ITFM vs. FinOps Part 2: How FinOps and IT Financial Management Work Together

Analysts at McKinsey estimate that companies using FinOps, a cloud financial management discipline focused on cloud cost management, can reduce cloud costs by up to 30%.

However, they also note that just 15% of companies have a solid grasp on the unit economics underlying the business value of any given cloud use case.

It’s just one pitfall companies are facing in the ongoing cloud migration rush, leading to unexpected costs and decision-making based on incomplete data.

It’s also an area where connecting FinOps with IT financial management (ITFM), which look at total IT spend, can provide vital insight.

With that in mind, let’s examine how FinOps and ITFM rather than compete, can work together, and what’s required to achieve greater maturity in unifying these practices.

Read ITFM vs. FinOps Part 1: Do Companies Need Both?

The Current State of FinOps and ITFM Collaboration

FinOps and ITFM are complementary disciplines that are more effective when companies use them together. FinOps provides the granular detail to manage cloud costs on a daily basis and mitigate financial risks inherent in the cloud’s variable cost model. ITFM, on the other hand, fills in data that FinOps doesn’t capture, such as accurate total cost of ownership (TCO) and unit costs. ITFM integrates cloud financial data into the broader IT portfolio of spend allowing for comparison and rather than isolated costs, ultimately strengthening higher level decision-making.

Despite their complementary approaches, FinOps and ITFM practices aren’t closely aligned in a majority of companies today.

The FinOps Foundation defines three levels of maturity in terms of integrating FinOps with related frameworks such as ITFM, TBM and IT asset management (ITAM). According to the organization’s survey data, over 80% of companies are at the earliest ‘Crawl’ stage in terms of integrating with related practices.

While they note ITFM and TBM are among the practices most commonly integrated with FinOps, this is still in nascent stages. Data from the FinOps Foundation’s State of FinOps Survey shows ITFM/TBM is nonexistent or run independently of FinOps in fully half of companies, with only 8% having unified teams or processes. Looking at chargeback specifically—a key area where FinOps and ITFM overlap—fewer than one in five companies have automated this process with IT finance.

What Maturity Looks Like

Most organizations have a long way to go in terms of integrating ITFM with their FinOps practices. So, what does maturity look like in practical terms?

Several characteristics jump out from the FinOps Foundation’s ‘Run’ category, which include having:

• A shared terminology for tagging costs based on the TBM taxonomy to ensure accurate cost allocation
• Standardized data sources to enable consistent reporting and robust decision-making
• A common set of tools and processes that are executed consistently, such as including indirect labor and other costs not traditionally accounted for by FinOps
• An increased percentage of cloud service provider (CSP) costs aligned with each of the four layers in the TBM taxonomy (cost pools, towers, solutions and business capabilities)

Bringing ITFM and FinOps Together

Successfully integrating ITFM and FinOps requires careful alignment of people, processes and technology so that both groups have the data and tools needed to drive effective decision-making.

This means FinOps must provide ITFM teams with access to all cloud spend data and map cloud spending to their overall IT finance taxonomy. FinOps also needs to define how they will allocate those expenditures that don’t fit neatly into ITFM or TBM categories.

At the same time, ITFM teams are responsible for communicating the TCO and unit costs of cloud spend. Specifically, IT finance must feed FinOps data on costs not captured by native CSP tools, such as costs associated with indirect labor, cloud management tools, SaaS and licensing costs.

Both teams are responsible for establishing regular communication processes that streamline coordination and promote transparency in IT spending. Aligning data sources and reporting ensures that both teams have accurate, reliable information for forecasting and budgeting, so they can make defensible decisions based on price/performance.

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Expanding the Tool Stack

According to Gartner’s State of FinOps for Data and Analytics report, the vast majority of companies pursuing FinOps use native CSP tools for cost management. While these tools are easy to deploy, says Gartner, they don’t provide comprehensive functionality, with no single tool capable of providing the ability to fully optimize cloud spend.

ITFM tools like Nicus, that gather data from multiple sources, including CSP tools and other third-party solutions, play a critical role in the integration of ITFM and FinOps practices.

For instance, companies using ServiceNow can deploy an ITFM tool like Nicus on Now to pull in data from a wide variety of sources, such as:

• ServiceNow Cloud Insights
• CSP cost management tools such as Amazon Cost Explorer and Azure Cost Management
• Asset database and configuration management database (CMDB)
• Application portfolio management (APM) tools
• Financial systems such as SAP and Oracle

What results is a fuller picture of cloud consumption and costs within the full context of IT spend, enabling better decision-making based on business value and priorities.

As migration to the cloud moves full steam ahead, many organizations are facing unexpected costs due to incomplete data on TCO and unit economics of cloud spend. Effective cost optimization requires seamless alignment between FinOps and ITFM, improving the results of both in pursuit of their shared goals.

Read ITFM vs. FinOps Part 3: Challenges and Use Cases in Bringing FinOps and ITFM Together