Worldwide spending on public cloud services has been forecasted to reach $805 billion in 2024 and double by 2028, according to the IDC Worldwide Software and Public Cloud Services Spending Guide. As cloud expenditures become a significant portion of IT budgets, managing costs effectively is crucial. CIOs and CFOs are turning to both FinOps (Financial Operations) and IT Financial Management (ITFM) to take on the challenges.
FinOps focuses on efficient cloud spend management, while integrating it with ITFM helps optimize overall technology spending. This article explores best practices for combining FinOps with ITFM, especially in the context of reservations and saving plans, to achieve cost savings and operational efficiency.
FinOps aims to manage cloud spend by improving operational maturity from the crawl to run levels. According to the FinOps Foundation, its core principles include understanding cloud usage and costs, optimizing these costs, quantifying business value, and managing the FinOps practice.
IT Financial Management (ITFM) encompasses the comprehensive management of all IT costs, including labor, data centers, and hardware. ITFM provides a holistic view of IT spend, ensuring that all technology investments align with business goals and deliver maximum value.
Integrating FinOps with ITFM is crucial for several reasons:
Cloud providers like AWS and Azure offer tools such as reservations and saving plans to help organizations manage and reduce cloud costs. Reservations involve committing to specific instances or services for one to three years, offering discounts of up to 70%. These saving plans provide more flexibility by allowing commitments to broader categories of cloud spend, such as compute resources, for similar durations but with slightly lower discounts.
Strategic planning of future demand is crucial for leveraging these cost-saving tools. By accurately forecasting needs, organizations can secure cloud services at lower prices. However, this requires a trade-off: committing to reservations and saving plans reduces the inherent flexibility that cloud services offer.
An isolated view of cloud usage might allow for some optimization based on historical data. Yet, to truly maximize savings and efficiency, a holistic approach is necessary—one that integrates FinOps with IT Financial Management (ITFM). This integration provides a comprehensive understanding of cloud costs and all IT expenditures, including labor, data centers, and hardware.
Consider the various teams within your organization that utilize cloud services. Project teams developing new applications or operational services like web shops have distinct demands on cloud resources. For instance, a web shop expected to experience a 60% increase in traffic in Autumn 2025 due to a major advertising campaign will need additional cloud storage and compute power. Similarly, if your company plans to acquire another business, increasing the number of Virtual Desktop Infrastructure (VDI) users will impact cloud resource requirements.
Building value and impact chains within your organization is essential to anticipate these needs accurately. Simply asking responsible individuals may not suffice; they need to be well-informed and aligned with the organization's broader goals. Do your IT teams know about upcoming marketing initiatives that could spike web traffic? Are they aware of the specific targets and the expected additional load on cloud services?
From a strategic management perspective, it's vital to identify whether other areas within your cloud infrastructure can reduce compute power usage during peak periods. For example, could you temporarily scale down compute resources allocated to less critical projects to accommodate increased demands elsewhere, such as your web shop?
Integrating FinOps with ITFM ensures a unified view of IT and cloud expenditures, facilitating more informed decision-making. This holistic approach optimizes cloud spend through reservations and saving plans and aligns IT investments with business objectives, driving overall efficiency and value.
1. Understand and Optimize Cloud Usage with Reservations and Saving Plans
Reservations and saving plans are tools provided by cloud providers like AWS and Azure to help organizations save on cloud costs. Reservations involve committing to specific instances or services for a period (one or three years), offering discounts of up to 70%. Saving plans offer more flexibility by allowing you to commit to a broader category of cloud spend (e.g., compute) for a similar period but with slightly lower discounts.
2. Align Future Demand with IT and Business Goals
Exact planning of future demand is crucial for purchasing cloud services at a lower price. By considering the entire IT landscape, including upcoming projects and business initiatives, organizations can make informed decisions about reservations and saving plans. For example, a planned marketing campaign that will increase web traffic should be factored into cloud resource planning to ensure adequate capacity at optimized costs.
3. Foster Cross-Departmental Collaboration
Effective integration of FinOps and ITFM requires breaking down silos and fostering collaboration across departments. IT teams must be aware of business plans, and business units should understand the implications of their initiatives on IT costs. Regular communication and shared goals are key to achieving this alignment.
4. Implement a Common Language for Cost Categorization
Using a shared ITFM taxonomy for cost categorization ensures consistency and accuracy in financial reporting. This involves mapping cloud service provider (CSP) products and services to the ITFM taxonomy and tagging cloud resources accurately.
5. Leverage Technology to Bridge Gaps
Using ITFM tools that integrate data from various sources, including CSP tools, IT asset management, and financial systems, provides a central hub for comprehensive cost management. Platforms like ServiceNow can pull in data from multiple sources, ensuring a complete and accurate view of IT and cloud spend.
Consider a retail company planning a major online sales event. By aligning FinOps with ITFM, the company can accurately forecast the increased demand for cloud resources, optimize reservations and saving plans, and ensure that all related costs, including labor and SaaS, are accounted for. This holistic approach enables the company to handle the sales event efficiently while minimizing costs.
Integrating FinOps with ITFM is essential for managing cloud and overall IT costs effectively. By understanding and anticipating future demands, leveraging reservations and saving plans, and fostering cross-departmental collaboration, organizations can achieve significant cost savings and operational efficiency. Start integrating FinOps with ITFM today to maximize the value of your technology investments.
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