In this third installment on FinOps and IT financial management (ITFM), we dig deeper into the process of integrating these complementary practices and what organizations can expect.
An increasing number of companies are bringing FinOps and ITFM together because of the unique perspective each brings to understanding the value of technology spending:
Integrating FinOps with ITFM strengthens decision-making for both by providing a more comprehensive picture of spend and profitability, while also promoting shared accountability for cloud costs.
Despite the theoretical benefits, getting FinOps and ITFM to work together in practice is a significant undertaking. Below we discuss the biggest challenges companies face, and use cases that are common starting points for many companies.
Read Part 1 and Part 2 of this series:
ITFM vs. FinOps Part 1: Do Companies Need Both?
ITFM vs. FinOps Part 2: How FinOps and IT Financial Management Work Together
FinOps and ITFM both have similar pain points and goals, so improving collaboration between them is a clear win. That said, making it a reality means addressing several challenges around breaking down silos and driving an overall cultural shift. Here the FinOps Foundation’s State of FinOps survey sheds light on where companies are running into issues.
Far and away, the biggest challenge reported was competing priorities, at nearly one in three respondents. It’s not a surprise, given that FinOps is focused more on day-to-day cloud cost optimization, and ITFM is focused on IT spend as a whole and where to prioritize investments.
The second biggest challenge noted was stakeholder engagement, reported by more than 20% of respondents. Viewed through the lens of how the two practices operate can put this into perspective. ITFM is usually driven from the top-down by senior leadership and CIOs, looking at the macro picture to connect IT spending to business priorities. Since the cloud bill can be impacted by any number of changes on a minute-by-minute basis, FinOps necessarily operates from the bottom-up as cloud practitioners must make real-time usage decisions.
Addressing these gaps and creating a cultural shift requires a keen focus on communication, including:
Another fundamental challenge of integrating ITFM and FinOps is ensuring the two teams speak the same language when it comes to costs. However, this isn’t necessarily straightforward, since both groups tend to categorize costs differently.
Best practices dictate that companies use an agreed ITFM taxonomy as that shared language because of ITFM’s holistic view of IT spending. In this way, companies can make true apples-to-apples comparisons of total cost of ownership (TCO), unit costs, and profitability between cloud vs. on-premise applications and services.
As part of this process, companies must then:
One final high-level challenge to consider is the different technology tools used by FinOps and ITFM. Most organizations manage cloud costs using native cloud service provider (CSP) tools, according to Gartner. However, these tools only provide limited functionality, in addition to reflecting just a portion of cloud costs.
An ITFM tool that puts CSP data in context with other cloud-related costs not captured by those tools (e.g., labor, SaaS, security and more) can provide more accurate TCO and profitability metrics, allowing for more informed decision-making. Without ITFM supporting FinOps, decision-making and insights are limited.
ITFM software also provides a central hub for collecting data from various systems. For example, companies that run ITFM on the ServiceNow platform, can use the platform to pull in data from cloud cost management and IT asset management (ITAM) reporting tools and integrate to external financial systems holding GL and AP data. ITFM software can also help reconcile the offset between when FinOps consumption data is provided and when it is invoiced in the general ledger, usually a month to two later.
An organization’s overall goals for integrating ITFM and FinOps will largely drive the use case for doing so. According to the State of FinOps survey, the most common use cases are:
Let’s look closer at these use cases, including challenges and considerations for each
For many organizations, chargeback is the natural starting point when looking to integrate FinOps and ITFM, allowing companies to:
Ensuring alignment between the cloud chargeback receiver and the ITFM-defined service owner is critical, with ITFM teams and FinOps collaborating closely to resolve any ownership disputes.
Challenges can also arise due to the fact that FinOps chargeback typically targets individual application business owners, while ITFM chargeback goes to broader business service owners. Preserving attributes around application and business line end-user details in the chargeback process can help avoid accidental sharing or reallocation of costs.
TCO is essential to understanding application development costs and building cost models to enable rationalization decisions, an area ITFM helps put cloud costs in perspective. Thus, when a product or business unit consumes both cloud resources and those of the traditional business structure, companies can see all of those pieces in total to make more informed investment decisions.
Understanding TCO is a natural extension of the chargeback process, which itself often reveals additional costs that can be mapped for a more comprehensive view into cloud and IT spending.
The biggest challenge here is normalizing data between FinOps and ITFM. Key considerations are:
Forecasting is an important part of building cost models and allocating resources efficiently. In terms of integrating ITFM and FinOps, there are two main challenges that teams should be aware of:
Companies with growing FinOps practices have many reasons to integrate them with ITFM, given the shared pain points and goals of both. However, many challenges await, whether it’s bringing together diverse viewpoints or managing the technical details of individual use cases. Flexible ITFM software like Nicus can help bridge the gap, so that teams have a single source of truth for financial data to make smarter, more informed cloud decisions.
Learn more in our free ITFM/TBM Program Maturity Guide