Will Cloud FinOps improve CIO and CFO dialogue?
A financial framework for understanding cloud compute costs - Cloud FinOps - could inform techies and the finance team
CIOs, CTOs and CFOs need to have a frank discussion about cloud computing costs. But conversations can only be fruitful if both sides of the debate are in possession of all of the facts. CTO of Sportradar Ben Burdsall describes the situation as follows:
If you have a business problem to solve, there are now hundreds of ways to solve it due to the rich number of services on the cloud. That is where the challenge is, as the cost profiles are so different.
The plethora of cloud systems and the ease of spinning them up is giving rise to Cloud FinOps, a framework that is for the technology, financial and business lines, and enables the creation of financial accountability for cloud usage. Cloud FinOps provides a business language that educates technologists, business and finance units.
It is gaining interest from CIOs looking to continue the cloud-led digitization of the organization, whilst extracting more value from existing cloud providers. Increasing the cloud footprint within an enterprise requires a completely new approach to technology funding and financial assessment. As is well versed, the cloud moves technology spending away from capital expenditure (capex) and into operational expenditure (opex). However, the ease of use and instantaneous ability to increase consumption of technology is now hitting the bottom line. This is leading organizations to adopt FinOps, as Burdsall says:
We design for scalability, resilience and security; now, a new pillar is to design for cost. Because if you get the design pattern wrong, it can be a magnitude of additional cost.
Carl Kinson, Director of Strategy and Innovation at DXC Technology, agrees and adds:
Cloud gives you the ability to consume well or consume badly. The reality is that in a consumption-based IT market, there is a need to really track what and how you are consuming.
Software-as-a-Service (SaaS) and the move to DevOps are often attributed to unchecked cloud consumption. This can lead to a shocking bill from the cloud provider and a conversation with the CFO that can lead to that uncomfortable scratching of the collar line. But Burdsall says the discomfort should, at times be on both sides:
As the level of business activity goes up, so the cloud costs go up. As long as the cloud costs are going up and so is the revenue generation.
As a CTO with experience in sports data and global payments, Burdsall says CIOs and CTOs are often hit with the blame for costs, but digital product owners are showered with praise. He adds:
The product guy will get medals, but IT would get a kicking as the cloud costs had gone up as all the cloud costs had been aggregated together.
The lesson from that is to never let cloud costs be separated from the product so that you can calculate the financial contribution of the cloud.
On its own, a cloud bill can be eye-watering, but FinOps enables CIOs and CTOs to accrue according to usage. This will inform the conversation with the CFO, Burdsall says:
Once I had unpicked these costs, that totally changed the conversation, and it means you don’t let finance treat the cloud as another data center.
You can build a horizontal diagram of the revenue by business lines so that at each point, you can calculate the financial generation and cost.
Cloud FinOps, therefore, enables the cloud to be assessed in terms of cost per transaction for the business. David Reid, Director of the Leading Edge at DXC agrees:
Insight for billing per function is where the value can be had. FinOps has given the CIO a tool for talking to businesses and a tool for the business to talk to the CIO with. Before there was a disconnect, this provides a financial aspect of the here and now.
So are CFOs embracing Cloud FinOps? CTO Burdsall says yes, but adds:
Some are beginning to understand it, but god, it is a journey. The diagrams help as they are drawn to numbers.
The current economic pressures may well help the adoption of FinOps, according to Kinson:
Utility and power was fairly invisible to most parts of the organization, but with the current cost crisis, it has risen up and become a topic on how to reduce costs, both for costs and the environmental issue.
A head of cloud and infrastructure reveals FinOps makes technology team leadership easier too and says:
Historically, IT teams, especially the technical engineering teams, have been able to work in a blissful little bubble and not have to think in financial terms. The challenge of working in things like Azure is that a regular engineer can stand up a service that easily costs you thousands of pounds a month.
Education has been the answer and it has delivered business benefits. They add:
I have been working closely with my team to help their commercial understanding, and working with our finance partners to help them understand this new way that technology is funded. IT people tend not to be given any exposure to the commercials until they are given a budget to run, and at that point, it can be a little bit daunting. In terms of developing my team, I am always keen to be giving everyone a sight of what we are spending with suppliers and the commercial impact.
The cloud and infrastructure leader says this has led to technologists taking more time to assess the size and scale of the services they spin up.
Adopters of FinOps add that the framework benefits cost modelling of legacy technology as well as the cloud, as CTO Burdsall says:
I have never met a company that had a true cost of its on-premise estate per transaction.
William Hill Chief Product and Technology (CPTO) and Tessiant founder Anna Barsby says FinOps also enables organizations to assess their future cloud direction. She says:
Early adopters of the cloud are going back over their investments as they didn’t understand the full value of cloud and therefore the costs. Now as businesses realize the cloud is the answer and here to stay, they want to know how they can use it better.
FinOps should be more than a financial planning tool, Kinson says:
Financial operations tools should always give you the ability to do capacity and future planning.
Many of those early cloud adoptions were simple ‘life and shifts’, freeing the CIO up from managing on-premises resources, but the cost savings were short-lived. In some cases, these early moves are being reversed, says Kinson at DXC Technology:
We are seeing some repatriation back to legacy technology. Unless you use cloud services properly and reform the applications to marry up to the cloud services, it will be expensive
Moving an application to the cloud is not the saving if the dependencies of that application have not been modernized, so you end up running multiple programmes of moving to the cloud to reduce the legacy footprint.
In the last 15 years, CIOs and CTOs have worked to remove the toxic language of “the business”, which led to divisiveness between IT and business lines. Yet, the adoption of the cloud has the potential to create another language divide. As the business technology leaders here show, everyone has to speak the same language and have an equal understanding of the costs involved in cloud computing, and Cloud FinOps could well be the vocabulary to provide that clarity.