found that 30% of technology expenditure on software and cloud services will be wasted; this will lead to – or continue – the view that IT is a cost centre when in truth, the role of technology in an organisation is to do things better or do better things such as innovate and create new methods.
So if the organisation is to increase its expectations on the CIO and the IT department for new applications and methods, but also expect costs to be contained, both parties need to share a vernacular. If each team member fully understands the other, then innovation can thrive, and business sustainability ensured. This is the basis of FinOps.
There are many in technology circles that believe that FinOps is a byword for cuts and decreased ability to use technology to its full potential, but the truth is very different. It is about trade offs to achieve the greatest level of value from the resources available.
FinOps allows all members of the senior leadership team to both keep a weather eye on operational costs, prevent waste from creeping back in but also through enhanced communications be able to share in the architecture, application development, finance, governance, product management and operations.
Also dubbed Cloud Financial Management and Cloud Cost Management, FinOps is a cultural change that breaks down barriers between technology users and technology producers and suppliers within an organisation. With the barriers removed, all members of the organisation can jointly see, discuss and share responsibility for compromises in the cost and speed of a technology outcome.
Those organisations that have succeeded with FinOps have developed centres of excellence where finance, technology and business operations work together on the same goal, to improve the business and deliver digital products at a speed of delivery and cost basis that all agree on.
This cultural change is enabled by access to quality and accurate data about the enterprise cloud computing estate and its costs to the business, which can then be mapped to the business targets for customer service, speed of operations and the standards of availability.
FinOps acts as a trusted translator of technology into the business vernacular, with industry observers stating that there are 300,000 different types of cloud service on the market today, FinOps enables the CIO to clearly communicate the types of cloud services in operation, how they enable the business to deliver its services to customers and how the platforms are operating processes across the organisation.
As a result, all members of the organisation are then able to see how the cloud is delivering a business benefit and identify where former benefits are either no longer delivering its full value or if that value is diminishing.
In the early days of enterprise cloud computing, the technology was sold as a cost-saving to organisations, but in the complex digital economy of the 2020s, the true benefits of cloud computing are the ability to scale and innovate, but these benefits are not being seen in many organisations, as they are unable to analyse and monitor the real benefits. Terms such as accretive growth, where the costs to support growth are increasing at a slower rate than revenue, will be new to many – but are fundamental to overall business success.
Organisations that are informed of the true costs of their enterprise cloud computing estate are able to optimise the technology to deliver actual rather than perceived business benefits, reduce waste and improve the organisation’s operations. Assessing the costs of cloud computing against the Objective & Key Results (OKRs) and Key Performance Indicators (KPIs) of the business allows the CIO and peers to consider the costs of increasing cloud consumption as part of a marketing drive or business change programme. Rightsizing discussions about usage and capacity can then be had without any member of the organisation feeling they are having performance or capacity changes ‘done to them’ by technology or costs risks ‘done to them’ by other areas of the organisation.
“It will never be perfect, cloud consumption and management is a living, breathing thing, so the metrics of understanding really matter,” says Jez Back, Consulting Director, Thebes Cloud Management. Back goes on to say that with the metrics to hand and shared, the organisation has greater ability to negotiate discounts from cloud providers, see where the business needs to modernise its application estate, which will lower operational costs and adopt managed services of non-core business activities.
At logistics provider Hermes UK, the adoption of FinOps in a partnership with Thebes Cloud Management allowed the organisation to protect the stable operating base of the businesses technology, whilst also optimising technology operations and reducing costs with Amazon AWS by 22.3%. FinOps also enabled Hermes UK to reduce its technical debt, with the added benefit of a simplification of workflows and reduction in the dependencies in legacy systems.
FinOps allows technology leaders to demonstrate they are business leaders responsible for directing technology’s impact on the business.
Author: Jez Back, Consulting Director, Thebes Cloud Management
Jez is a deeply experienced Cloud Economics and Cost Management consultant focused on helping organisations to gain maximum value and reduce waste from their technology investments using FinOps and Technology Business Management techniques.