What is FinOps?

What Is FinOps and How Does It Help Control Cloud Costs?

FinOps is a strategic framework helping companies control their cloud costs and make efficient use of their cloud services. This cloud financial management discipline brings together IT operations, finance, and other stakeholders and was created by the FinOps Foundation. FinOps combines core principles, phases, and key capabilities to optimize spending and increase business value through improved collaboration, expense and asset management, and data-driven decision making. When you implement a FinOps framework, you can achieve the greatest possible return on investment, rather than just cost-cutting.

Tangoe is a Premier member company of the FinOps Foundation, which serves as a testament to our FinOps cloud expense management solution and our proven ability to activate a FinOps strategy for enterprises of all sizes.

Check out our 2024 IT Trends and Savings Recommendations.

The FinOps Framework

FinOps is a relatively new concept, and it’s gaining popularity as organizations innovate, increasing their reliance on cloud computing and outsourced cloud services. The word FinOps unites the term “Finance” and “DevOps,” signifying the importance in how these two functions must work together to govern cloud costs and utilization. When these teams enjoy closer relationships, they’re more likely to align IT resources, costs, and budgets with business and financial goals. FinOps success also requires technology solutions and services, streamlining cloud financial management operations and improving financial visibility, accuracy, and control.

Financial controls are essential to FinOps because they reflect organizational efforts to monitor and reduce cloud costs. Examples of such controls include forecasting, budgeting, cost allocation methods and usage limits. For example, you might set your cloud budget based on historical and projected usage, as well as business goals. Cost allocation activities identify optimization opportunities on multiple levels, including within projects, departments or business units. Usage limits, meanwhile, are a type of threshold for unauthorized or unexpected usage levels, including storage or compute resources.

See how Tangoe helped a research firm streamline their FinOps operations.

Cloud technology has brought unprecedented opportunities for organizations to innovate and scale, but cloud investments also introduce challenges as companies need to manage and optimize their spending in order to achieve ROI and sustain digital transformation. As a result, ensuring they reap the most value from their technology investments is crucial, and this is where FinOps comes in.

FinOps can help solve the following problems:

  • IT budget cuts: Macroeconomic trends and business needs putting downward pressure on IT budgets

  • Rising cloud costs: cloud infrastructure as a service (IaaS) bills spiraling out of control as well as inflation and the rising cost of cloud services

  • Unpredictable cloud costs, cost overruns, and budgeting issues: Variable cost models require tighter management and oversight – cost and budget overruns are an issue as financial leaders want predictable monthly costs and constant monitoring between budgeted costs and actual costs

  • Achieving cloud ROI in 1 year: IT and finance leaders are increasingly being asked only to invest in cloud technologies that can deliver ROI in one year

  • IaaS and SaaS waste: Maintaining a portfolio of IT technologies and services that are well-managed and never go unused or wasted

  • Overprovisioning and under-provisioning IaaS and SaaS resources: Renting/purchasing too much infrastructure and too many software licenses or committing to use overpowered or underpowered infrastructure resources

  • Shadow IT and application security: Lack of visibility into software applications purchased without the involvement of the corporate IT department

  • Productivity challenges: Cloud complexities can make for inefficient cloud financial management processes, requiring many hours of manual work to analyze service usage, track costs, allocate service charges across the organization, procure resources, and handle invoices, contracts, and vendors

  • Cloud visibility, tracking, benchmarking, and recordkeeping: A growing number of cloud services and dashboards make it difficult for companies to see and monitor what services they have, who is using them and how — keeping track using a standardized process and centralized system is hard, which can also complicate management and procurement, making for ill-informed purchasing decisions

  • Data analysis for cloud cost savings: Evaluating the vast volumes of cloud service usage information and turning large data feeds into actionable cost-saving insight requires advanced analytics — manual processes and humans with spreadsheets won’t work anymore

Cloud innovation remains a top priority, but companies must find ways to invest responsibly given the challenges the cloud brings. Business leaders must balance the increasing need for cloud technologies with strict budgets – even amid the complexity of cloud services and the variable pricing models that make monthly services costs difficult to predict and govern. Learn more about the economics of the cloud. CIOs, CTOs, and CFOs need better ways to manage their cloud spending and ensure cloud resources run at their most efficient capacity.

Optimizing cloud costs is a top concern for business leaders, especially in finance and IT, and FinOps prioritizes different aspects of optimization addressing the needs of both types of leaders. Finance leaders, for example, typically focus on optimizing costs, managing invoice payments, negotiating well-structured contracts and avoiding late fees. They need to be able to budget and forecast appropriately while addressing compliance concerns. These are all areas of focus for FinOps. Here are 6 cloud cost optimization stats that finance leaders should know.

For IT leaders, optimization means operational efficiency, scalability, and speed. FinOps offers a process to evaluate how well IT teams are utilizing the tools they already have and whether digital transformation investments are delivering the expected value.

FinOps brings both of these types of leaders together by providing a holistic approach to controlling cloud expenses that aligns with the organization’s goals. FinOps gives leaders the visibility and insights they need to make data-driven decisions, making more efficient use of their cloud assets and gaining control over cloud costs. Improving cloud cost structures requires an understanding of how you’re being charged and where dollars are going. To provide transparency and clear collaboration to all stakeholders, you must start with clear visibility into cloud service costs and expenses across the organization.

Learn more about how FinOps benefits IT & Finance leaders.

The 6 FinOps Principles

The FinOps approach is based on pillars such as continuous cost optimization, cost transparency and financial controls. Learn more about each of these principles.

  1. Teams need to collaborate: FinOps focuses on corporate cultural shifts to align key stakeholders, improving collaboration between engineering, finance, and operations departments in an effort to align cloud spend with business goals.

  2. Decisions are driven by business value of cloud: Beyond saving money, FinOps focuses on understanding and optimizing the value that cloud services deliver to the business.

  3. Everyone takes ownership for their cloud usage: One of the most important aspects of FinOps is how the model achieves financial accountability.

  4. FinOps data should be accessible and timely: The starting point for FinOps is building the foundation — collecting information, evaluating it, executing a plan for optimization. When your organization has tagged, centralized, and standardized data across multiple cloud services, expense insights are overarching and linked to all associated cost centers across the organization. This allows for cloud clarity with visibility into innovation spending trends and cloud ROI. With their finger on the pulse of cloud ROI, organizations can use data to make long-term decisions aimed at investing responsibly – only where the company recognizes the greatest returns and business value.

  5. A centralized team drives FinOps: Building a FinOps culture starts with a core, cross-functional team holding everyone responsible and measuring results.

  6. Take advantage of the variable cost model of the cloud: When properly managed, the cloud’s variable costs can be used to purchase only the services needed, using a just-in-time approach.

Learn more about the Principles on the FinOps website.

FinOps is a continuous lifecycle of activities across three phases — Inform, Optimize, and Operate.

The Three Key FinOps Phases

Here’s what happens during each phase.

Inform: Collect and Analyze Cloud Service Information

The primary focus of the inform phase is to collect data and create insights to guide decisions about how to best reduce costs and accelerate financial management responsibilities. It is defined by creating a centralized inventory of all cloud services, providers, and costs. This phase includes the gathering of data related to cloud services, usage of SaaS licenses and IaaS instances, but also contracts and invoices, users and departments or projects associated with the service. It also includes evaluating cloud service usage data, establishing baselines, and ensuring advanced analytics and artificial intelligence are in place to generate insightful reports for cost control and intelligent procurement. Trends analysis and efficiency analysis are essential in this phase. Explore the elements of software and SaaS management in this infographic.

Optimize: Create a Plan for Cloud Optimization

The optimize phase takes what was learned in the inform phase to generate insight into cloud waste and identify areas for cost optimization. This phase should make recommendations addressing areas such as how to best cut cloud costs, reallocate unused cloud infrastructure instances, and optimize financial management processes for greater efficiency. In this phase, a strategy and plan are shaped to take action based on the findings, helping to reduce cloud waste.

Some of the optimization opportunities available include negotiating better rates with providers through discounting, sunsetting little-used or outdated cloud applications and adopting cost-saving features — like an automated pause for services when they’re not needed.

Get tips for cutting cloud costs here.

Operate: Capitalize on Cloud Cost Savings and Efficiencies

In this phase, the focus is on executing the cloud cost optimization strategy, taking action based on the findings to reduce waste and modify services as needed. During and after the initial strategy or solution implementation, you’ll recognize savings, make more efficient use of cloud services and monitor on an ongoing basis for more opportunities to save. Updates might be necessary based on the savings achieved, new data, or changing conditions.

The most important part of the three Phases is that it’s a repeating cycle.

FinOps best practice calls for continuously monitoring cloud costs to keep them under control. Constant optimization refers to the ongoing refinement and improvement of cloud estate and cloud budget. While some expense management efforts are one-time cost reductions, FinOps establishes a cycle of monitoring, analyzing and refining. This approach is especially useful for rapidly changing businesses. As your requirements and usage shift, you need a disciplined approach for re-analyzing and re-adapting cloud infrastructure and applications. You can learn more about how to maximize your FinOps program based on new research from Foundry.

As a software and services provider offering a full spectrum of technologies, professional services, managed services, and technology consultants, Tangoe’s FinOps solution is uniquely positioned to guide companies through all three phases. Leveraging Tangoe’s broadest choice and flexibility in cloud cost management, clients can design a FinOps platform to optimize Infrastructure as a Service (IaaS), Software as a Service (SaaS), and Unified Communications as a Service (UCaaS). Learn more about operationalizing your FinOps strategy with an effective cloud expense management (CEM) solution.

FinOps solutions include cloud expense management technology platforms, dashboards, and analytics tools that help teams identify areas of overspending and underutilization, making actionable recommendations for cost savings. These multi-faceted solutions also cater to financial management needs with tools to process invoices, track contracts, automate the administration of SaaS license management and more. With an investment in a FinOps solution, organizations can quickly evaluate their cloud estate and make adjustments to their cloud services, maximizing their resources and cutting cloud costs. Here are some key things to look for:

  • Measurement and evaluation are key to successful FinOps implementations. Establish the key metrics you’ll rely on for tracking cloud costs and performance. Find a platform that helps you visualize and understand those metrics, along with reporting mechanisms that distill the information for each and every key stakeholder.
  • Automation tools provided by FinOps solutions allow for increased efficiency throughout the organization. For instance, FinOps solutions use integration and workflow automation to quickly collect expense data, evaluate it, and immediately make recommendations. They also use automated processes to help teams quickly adjust cloud services based on the cost-cutting recommendations.

Consider carefully whether your company should build their own FinOps platform or purchase a software platform and service from a third party, as this is a key factor for success. Industry analysts at Forrester warn FinOps professionals that a DIY approach can jeopardize your ROI: “At Forrester, we vehemently dissuade FinOps teams from taking this route because of the level of complexity and the number of person-hours required to maintain it.” Check out our infographic on the 3 research-backed ways to maximize your FinOps payouts.

Cloud expense management platforms are considered the machines that help operationalize FinOps, and Tangoe leads the industry in this category.

The Tangoe One Cloud solution activates a FinOps approach by applying 20+ years of experience in technology expense management to cloud optimization and to the FinOps Framework. Tangoe’s cloud expense management platform specifically benefits companies as they work through the three key Phases of FinOps and need tools to enable the six Domains and Capabilities of FinOps.

Most notably, Tangoe applies AI-based automation to the three Phases of FinOps, accelerating information analysis, the execution of any cost optimization recommendations, and cloud operational management tasks necessary for both IT and finance teams. Automation is another important pillar of Tangoe’s FinOps solutions. We automate as much of the cloud cost management process as possible to save time and money. In fact, our cloud expense management platform is built specifically for this purpose.

Tangoe solution features that enable FinOps phases

Automation is applied not just across single task but broadly for end-to-end acceleration. This includes collecting cloud infrastructure and application information, tracking spending, identifying waste, removing waste quickly, preventing overspending, and accelerating manual financial management tasks related to cost allocation, invoices, contracts, and bill pay. For example, with Tangoe you can set alerts to trigger when specific cloud service limits and cloud spending thresholds are beached. Also, you can create automatic usage caps for cloud applications based on time period or user group. These are key cost governance tools, and Tangoe makes them simple to implement and manage.

One way to get more detail into cloud costs is with cloud cost allocation, and Tangoe makes it easy to manage this critical step. This process involves IaaS tagging features to label cloud service instances as a means to track and break down cloud costs, assigning each cost to corporate departments, project, or business units. When FinOps practitioners need to know where costs originate, Tangoe makes it easy to visualize the impact of each department on the overall cloud costs. Learn more about our cloud cost allocation capabilities and how they saved one company roughly 50 hours of work.

6 ways Tangoe's solution supports FinOps

Learn five other ways Tangoe enables FinOps.

The top key differentiators for Tangoe’s FinOps solution include: the widest visibility into the cloud, the smartest AI platform powering FinOps, and the broadest choice and flexibility in cost management with savings and solutions that reach beyond just the cloud.

  • The Widest Visibility into the Cloud: With the most pre-built direct API integrations in the industry, Tangoe has a vast ecosystem of partners for the widest data ingestion and a clearer view into software and infrastructure services.
  • Smartest AI Platform Powering FinOps: The solution includes AI-based automation with 13 patented capabilities accelerating financial management workflows for faster insights and savings. A recent study by Foundry showed that companies using AI-enabled tools for FinOps achieve savings of more than 20%.
  • The Broadest Choice and Flexibility in Cloud Cost Management: Clients can reduce the cost of their cloud infrastructure across four major providers and get more value from their software and unified communications, using customizable software and services to satisfy the needs of both IT and finance teams. When organizations are ready to apply FinOps principles to more than just their cloud estate, Tangoe easily expands cost optimization for mobile devices and telecom services.

You can learn more about how Tangoe supercharges FinOps in our whitepaper, FinOps: The New Way to Manage Costs in the Cloud.

Here are some of the top ways that the Tangoe One Cloud solution benefits organizations.

  • One centralized system for cloud services management, including all IaaS, SaaS, and UCaaS costs and services
  • Greater transparency into cloud resources, usage, costs, cost allocations, and ROI
  • Actionable recommendations for consolidating apps, tagging IaaS resources, and saving money
  • Cloud cost savings of 15-40% on average, including lower contract rates
  • Resource optimization and less waste, as cloud resources are used to their greatest potential
  • Predictable IaaS and SaaS costs eliminating budget or cost overruns
  • Productivity gains with more efficient processes for cloud financial management
  • Simplified budget management – Tangoe allows you to take a proactive approach to cost control rather than reacting to costly invoices after the fact
  • Stronger application security with a process and solution to address Shadow IT challenge
  • Faster time to insights and cost-savings with analysis and recommendations driven by advanced analytics and AI automation
  • Faster time to savings – the solution and technology platform can automatically implement IaaS service changes as soon as they are approved, helping you capitalize faster on cost savings opportunities
  • Managed services and professional consultants are available to support every client with customization, audits, deeper cost optimization, staff augmentation, and much more
  • Savings that go beyond the cloud – Tangoe also offers expense management solutions for mobile devices and telecom services, making it easy to expand your FinOps strategy to other IT domains. Learn more about all Tangoe offerings, or see how a manufacturer saved $668K in cloud infrastructure and telecom costs.

Learn more about our FinOps solution, Tangoe One Cloud.

As organizations increase their dependence on the cloud, they need cost-effective and efficient ways to manage that spending. FinOps provides the framework they need, and the market continues to provide sophisticated FinOps solutions and services. If your stakeholders are still asking, “What is FinOps?” there’s no better time to get them acquainted. While adopting FinOps takes time, the potential cost savings and operational efficiencies make the process worthwhile for every organization that uses software and cloud computing services. With the right tools, processes and people in place, your FinOps strategy can be a long-term differentiator in managing the cost of cloud innovation and delivering more value to customers.

If you’re looking to reduce and govern cloud costs, partnering with a trusted cloud expense management expert like Tangoe can get you the most return on your investment. The sooner you act, the more you can save.

Ask for a Tangoe One Cloud FinOps solution demo and ask about a proof of concept.