Johannesburg, 19 Jul 2023
Until now, IT departments have relied on IT financial management (ITFM) and technology business management (TBM) to manage IT costs. However, there has been a significant shift in IT delivery to the cloud, which has led to the development of a new framework for cloud called FinOps. The good news is that FinOps and ITFM work hand in hand. In this press release, we explain in greater detail what FinOps is and how to integrate FinOps best practices with ITFM.
What is FinOps?
The FinOps Foundation defines FinOps as: "An evolving cloud financial management discipline and cultural practice that enables organisations to get maximum business value by helping engineering, finance, technology and business teams to collaborate on data-driven spending decisions."
The need for FinOps emerged with the shift of IT delivery to cloud computing, which allows organisations to quickly and easily provision IT resources on-demand, pay only for what they use and scale up or down as needed. However, this flexibility also means that cloud costs can easily spiral out of control if mismanaged. To address this challenge, FinOps aims to bring together people, processes and tools to help organisations manage their cloud costs more effectively. This includes activities such as cost tracking, cost allocation, cost optimisation and cost governance.
Most importantly, FinOps puts the responsibility of cloud cost optimisation in the hands of cloud practitioners such as software engineers, systems engineers, cloud architects and engineering managers. As practitioners, they are better suited to have visibility and agency of cloud costs. Senior leadership may set the strategy, but the FinOps teams work with them to develop best practices, establish cost management policies and implement tools and processes to monitor, analyse and optimise cloud spending.
What is ITFM/TBM?
ITFM stands for IT financial management, while TBM stands for technology business management. These terms refer to the method of managing IT finances, including budgeting, cost allocation and financial reporting.
ITFM is focused on managing the financial aspects of IT operations, including tracking and analysing the costs of delivering IT services, managing budgets and allocating costs to departments and business units.
TBM, on the other hand, takes a broader perspective, encompassing not only the financial aspects of IT, but also the strategic and operational aspects. TBM is focused on aligning IT with business goals, managing the full life cycle of IT assets and optimising the overall value of IT investments. Together, ITFM and TBM provide a comprehensive approach to managing the financial aspects of IT and ensuring that IT investments are aligned with business objectives.
What does total cost of ownership refer to and why is it important?
Total cost of ownership (TCO) refers to the sum of all direct and indirect costs associated with owning, operating and maintaining an IT asset or service over its entire lifespan. This includes the initial purchase or acquisition cost, as well as ongoing expenses such as software licensing fees, maintenance and support costs, upgrades and updates, hardware replacement, data centre costs and labour costs associated with IT asset management and administration.
TCO is an important metric for ITFM because it provides a more comprehensive understanding of the true cost of IT assets and services. By accounting for all the associated costs, organisations can make more informed decisions about which assets and services to invest in, which to retire or replace and how to optimise their IT spending overall. Including cloud spending in this metric is critical and FinOps enables businesses to understand cloud spending with clearer visibility.
What are the differences and similarities between ITFM and FinOps?
Both ITFM/TBM and FinOps aim to balance cost, quality and risk when managing IT services. However, they approach this challenge in different ways. ITFM/TBM uses a cost versus quality versus risk trade-off framework, while FinOps uses the FinOps Iron Triangle, which includes cost optimisation, innovation velocity and risk management. The most obvious differences between FinOps and ITFM are shown in the table below:
While ITFM and FinOps are two distinct fields, they work well together, have parallel goals and challenges, and adhere to the same values as both measure cost in terms of impact. When combined, ITFM and FinOps cover each other's blind spots and activate a comprehensive view of IT costs.
How can MagicOrange help to integrate ITFM and FinOps processes?
Thanks to MagicOrange’s complete view of public, private and on-premises infrastructure, application owners can view their TCO across infrastructure feeds.
This enables a smoother integration process of FinOps and ITFM as users can gain full visibility into cloud spend and provide showback/chargeback allocation methodologies to applications. MagicOrange's cloud costing solution provides detailed, granular insight into cloud expenses across all departments, projects and services. This allows organisations to accurately allocate costs and optimise cloud usage based on actual usage patterns and business needs.
More specifically, MagicOrange can show detailed information about how much an application costs to use and how much infrastructure it needs. This information enables application owners to identify if they are tied into fixed infrastructure charges and to determine whether the benefits of moving the application to the cloud outweigh the costs. Applications that can be migrated and benefit from new solutions offered in a public cloud setting can be designated for public cloud migration. New applications can compare cloud-native solutions to on-premises solutions based on their initial requirements and future needs. Moreover, businesses and users can use MagicOrange to monitor their cloud migration journey to ensure their cloud investment produces the expected benefits and quickly highlight any issues that may need further investigation.
By providing a single source of truth for ITFM and FinOps data, MagicOrange streamlines the reporting process and enables organisations to make data-driven decisions about their IT investments.
Finally, by MagicOrange being a FinOps Foundation Certified Service Provider and with a team of FinOps-qualified cloud practitioners, we can support your organisation through a smooth migration journey and assist in optimising your cloud expenditure.