In our latest episode of Faces in FinOps podcast, we discussed FinOps dynamics with Richard Hoyer. Rich is a FinOps thought leader with over 27 years of experience in IT and finance. His combined experience in finance, technology, and cloud management gives him a unique perspective for FinOps. This blog shares Rich’s insights from the podcast, highlighting the challenges and solutions in fostering a smooth relationship between Tech and Finance. Read on!
Understanding FinOps and the Need to Implement It
The shift from on-premise to cloud computing has redefined the procurement process, necessitating closer collaboration between CTOs and CFOs. Previously, procurement was highly structured: CTOs proposed the costs of equipment and the expected ROIs. They would outline the expenditure for servers, labor for racking and stacking, and data center lease costs. Each proposal included a business case that explained the investment’s necessity, how the new project or equipment would help with company growth, and calculated the ROI. Approvals were based on this clear, orderly procedure.
But now, with cloud computing, procurement has become real-time. This shift to on-demand resources means that costs can be incurred instantly as services are provisioned with just a few clicks. This model is a stark contrast to the traditional process, which required detailed planning, budget approvals, and a clear ROI understanding before any financial commitments.
CTOs and their teams can now initiate projects and scale resources without the lengthy procurement cycles of the past. However, this flexibility introduces the challenge of managing and forecasting costs in a landscape where spending can fluctuate dramatically, even hourly. The lack of predictability can cause tension between the technical and financial business functions.
The key to success in this new environment is regular communication, shared understanding, and strategic planning that balances technological flexibility with financial discipline. Regular and open communication between technical and financial teams is needed. That’s where FinOps – Financial Operations comes in!
FinOps has emerged to bridge the gap between technology and finance departments brought about by cloud computing. It introduces the concept of a “split brain” in organizations, fostering individuals who comprehend both technical and financial aspects of cloud operations. This aids in making informed decisions that balance technical needs with budget constraints. By promoting a culture of transparency, accountability, and continuous improvement, FinOps enables organizations to leverage cloud flexibility while maintaining financial control and predictability. It involves a set of practices that enable teams to balance speed, cost, and quality to make informed business decisions.
What Are the Current Challenges of the CTO-CFO Relationship?
Here are the key challenges that the CTO-CFO relationship is facing post the shift of cloud computing:
- CFOs lack an understanding of cloud economics: CFOs, traditionally accustomed to predictable budgeting cycles, now struggle with the variable costs associated with cloud services. This requires a deeper understanding of cloud economics and a more agile financial planning approach.
- CTOs lack an understanding of financial reporting: CTOs, primarily focused on technological innovation, often lack a deep understanding of financial reporting. This leads to difficulties in aligning tech initiatives with financial goals and compliance requirements.
- Communication Gaps: Cloud computing demands collaboration, yet it has widened the communication gap between CTOs and CFOs. Each department’s unique jargon and priorities has led to misunderstandings and misaligned objectives.
- Forecasting and Budgeting: The ability to accurately predict future cloud costs and align them with business objectives is crucial. This requires a collaborative effort to understand current usage and anticipate future needs and market changes.
- Aligning Technology Investments with Business Outcomes: Ensuring that technology investments contribute directly to business outcomes is challenging. It necessitates a joint effort to define clear metrics and KPIs that link cloud spending to business performance, facilitating informed decision-making and strategic cloud investments.
What Are the Solutions for Improving the CTO-CFO Relationship?
Improving the CTO-CFO relationship, as discussed in the Faces in FinOps podcast, requires a culture of collaboration, communication, and shared understanding. Key solutions include:
- Regular Communication and Transparency: Encouraging not only formal meetings but also spontaneous interactions that can lead to shared insights and understanding. These interactions help both departments understand the ‘whats’ and ‘whys’ behind each other’s challenges and requirements.
- Education and Cross-Training: Encourage cross-departmental learning sessions to enhance CTOs’ understanding of financial reporting and CFOs’ grasp of cloud technology. This mutual understanding supports more informed decision-making.
- Implementing FinOps Practices: Adopting FinOps principles enables both teams to manage cloud costs proactively and align expenses with business value. This involves setting up cross-functional teams that focus on optimizing cloud spend without stifling innovation.
- Leveraging FinOps Automation Tools: Utilize automation tools like ProsperOps for cloud cost management. These tools offer real-time insights and FinOps automation capabilities, aiding CTOs and CFOs in making decisions that support both technological and financial goals. You can read more about automatic cloud cost optimization.
- Strategic Planning Together: Engage both CTOs and CFOs in early strategic planning, employing the “four-leg stool” policy. This principle adds financial reporting and forecasting as the fourth deciding pillar alongside security, functionality, and cost-efficiency in technical project planning. This approach ensures that technology investments are evaluated for their financial impact and alignment with business objectives, facilitating balanced decision-making.
- Fostering Collective Responsibility: Establishing a culture of collective responsibility where both departments embrace FinOps practices and understand cross-departmental needs. With this shared responsibility, teams can ensure that cloud investments are strategically managed to support operational excellence.
These solutions can help CTOs and CFOs transform cloud computing challenges into opportunities for strategic advantage, leading their organizations toward financial and operational excellence.
How ProsperOps Can Help You With Implementing FinOps?
Implementing FinOps in your organization bridges the gap between technology and finance, optimizing cloud investments for both performance and cost. ProsperOps stands out as a leading tool in the FinOps journey, offering a suite of features designed to enhance financial operations in the cloud.
- Autonomous Discount Management: ProsperOps automatically manages a portfolio of discount instruments like AWS Savings Plans, Standard Reserved Instances (RIs), Convertible RIs, and corresponding GCP commitments like Resource-based Committed Use Discounts (CUDs) and Spend-based Committed Use Discounts (Flexible CUDs), to get you the most savings while minimizing your commitment risk.
- Comprehensive Financial Reporting Tools: ProsperOps equips finance teams with essential tools and insights for efficient savings allocation and financial reporting. Its dashboard enables real-time benchmarking and tracking of key metrics like savings, coverage, and commitment utilization.
By leveraging these features, ProsperOps empowers organizations to implement FinOps practices effectively, fostering a culture of financial accountability and optimization in cloud investments.
Explore more FinOps blogs at ProsperOps or book a demo to understand how our FinOps experts can help you save more on cloud.
