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Digital leaders use FinOps to optimize the business for AI and sustainability

Mark Chillingworth Profile picture for user Mark Chillingworth April 8, 2024
Summary:
Cloud FinOps is a success for early adopters, but its low uptake is holding back greater collaboration between tech and finance

An image of someone holding the world in their hands against a backdrop of charts and numbers
(Image by Gerd Altmann from Pixabay )

Cloud FinOps is not new, yet too many organizations are ignoring the framework’s benefits of collaboration, transparency, education and sustainability. FinOps was created to enable business lines to share their cloud computing budget responsibility, and in an age of generative AI, inflation and a climate emergency, that responsibility has never been more important. 

The utility nature of the cloud is both its strength and its weakness. Powerful compute is available with the same ease as turning a tap spigot or the flick of a light switch. Just as easy access to energy and water has led to ignorance about the impact these have on the natural environment and the subsequent damage to the natural ecosystem, so too has the utility of the cloud led to a disconnection between applications or storage used and the business implications. 

That disconnection can and has led to internal friction, especially between finance and technology leaders. The shift from Capex to Opex sounded so simple in the early days of cloud, but cloud computing’s scalability works both ways, and the providers have equal, if not more, scalability and options open to them to deliver a dizzying array of services and prices. FinOps user Conor Whelan, Chief Information and Operations Officer at financial services firm Experian, says: 

The characteristics can change in 24 hours, a week, a month. It is getting ever more complex, especially when you consider the resource cost of managing cloud environments, the maintenance, which someone in the organization has to pay for, as otherwise you are storing up tech debt or a security risk.

The technology companies are constantly evolving their commercial models, and they are looking at patterns in how we use their products. So internally, organizations are looking at their costs with more scrutiny.

Sean Harley, CIO of Flywheel, which provides digital commerce services to major brands and financial services CIO Darren Sharp, give examples of the disconnection; Harley says: 

There is a naive view of AWS and Google, and people forget about the financial management of these environments.

Harley introduced FinOps at Ascential, which Flywheel was part of because the business was highly acquisitive and acquired companies that were rich users of the cloud, which led to the parent company having an opaque view of its cloud spending. Sharp’s company was not so acquisitive, but the CIO witnessed first-hand how the agility of the cloud-enabled engineers can spin up environments for new products and services with ease. For Sharp, shutting down those services was nowhere near as easy. He adds: 

You’d then find that the organization was only using 2% of the server that had been commissioned, so we recognized that we needed a new way of working.

Prior to FinOps adoption, Sharp discovered developers were commissioning testing environments to run 24 hours a day, seven days a week when the test team was working UK hours only. CTO for data firm Dunhumby Ben Burdsall had a similar experience: 

We have had cases of people treating the cloud like just another datacenter. If you think about the normal working day and a five-day working week, it is 70% of the total time that the instance is not working. That is 70% of your development and test costs that can just be removed by having a different mindset.

One of the triggers for organizations analyzing their cloud costs is when they incur additional expenses from moving data from one environment to another, a project cost that cloud platform owner at John Lewis, a retailer, Ben Conrad, says is hard to predict upfront. All of these create friction points between technology leaders and business lines. Ian Poland, CIO at Sportradar, says when a business line wanted to decommission a service, he and the business line hoped to be able to deliver some savings back onto their budgets but were unable to as there was no transparency without FinOps. 

These frictions will only increase in organizations as heads of sustainability demand data to demonstrate the business is an efficient user of technology. Both Burdsall and Sharp report that sustainability motivated developers to adopt FinOps and reduce their cloud spend. The CTO adds that FinOps could be configured to provide carbon costs per transaction, and when Dunhumby migrated from an on-premise datacentre to Microsoft Azure, it gained a performance advantage five times greater than its legacy data centre and achieved a 98% improvement in environmental efficiency. But FinOps is not a vehicle for cost-cutting and Burdsall advises against it: 

Cost cutting is not the right word, in my experience if you have an established cloud estate that has not been optimized then the size of the prize from FinOps is a saving of 30 to 40%.

Optimization

Whelan at Experian uses FinOps in tandem with the Technology Business Management framework to map the total cost of ownership back to the services IT provides to the financial services organization. He says: 

FinOps is a more dynamic model, so as you move to the cloud, you can move from annual spending analysis to spending by the second.

Bursdall at Dunhumby adds that FinOps should provide digital leaders and organizations with a cost per transaction. This will depend on the market, but the CTO cites providing an insurance quote or payment authorization as central to the purpose of an organization. Therefore, the organization needs to be able to see and analyze the cloud costs per business outcome. 

This is a new paradigm in business delivered by the scalability of the cloud and as Burdsall says, one that the on-premise world cannot provide:

I have not met anyone that runs a datacenter who can do that.

This is where FinOps changes the culture of an organization and where all business lines take responsibility for their cloud costs. 

Partnership with Finance 

The survey by esynergy finds that organizations that succeed with FinOps and optimize their cloud computing estate do so as a result of a strong partnership with the finance team. Harley at Flywheel says: 

The clue is in the title. If you don’t have the Fin it won’t work. We had clear sponsorship from the CFO to make sure that they were part of the process.

Whelan at Experian adds: 

It has opened up opportunities for finance to work more closely with technology and was jointly sponsored by the CIO and the CFO.

The partnership founded by Harley led to monthly meetings between finance, business lines and IT on cloud costs, which he says led to constant rigour in the optimization of cloud costs. 

But Sharp and CTO Ravi Nar have hit snags on the road to closer collaboration between finance and IT. Sharp reports finance teams are time short and don’t develop the skills to understand the cloud as a result, while Nar finds finance teams have a lack of desire to understand the cloud cost paradigms or to trust their colleagues in technology. Sharp adds that procurement teams need to develop FinOps skills to deliver value to their organizations. 

Finance's lack of desire to understand cloud cost paradigms and or / trust their tech counterparts

A partnership with finance is about more than optimizing cloud spending in order to reduce costs; digital leaders reveal that FinOps allows them to educate and collaborate with finance leaders on increasing cloud spending in line with business growth. Burdsall recounts: 

I once had a conversation with a CFO about our cloud costs doubling, and I said they should have gone up four times. That is true if you are in a growing company. So don’t deal in absolutes when discussing the cloud, it is the cost per unit and the cost per transaction, what you want is the cost per transaction to be coming down.

Harley agrees: 

If the business is going well then we expect the spend to go up. We started to understand that if we acquire a new client, then we could see what the impact on the platform was, and therefore the profit per client.

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