Financial Operations or “FinOps” are essential in procurement as they help to ensure purchases are made within budget and that all financial transactions are properly recorded and tracked.
Organizations that have integrated procurement and finance functions report an average cost savings of 12.7% according to Ardent Partners.
Ardent also found organisations with effective financial management processes in procurement can better achieve cost savings, reduce supplier risk, and improve supplier performance.
But what exactly are FinOps? Nicholas Leask (CISSP), Associate Director from Grosvenor Performance Group explains.
It starts as a flustered executive returning from the morning leadership meeting. Or maybe the banter of a few concerned individuals filling in the time before a meeting starts in earnest. “The Board is asking questions about the size of our cloud infrastructure bills,” one person comments.
Then you get asked directly by your procurement team line manager “Can you build a quick report on the last 12 and 24-month infrastructure costs?”
This seems like an odd concern. Cloud infrastructure was the new wave. It was going to reduce the need for those insanely expensive data centre uplifts and refreshes that occurred every three or four years. Writing and justifying those business cases was always a bit of a nightmare, real finger-in-the-air stuff; either all the stakeholders agreed, or they didn’t, and getting consensus on how big, what was really required, how much contingency and overhead, then finding someone prepared to put their signature on it was a trick.
As a procurement professional, if you actually go and run that report, you may find the numbers and the spend growth surprising. You’ll probably find that someone’s been spending behind your back.
By the time this issue has arrived on a Board agenda, common responses can be very reactionary “turn it off” and “pause that project” being quite common. If the decisions were sound at the time, why the one-eighty turn now?
There are plenty of situations where businesses have moved their workloads to the cloud on the basis that it costs so little on day one – certainly compared to the capital investments required to fund a new data centre or server fleet – only to find the flexibility and power of variable operational spend bites in short order.
Every methodology or technique needs a snappy title. FinOps follows the well-trodden path that gave us monikers such as DevOps, Malware, Modem and (shudder) Infotainment. It’s a portmanteau of ‘Financial’ and ‘Operations’ indicating the combined application of these historically disparate business functions.
In the case of FinOps this actually understates the situation a little. FinOps is more of a pent-manteau requiring the collaboration of practitioners from finance, procurement, engineering, product ownership and executive.
Enter FinOps, which is a suite of management disciplines and cultural practices that recognise cloud infrastructures’ double-edged variable spend model must be acknowledged and actively harnessed.
The backbone of the FinOps point of view is expressed through the FinOps Lifecycle, which comprises of a series of Principles to guide action, Phases to support implementation and continuous improvement, and Capabilities which represent the new skills the business needs to develop to manage their cloud spend.
In a way that it very similar to the Agile point of view, FinOps preferences individuals, interactions and collaboration practices and rituals over policies, processes and control structures. This can be quite confronting for a business, especially if you are trying to deal with spending that is out of control!
However, it has to be recognised by procurement professionals that a lot of our traditional tools and techniques for controlling spend weaken or break under the pressure of continuously fine-tuned business objectives and cloud costs calculated in fractions of a second.
The principles of FinOps are simple, but clearly reframe the game:
|Principle||Impacts on procurement|
|Teams need to collaborate.||Procurement is no longer the gatekeeper for cloud spend. As if we ever were. This was lost long ago (certainly in “cloud-years”). The challenge now is; partnership with engineers, finance, and the FinOps team to generate insights into spend and to play our role in maximising the benefits of cloud services contracts and to actively manage relationships with those supplier.|
|Decisions are driven by the business value of cloud.||Value for money has been a central mantra of procurement for a long time. This brings it to life, and loops business strategy, product strategy, and business owners in directly. If we aren’t genuinely good at seeking our value in our cloud contracts and cloud supplier relationships, it’s going to show.|
|Everyone takes ownership of their cloud usage.||The old is new again. This harks right back to the days of mainframes and cost-recovery – every user is accountable and pays for what they use. This is also a challenge for procurement – the end user is in the driver’s seat making the spend decisions.|
|FinOps reports should be accessible and timely.||In the cloud paradigm we’re dealing with per-second compute resources and automated deployment of infrastructure. Monthly or quarterly reporting reviews just won’t cut it. Timely will mean different things in different businesses, but we’re talking inter-day at a minimum in this situation. This is also a clear case of being able to control what you can measure.|
|A centralized team drives FinOps.||FinOps represents cultural and operating model change within a business. This works best if someone is leading the charge. The changes required will impact all involved stakeholders including the procurement team.|
|Take advantage of the variable cost model of the cloud.||Taking advantage of the variable cost model requires a different set of led indicators. The business will no longer be looking through the windscreen trying to predict demand and plan the required capacity. Instead, they are looking in the rear-view mirror to determine if we can keep within budget given what’s been expended to date. Rightsizing contracts will be based on real-time usage not possible future demands.|
In summary FinOps is a set of cultural practices for proactively managing dynamic spend incurred using cloud infrastructure. It aims to maximise the value of cloud infrastructure by aligning spend with defined business objectives. It requires organisational change to enable cross organisational collaboration and is driven by a central FinOps team but delegates financial decisions and accountability to users of the cloud infrastructure.
You can find further information about the FinOps lifecycle at the FinOps website.
If you are looking for a partner to help you implement the framework and start managing your cloud spend, Grosvenor can help with organisational change, operating model design, governance and procurement consulting services to give you a helping hand.
Written by: Nicholas Leask CISSP