As cloud adoption accelerates, so do costs. More than two-thirds (67%) of IT leaders say they have increased spend on cloud infrastructure.
There are several reasons for this. Organisations can often experience changes in pricing models due to planned usage (DC migration, new projects, organic growth) and unplanned usage (lack of governance, misconfiguration, security incident). As a result, they can struggle to forecast needs and consumption, making budgeting difficult. At the same time, it is easier for developers to purchase new instances on the cloud as they need it, without official sign off on the spend from IT or finance.
This all means that up to 30% of cloud spend today is categorised as “waste”. For some companies, this can equate to hundreds of thousands of dollars - for larger companies, this can be over $9m (£6.9m) of wasted spend a month, or over $100m (£76.3m) per year.
“As the cloud has developed and widespread adoption has increased, it has become easier to purchase these resources – and easier to spend money adding additional services like backup, security, and networking to your cloud resources. More than that, it’s become easier to waste money,” explains Brian Adler, senior director of cloud market strategy at Flexera.
Cloud financial operations (FinOps) has emerged as a way for organisations to optimise costs and secure the best returns on their cloud investments. Both an operational framework and cultural practice, some estimates say that organisations that use FinOps effectively can reduce cloud costs by as much as 30%.
It’s no surprise the adoption of FinOps has surged in recent years as organisations struggle to get a handle on spiralling cloud costs. More than half of enterprises now use a FinOps team to advise, manage or execute cloud cost optimisation strategies.
However, many of those FinOps teams now realise they need to expand their focus beyond the cloud, to cost optimisation across the entire hybrid IT estate. This includes licensed software. It’s often the case that the licensing costs associated with an application far outpace the costs of the cloud infrastructure on which it’s running. This, of course, is an area in which IT Asset Management (ITAM) teams are well-versed.
“Licensing is a huge hole that traditional cloud\FinOps teams have missed,” says Colin Jack, principal cloud solutions consultant at Flexera. The complex licensing arrangements that ITAM teams manage can contain cloud entitlements which the FinOps teams are not always aware of.
“Spending roughly 25% of your overall cloud spend on licensing is not uncommon. That’s an area that has historically been overlooked. But now, more organisations are starting to pay attention,” agrees Adler.
Collaboration between FinOps and ITAM teams
This realisation is starting to drive collaboration – often for the first time – between FinOps and ITAM teams. There is a new drive to work together to avoid licensing compliance issues and the associated penalties and achieve better resource utilisation.
“FinOps practitioners are realising the wealth of information about licensing and subscriptions that ITAM experts have. Whereas they know about running resources in the cloud. It’s a cliche, but they work better together,” says Adler. “As more people learn about the benefits, we’re going to see interactions between those two teams increase.”
Indeed, Gartner estimates that by 2026, organisations that merge software asset management (SAM) and FinOps will report 60% less financial waste from software and cloud investments. This type of collaboration is also encouraged by the FinOps Foundation which provides the framework by which organisations should establish FinOps best practices. It urges finance, FinOps practitioners, engineering, product and business teams to work closely together as the cloud operates on a per-resource, per-second basis. Waiting for the billing at the end of the month is too late.
FinOps: a strategic imperative for modern organisations
The collaboration between teams is breaking new ground. Currently only 32% of ITAM decision-makers report having significant interaction with FinOps teams in their organisations. While this is up from a 25% interaction rate in 2023, there is still progress to be made.
So, how can both teams work together effectively?
A ‘Crawl, Walk, Run’ approach to performing FinOps enables organisations to start small, and grow in scale, scope, and complexity as business value warrants maturing a functional activity. There are several potential points of collaboration between FinOps and ITAM that the FinOps Foundation has established. They include:
- Cost allocation: cost allocation is a fundamental aspect of financial management, and it’s where FinOps and ITAM converge effectively.
- Managing shared costs: shared costs present unique challenges, but collaboration between FinOps and ITAM can ensure equitable distribution.
- Managing anomalies: identifying and managing anomalies is crucial to preventing financial leakages and ensuring IT organisational processes are followed.
- Forecasting: FinOps and ITAM come together to make stronger forecasts for the business as a whole.
- Budget management: ITAM and FinOps teams can work together to help set budgets for greater accuracy.
- Workload management and automation: workload management and automation ensure efficient resource usage. This is accomplished by automating lifecycle and optimisation tasks.
Ultimately, IT leaders must overcome silos and increase communication with ITAM and FinOps teams. There should be regular dialogue around cloud costs, with everyone feeling empowered to take ownership of those costs and contribute to optimisation efforts.
Creating ongoing business value
Critically, the benefits also extends to unit economics as FinOps shifts from a focus on cost to a focus on value.
For example, FinOps helps you to maximise your cloud investment, which increases the business value for every dollar spent in cloud. So, instead of only seeing a cloud bill increase every month, unit economics will let you know the business value of that cloud spend. For a business that operates in the cloud, increased cloud bills can also mean increased revenue, which is a great reason for your cloud bills to be increasing!
FinOps teams now realise they need to expand their focus beyond the cloud
FinOps also means you can scale your cloud resources up or down as needed, ensuring you can meet changing market demands without overspending. And of course, greater visibility and control over your cloud environment translates to improved governance, reduced risk and even less environmental impact.
The latter is particularly important in light of increasing sustainability regulation. There’s a financial cost to the cloud, which organisations are starting to combat, but there’s also an environmental cost. FinOps provides an ideal opportunity to identify ways of reducing CO2 emissions from cloud usage (Green FinOps).
“Cloud providers are starting to provide guidance on the consumption of energy. That data, in concert with your own FinOps and cloud optimisation tools, can help you find ways to reduce your carbon footprint,” says Jack.
FinOps and ITAM can work together to support the creation of a holistic view of emissions data for the organisation. FinOps practitioners can provide this information to developers to allow teams to take action and make their applications more efficient.
FinOps for AI, and AI for FinOps
Looking ahead, technologies like generative AI (GenAI) will alter the cloud landscape. A quarter (25%) of enterprises are already using AI extensively and another 38% are experimenting.
As such, one emerging area is FinOps for AI: you need to find a way to manage the blooming costs associated with AI.
“Make people aware of the costs involved in creating your own AI models,” says Jack. “Building large language models (LLMs) requires massive computational resources and is expensive to run. It’s crucial to track these expenses and explore whether a more cost-effective AI service is already on the market.”
Conversely, AI can also be leveraged to improve FinOps programmes: AI for FinOps. It can be used to drive better decision-making and supercharge cloud cost optimisation through and improved forecasting which leads to improved anomaly detection.
Jack advises that one of AI’s best features is its ability to handle enormous amounts of data, locating discrepancies or pinpointing exactly when patterns changed with ease. “One of the major challenges with cloud computing is identifying anomalies,” he says. If an organisation needs to know if there’s a costly misconfiguration in the cloud, AI has the ability to sift through millions of lines of billing data to flag abnormal behaviour.
“Processing such vast amounts of data quickly and accurately would be impossible without AI. Once you can locate patterns, you can build better forecasts,” says Jack. GenAI will be able to remove all barriers to surfacing FinOps data. There will be a time where any stakeholder will be able to ask GenAI complex FinOps questions in natural language and receive an answer back immediately.
“In the future, we’ll reach a point where you can simply ask, ‘Where can I move this workload to save money?’ and the system will automatically determine the most cost-effective location—or confirm if it’s already in the best place,” says Adler. “What currently takes weeks of manual effort and multiple tools will be done with a single query.”
FinOps: a continuous process
It’s important to remember that FinOps is a continuous process – there is no end date. FinOps is performed by working iteratively on the framework capabilities through three phases: inform, optimise and operate.
The FinOps Framework clearly states that the goal is to continuously develop strategies and refine workflows; measuring the results, making incremental improvements and maturing the process to reduce the time required to cycle through these phases.
The future of FinOps lies in continuous innovation and collaboration
“The FinOps framework is never done; you’re always continually improving it,” says Adler. “There are always new services being deployed. You must future-proof your FinOps practice by continually reassessing where you are and where you want to go.”
FinOps and ITAM collaboration is an essential next step for forward-thinking organisations looking to prioritise innovation. With full visibility into the resources and lifecycle of an application that utilises licensed software, holistic decisions can be made – but this is only possible by working together.
The future of FinOps lies in continuous innovation and collaboration. As cloud infrastructure evolves, the integration of FinOps and ITAM will be crucial for reducing financial waste, driving sustainability and enhancing AI-driven optimisation. Innovative organisations that embrace this approach will not only cut costs but lead the way to an efficient, sustainable future.
