FinOps Framework: Ultimate 2024 Guide

This is part of a series of articles about FinOps

What Is FinOps? 

FinOps, or cloud financial management, is the practice of bringing financial accountability to the variable spend model of cloud computing. The FinOps Foundation Technical Advisory Council defines FinOps as “an operational framework and cultural practice which maximizes the business value of cloud, enables timely data-driven decision making, and creates financial accountability through collaboration between engineering, finance, and business teams.”

FinOps practitioners achieve this by integrating financial management processes into the operational lifecycle of cloud services, enabling better planning, budgeting, and forecasting. A successful FinOps practice requires collaboration among finance, technology, and business teams. This collaborative effort helps ensure that every dollar spent on cloud services is tracked and optimized. 

By adopting a culture of financial accountability and transparency, organizations can make more informed decisions regarding their cloud investments. This in turn leads to significant cost savings and enhanced operational efficiency.

In this article:

What Is the FinOps Framework?

The FinOps Framework is a structured approach developed by the FinOps Foundation to implement FinOps practices within organizations. It includes a set of principles, best practices, and processes designed to help organizations manage and optimize their cloud spending. 

This framework aims to align cloud investment with business goals, ensuring that every cloud decision made contributes to the objectives of the organization. It promotes a culture of cost transparency and accountability across all levels of the organization, from executives to engineers. 

By leveraging the FinOps Framework, companies can achieve greater visibility into their cloud costs, enabling them to make informed decisions about resource allocation and utilization. 

The Importance of FinOps in Cloud Management 

FinOps practices are essential for effective cloud cost management, with the framework providing a way to improve: 

  • Cost visibility and transparency: Enables organizations to better understand their cloud spending, allowing them to pinpoint where and how their cloud budget is being allocated. By identifying inefficiencies and areas for optimization, they can allocate resources more strategically.
  • Financial accountability: Ensures that all parts of an organization are responsible for their cloud usage and spending. It establishes a system where departments and teams are aware of the costs associated with their cloud resources and actively participate in managing and optimizing those costs. 
  • Optimization strategies: Focus on continuous improvement and cost reduction for cloud operations. These strategies involve identifying underutilized resources, optimizing pricing plans, and implementing best practices for resource allocation. 
  • Cross-functional collaboration: Breaks down silos between departments, particularly finance, technology, and business units. This ensures that all stakeholders are aligned on financial goals and cloud strategy, enabling open communication and shared responsibility for cloud cost management. 
  • Adaptability in dynamic cloud environments: Helps maintain cost-efficiency under rapidly changing conditions. The FinOps framework emphasizes the importance of agility in response to changing demands, enabling organizations to scale resources up or down based on real-time needs. 
  • Risk mitigation and compliance: Involve implementing governance policies and controls to manage financial risks associated with cloud spending. By establishing clear guidelines for resource usage, procurement, and budgeting, organizations can ensure that cloud investments align with their financial objectives and regulatory requirements. 

Key Components of the FinOps Framework

Here’s an overview of the main concepts discussed in the FinOps Framework.

Principles 

The principles of the FinOps Framework guide organizations in developing strategies that align cloud spending with business objectives. They emphasize the importance of collaboration between finance, technology, and business teams to achieve shared goals.

Principles include: 

  • Visibility into cloud costs: Dictates that organizations must have clear insights into where and how their cloud budget is being spent. 
  • Continuous optimization of cloud resources: Encourages regular assessment of usage patterns to ensure resources are right-sized and allocated efficiently. It involves choosing appropriate pricing models, such as reserved instances or spot instances, to minimize costs without compromising performance.
  • Accountability: Involves assigning responsibility for cloud expenses to specific departments or teams, making them accountable for their usage and encouraging them to seek ways to optimize resources. 

Domains and Capabilities 

The FinOps Framework identifies several domains that encapsulate aspects of cloud financial management. Each domain covers a set of capabilities that detail the actions and strategies necessary to achieve the objectives within that domain.

Domains include:

  • Cloud cost visibility and allocation: Involves capabilities related to tracking, categorizing, and allocating cloud costs accurately across different departments or projects. This improves transparency and accountability by enabling stakeholders to understand their impact on overall cloud expenditure.
  • Optimization: Focuses on reducing waste and enhancing efficiency in cloud resource usage. Capabilities include identifying underutilized resources for downsizing or termination, selecting cost-effective pricing options, and automating scaling to match demand. 
  • Governance and control: Includes setting budget limits, auditing compliance with financial policies, and implementing approval workflows for new cloud resources. This ensures that expenditures align with organizational objectives and financial constraints.

Personas 

In the FinOps Framework, personas represent the diverse roles involved in cloud financial management, each contributing unique skills and perspectives to optimize cloud spending. These personas include stakeholders from various departments such as finance, technology, operations, and business units. 

  • FinOps practitioners: Bridge the gaps between finance, IT, and business teams. They wield expertise in cloud economics and operational best practices, guiding decision-making processes to ensure cloud investments deliver maximum value. Their role involves analyzing data to identify savings opportunities, advocating for cost-awareness culture, and leading cross-functional initiatives to drive financial accountability.
  • Executives: Set the vision for cloud usage that aligns with organizational goals. They emphasize the importance of balancing innovation with cost efficiency, overseeing investment decisions.
  • Technical teams: Include engineers and architects that focus on designing and implementing cloud solutions. They ensure applications are optimized for performance without unnecessary expenditure by adopting practices like rightsizing resources and leveraging appropriate pricing models. 
  • Finance professionals: Examine cloud expenditures against budgets and forecasts. They work closely with other personas to understand spending trends, enforce budget constraints, and support accurate financial planning. 

Phases 

The FinOps Framework is structured around three fundamental phases: 

  • Inform: Organizations collect and analyze data on cloud usage and costs, breaking them down by service, department, or project. This phase emphasizes the importance of transparency in cloud costs, enabling informed decision-making and accountability across teams. 
  • Optimize: Organizations seek ways to reduce their cloud spending without compromising on performance or availability. This involves right-sizing resources to match actual needs, leveraging cost-saving pricing models such as Reserved Instances or Spot Instances, and implementing efficient lifecycle management practices. 
  • Operate: Organizations focus on embedding cost optimization practices into their day-to-day operations. This includes setting budgets and forecasts based on historical data and future projections, establishing governance policies to control spending, and fostering collaboration between finance, technology, and business teams.

Maturity Model 

The FinOps Maturity Model, created by the FinOps Foundation, outlines a pathway for organizations to evolve from basic cloud cost management to advanced financial operations. Initially, organizations typically have a limited understanding of their cloud spending, leading to reactive cost management practices and ad hoc measures. 

As organizations progress, they begin adopting proactive cost management strategies. At the highest maturity level, organizations achieve sophisticated financial management of their cloud resources. They implement continuous optimization practices, leveraging automation and advanced analytics to maximize cost efficiency. 

Key 2024 Changes to the FinOps Framework 

The 2024 update to the FinOps Framework introduces advancements to better reflect current FinOps practices and align with modern cloud management best practices. These changes include a refined definition of FinOps, aimed at emphasizing value over cost and expanding the scope beyond Infrastructure as a Service (IaaS) to include other variable cloud costs. 

In response to feedback from the FinOps community, the framework has been simplified for easier navigation and application. Domains and capabilities now feature updated names and an expanded set reflecting contemporary challenges in cloud management. The update also introduces new personas, categorizing roles into Core Personas and Allied Personas. 

Learn more about the 2024 updates here.

Best Practices to Implement FinOps in Your Organization

Here are some of the ways that organizations can ensure an effective FinOps strategy.

Establish Cross-Functional Teams 

By bringing together members from finance, technology, and business units, organizations can promote a holistic understanding of cloud costs and their impact on the company’s financial health. These teams work collaboratively to identify cost-saving opportunities, ensure alignment between cloud spending and business objectives.

Enhance Visibility and Reporting 

By implementing monitoring and analytics tools that provide real-time insights into cloud spending, organizations can track every dollar spent in the cloud, identify trends, and uncover inefficiencies. This consolidation of data from various sources helps create a unified view of a company’s cloud expenses, enabling easier analysis and more accurate forecasting.

Implement Budgets and Forecasts

By setting clear financial parameters for cloud investments, organizations can align their cloud usage with their financial goals and constraints. Budgeting involves defining the maximum spend for specific projects or departments, while forecasting requires analyzing historical data and current trends to predict future cloud expenses. This helps in preventing cost overruns and ensures that resources are allocated efficiently across the organization.

Adopt a Culture of Cost Awareness 

Organizations should instill a mindset where every team member understands the impact of their decisions on cloud expenses. This requires education and ongoing communication to ensure individuals are equipped with the knowledge to make cost-effective choices. Initiatives such as regular training sessions, sharing success stories of cost optimization, and accessible reporting tools help embed this culture in a company’s operations.

Enforce Governance and Policies 

By establishing clear policies for cloud resource usage, procurement, and financial management, organizations can set boundaries that guide behavior and decision-making processes. Effective governance mechanisms include the use of automated tools to enforce policies, such as setting limits on spending or requiring approvals for certain actions.

Automate Cost Optimization 

Tools and platforms that enable automatic scaling, resource allocation, and pricing model selection can reduce manual oversight while ensuring optimal cloud spending. By setting up automated policies for shutting down unused instances or applying reserved instances for predictable workloads, organizations can minimize waste.

FinOps with Spot by NetApp

While public cloud providers offer native tools for some cloud optimization, and even provide recommendations for potential cost reduction, they stop short of actually implementing any of those optimizations for you. In addition, each cloud provider is also siloed to its own cloud. Most organizations have at least two clouds and therefore need a solution that can provide a multi-cloud perspective.

This is where Spot by NetApp’s portfolio can help. Spot not only provides comprehensive visibility into what is being spent on your cloud compute and by whom and on what resources, but also:

  • Generates an average saving of 68% by showing you exactly where you can use either EC2 spot instances or reserved capacity (RIs and Savings Plans) to save costs. It lets you reliably automate workload optimization recommendations in just a few clicks.
  • Guarantee continuity for spot instances, ensuring even production and mission-critical applications can safely run on spot instances, using predictive algorithms and advanced automation to guarantee workload continuity.
  • Automatically manage and optimize RIs and Saving Plans portfolios, providing maximum utilization and ROI with minimal risk of financial lock-in and cloud waste.
  • Maximize savings for DevOps teams running Kubernetes with proven machine learning and automation to continuously determine and deploy the most balanced and cost-effective compute resources for your container clusters.

Learn more about Spot by NetApp’s FinOps solutions