With the massive emergence of the cloud, FinOps – or Operations Finance – has become widespread within IT departments. Although the term has only recently appeared in IT departments, it covers a concept that is not new. Thus, LUCERNYS has been working for 20 years on Telecom Expense Management (TEM) topics using a similar methodology. The FinOps approach aims at the good technical and economical control of all new IT services. But can this approach be reduced to cost control alone?
Arnaud Métivier, consultant at LUCERNYS gives his vision of FinOps.
FinOps addresses three main needs of the ISD:
i- Financial management,
ii- Optimization and rationalization of costs and uses,
iii- Ongoing management to control expenses, monitor budgets and ensure that company policy is applied.
i- Financial management.
Summary of Need:
- Tariff control: ensure the proper application of the contractual elements put in place.
- Breakdown of costs: be able to break down invoicing according to an accounting and management objective for rebilling, validation or payment solutions.
- Recipients: Purchasing and CFO.
The purchasing department and the finance department do not share the same objectives regarding the financial management of IT services.
For the purchasing department, FinOps is first and foremost a method that ensures that the prices applied by each operator correspond to those stipulated in the contracts.
On the other hand, with the DAF, FinOps focuses primarily on integrating the operators’ billing into the accounting IS. FinOps provides CFO with the tools necessary for electronic billing validation. The integration of the data in the IS triggers the automatic validation of the invoices and the issuance of the payment voucher. FinOps facilitates the breakdown of costs within the different departments of the organization.
FinOps ensures the breakdown of costs associated with an IT invoice.
The tools for collecting and aggregating data from billing coupled with the analysis work to deepen and format this data constitute the FinOps method.
The scope of FinOps is concentrated in the telecom and cloud worlds. The control of contracts – quite volatile in these universes – requires a fine and in-depth analysis.
ii- Optimization and rationalization of costs and uses.
Summary of Need:
- Make the best use of contractual elements,
- Clean up obsolete or unused items,
- To ensure the good quality of the service provided to users,
- Recipients: Purchasing and ISD
Optimization vs. rationalization.
An optimization approach aims to ensure that all the elements present in an IT contract are used in the best possible way to meet usage requirements.
Concrete examples of optimization in IT contracts:
– Rather than adding expensive services together, it may make sense to purchase a single service that combines them.
– In the case of a telecom subscription, the subscription for the use of data abroad must be reserved exclusively for employees likely to go abroad.
– In the cloud, optimization consists of adapting the available storage capacity to the actual data usage for each user.
Rationalization consists of analyzing the underutilized elements within IT contracts, or those that have become obsolete and need to be replaced. This is the case for example of a cloud service that runs all day long, when the real operating range is between 8am and 6pm. Turning off cloud instances when not in use, or automatically deactivating licenses for employees who leave the company, are among the streamlining actions that should be automated to control costs.
Purchasing and IT departments have different priorities.
Optimization and rationalization do not concern the same departments of the company.
Purely contractual rationalization, which aims to optimize offers in relation to the existing contract, concerns the purchasing department. On the other hand, the rationalization of the users’ actual usage is carried out more by the IT department.
iii- Control expenses, monitor budgets and ensure that the company’s policy is applied: continuous FinOps management.
Summary of Need:
- Ensure that the practices implemented correspond to the company’s internal practices (processes, expenses)
- Avoiding financial drift (budget explosion)
- Control and monitor the evolution of contracts
- Using reliable indicators: making sense of spending
- Making projections: optimizing your service
- Recipients: Purchasing, IT, HR, etc.
During the run phase following the contract optimization and rationalization period, reading expenses and comparing them from one period to another requires access to reliable indicators.
Understanding expenditure patterns in detail is crucial to controlling and projecting budgets for future years. The transmission of reliable financial indicators to understand and control expenses and to give perspectives on cost evolution is the keystone of a FinOps approach. These indicators should provide effective financial management of the entire IT billing process.
Beyond its mastery, FinOps brings an understanding of billing.
The development of FinOps responds to the growing complexity of billing in IT. FinOps brings a better readability of IT invoices, as a form of popularization.
FinOps, a method that becomes a function.
At the intersection of the purchasing, IT and CFO departments in the organization, FinOps requires specialized expertise in infrastructure, offerings, peri-invoicing and finance.
Beyond a methodology, FinOps will constitute a real function in the company with its own expertise.
From then on, FinOps could be a separate department within the IT department. FinOps, or the happy marriage of finance and IT?
FinOps is a very precise management of the whole financial chain, upstream with the contractual part, but also during the run for the piloting and the various analyses which result from it. In the end, finops also allows us to draw up a balance sheet in order to enter a virtuous circle of control over all financial assets: contracts, uses, expenses. Finops therefore responds to the changing needs and expectations of the current market. “I want to pay only for what I use, I want to use only what I need.