Preface
Dear Reader,
J.R. and Mike here, the coauthors of the book you are holding. We began this second edition undertaking in early 2022. When we wrote the first edition of this book in 2019, the world was a different place. COVID had massively accelerated the move to the cloud, shattering all previous estimates of cloud spend growth. After we started writing this edition, a global economic downturn forced organizations—including the major cloud service providers—to elevate the importance of cloud spend efficiency to board-level discussions. Amazon’s CFO has pledged to help customers trim their cloud bills, and Microsoft’s CEO indicated that their top priority is to help their customers do more with less.
The World Turned Upside Down
FinOps as a concept went from an obscure term to a business necessity. At conferences pre-2020 we frequently overheard: “What the heck is FinOps?” By 2023 it is predicted that 80% of organizations using cloud services will establish a dedicated FinOps function. The FinOps Foundation went from a twinkle in our eyes to a global force with nearly 10,000 practitioners of the craft representing every major industry and the majority of the Fortune 500, FTSE 100, and ASX 250. FinOps went from being a fringe term to receiving 10 times the search traffic and analyst mentions that the “cloud financial management” moniker pushed by large clouds like Amazon Web Services did.
The pay-as-you-go model—also known as the variable spend model—allows engineers to gain rapid access to infrastructure so that they can innovate quickly. The stories we hear remain: engineering teams still consume resources in the cloud with not enough prioritization of cost efficiency. Finance teams struggle to understand and keep up with what teams are spending and to properly allocate cloud investments. Leadership still doesn’t know which levers to pull to implement a FinOps transformation and drive more guidance of cloud spend investment.
The problem has only gotten more complex in the last three years. Cloud providers have added hundreds of thousands of additional product stock-keeping units (SKUs) driven by thousands of new features. In the months preceding publication of this edition, Google Cloud and Azure offered completely new ways of making discount commitments in the form of Azure Savings Plans and Google Flexible Committed Use Discounts (Flexible CUDs), changing the game yet again.
During the last decade of our respective careers, we heard a consistent theme from practitioners and executives alike: there’s a lack of cloud value education and knowledge available. Mike heard it while running cloud cost optimization for Atlassian’s massive cloud deployments. J.R. heard it while coaching the world’s largest cloud spenders as cofounder of Cloudability’s cloud spend management platform (acquired by Apptio in 2019) from 2011 to 2020 and later as the executive director of the FinOps Foundation, as an employee of the Linux Foundation.
From this demand for a resource from which we can all learn, along with a need for someone to formally define FinOps, we joined forces in early 2019 with 26 expert practitioners from the industry to create the FinOps Foundation.
The community of now nearly 10,000 practitioners from the FinOps Foundation have provided most of the best practices we’ll cover in this book. The examples herein come from their hard-earned experience and war stories shared in the various community forums. We’ve also woven in quotes from them to help connect the content with real-life thoughts and opinions on FinOps.
Who Should Read This Book
Anyone working in engineering, finance, procurement, product ownership, or leadership in a company running—or aspiring to run—in the public cloud will benefit from this book. As an organization understands the personas in FinOps, it can map them to relevant teams across the business.
Engineers are most likely not used to thinking about costs as a day-to-day concern. In the precloud days, they were mainly worried about performance in relation to hardware. Constrained by procurement and unable to get more servers whenever they needed them, they had to plan far in advance. They have to think about the cost of their infrastructure choices and its impact on the business. At first, this can feel foreign and at odds with their primary focus of shipping product and feature enhancements. Over time they add cost as another efficiency metric that they can tune to positively impact the business.
A lot of engineers will just throw hardware at a problem. FinOps requires engineers to consider the cost and margins.
John Stuart, VP, DevOps, Security & IT at Jobvite
Finance traditionally focused on retroactive reporting on a monthly or quarterly granularity, based on set budgets that quickly became out of date. The job has evolved now to help enable the business to continually move forward, and to proactively partner with tech and engineering teams to forecast spend, based on the actions of engineers (who aren’t used to thinking about that cost). In other words, they’re shifting from opaque and fixed capital expenditure (CapEx) reporting to transparent and fluid operational expenditure (OpEx) forecasting. As part of that role, finance teams become engineering team partners who understand what the drivers of cloud spend are amid thousands of SKUs. They help to fundamentally reinvent how to perform the finance function, while also rethinking how to report technology spend to executives and investors.
Procurement teams are used to tightly controlled spending, careful rate negotiations, and wielding the power of the purchase order before vendors get paid. Now procurement teams become strategic sourcing. They pull all rogue spending together into an enterprise agreement with their cloud service provider to get the best rates for what engineers are already using to deliver value.
We don’t win by shaving cents from the cloud provider. We win by delivering features to our customers.
Alex Landis, Autodesk
Product owners, responsible for the pricing and margins of their products, struggled in the precloud world to understand all the costs that went into servicing a customer or operating a commercial offering. Cloud lets them understand more, or all, of the cost of delivering digital value, understand the cost impact of new features, and see how customer use cases create variability in the cost of an application. This allows product teams to collaborate much more effectively with engineering teams developing the products, to forecast revenue and margin more effectively, and to target customer demand much more efficiently.
Leadership, C-level executives, VPs, directors, or technology leaders managing budgets for a team have often lost direct control of cloud spending decisions and now rely on their teams to operate within reasonable budgets. Tech executives no longer plan large purchase decisions far in advance. Instead, they think more about how to forecast and manage spending that’s already happening. The conversation has shifted from ensuring services have the capacity to ensuring that they’re spending the right amount of money for the job. They want more control over how much is spent and more ability to strategically influence where it is spent.
This book seeks to break down barriers between these personas by laying out a common lexicon and set of best practices to follow.
About This Book
In the coming chapters, we’ll formally define FinOps. The definition we’ve created was formulated by the most experienced cloud financial management teams on earth, who manage hundreds of millions of dollars (or billions in some cases) per year in cloud spend. We’ve collected their common practices for achieving cloud success along with some pitfalls they’ve identified and solved. We’ll show what effective FinOps looks like and how to start the FinOps transformation in your organization.
Previously, the only way to gain access to this knowledge would be to attend public events where these experts would present their ideas. This book and the FinOps Foundation changes that with a vibrant community, in-depth training resources, and standardized best practices.
After you’ve read this book, we encourage you to get involved with the FinOps Foundation’s various programs as a pathway to continue honing your skills and career. The mission of the foundation is to advance every individual who manages the value of the cloud. The community is there for you. We hope that the real-world strategies, processes, and stories in this book will inspire everyone to better take control of cloud spend. And in the process, we can make our organizations, and our own careers, more competitive.
What You Need to Know Before Reading On
At the time of writing, we assume readers will have a base level of knowledge of at least one of the three main public cloud providers (Amazon Web Services [AWS], Azure, and Google Cloud Platform [GCP]). Readers should understand how the cloud works and charges for resources. They should also be familiar with the major resource types like compute and storage, and higher-level service offerings like managed databases, queues, and object storage.
A good starting place for the level of AWS knowledge needed is the AWS Business Professional training, or better, the AWS Cloud Practitioner certification. Both cover the basics of operating in AWS. For Google, check out the GCP Cloud Digital Leader course. For Azure, try the Azure Fundamentals learning path. These can usually be completed in a single-day workshop or through online training.
Readers should also understand the fundamentals of how cloud computing works; know the key services on their cloud provider, including their common use cases; and have a basic understanding of how billing and pricing work in the pay-as-you-go consumption model.
For example: as an AWS user, you should already know the difference between EC2 (Elastic Compute Cloud) and RDS (Relational Database Service). You should understand that there are different ways to pay for those resources, such as On-Demand, Reserved Instances (RIs), Savings Plans (SPs), and Spot. It’s OK if you don’t know how RIs or SPs work in detail or how to plan a strategy for purchasing them—we’re going to cover that—but you should already understand that they can be used to save money on compute resources.
FinOps Is Evolving
Over the past few years, so much has evolved into what we call FinOps today—and it will continue to evolve. As the cloud service providers offer more and more services and continue to offer different ways to optimize their platforms, FinOps will keep adapting. We recommend always confirming the details of the cloud service provider offerings we explore throughout this book. If there are corrections, alternative opinions, or criticisms of anything in this book, we encourage readers to contact us. After all, it has taken brave folks challenging the way things are done to help formulate the successful FinOps practices we have today.
Conventions Used in This Book
The following typographical conventions are used in this book:
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Indicates new terms, URLs, email addresses, filenames, and file extensions.
Tip
This element signifies a tip or suggestion.
Note
This element signifies a general note.
Warning
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Acknowledgments
First, to our families (Lesley, Jessica, Harrison, Oliver, and Claire), who sacrificed so many nights and weekends in allowing us to write this book originally and then again for the second edition, and who suffered through us talking about nothing else but FinOps: thank you.
To the team at O’Reilly (Corbin Collins, John Devins, Kate Galloway, Kristen Brown, and Sara Hunter): without your efforts this never would have happened.
Rob Martin, who has reread, commented, and proposed more thoughtful (and often verbose!) changes than we could even consider.
Thanks to the teams at Amazon Web Services, Google Cloud, and Microsoft Azure for your ongoing feedback and reviews.
Tech reviewers: Jason Rhoades and Joshua Bauman, who stepped in quickly to power through a hornet’s nest of comments, revisions, and suggestions on our nearly final draft.
We would like to thank all of the members of the FinOps Foundation. Since starting the FinOps Foundation, we’ve been humbled by the number of companies and practitioners signing up and by the willingness of charter members to assist in formalizing what FinOps is.
To the FinOps Foundation staff: Andrew Nhem, Ashley Hromatko, Ben de Mora, Joe Daly, Kevin Emamy, Kyle McLaughlin, Natalie Bergman, Rob Martin, Ruben Vander Stockt, Samantha White, Stacy Case, Steven Melton, Steven Trask, Suha Shim, Thomas Sharpe, and Vasilio Markanastasakis. Your efforts to help build the foundation are greatly appreciated.
Mike would like to thank his FinOps team at Atlassian. Daniel Farrugia, Diana Mileva, Florence Timso, Letian Wang, Sara Gadallah, Teresa Meade, and Tom Cutajar.
Throughout the years we’ve worked with many people who have shared their companies’ stories around their cloud challenges and the methods they have implemented to solve them. There are too many to mention, but to all of you: thanks.
Finally, thank you to all the people who helped along the way; without your efforts this book would not be what it is today: Aaron Edell, Abuna Demoz, Adam Heher, Alex Hullah, Alex Kadavil, Alex Landis, Alex Sung, Alexander Price, Alison McIntyre, Alison Pumma, Ally Anderson, Amelia Blevins, Anders Hagman, Andrew Midgley, Andrew Thornberry, Anthony Tambasco, Antoine Lagier, Ben Kwan, Benjamin Coles, Bhupendra Hirani, Bindu Sharma, Bob Nemeth, Brad Payne, Casey Doran, Dana Martin, Darek Gajewski, David Andrews, David Angot, David Arnold, David Shurtliff, David Sterz, David Vale, Dean Layton-James, Dieter Matzion, Elliot Borst, Elliott Spira, Ephraim Baron, Erik Onnen, Gavin Cahill, Geoffrey Anderson, Ilja Summala, James Jackson, Jason Fuller, Jerome Hess, Jess Belliveau, John McLoughlin, John Merritt, John Stuart, Jon Collins, Justin Kean, Keith Jarrett, Ken Boynton, Lindbergh Matillano, Manish Dalwadi, Mark Butcher, Mark Richter, Marsha Shoemaker, Martin Bleakley, Mat Ellis, Matt Finlayson, Matt Leonard, Michael Flanakin, Michele Allesandrini, Nabil Zakaria, Naveen Chand, Pedro Silva, Phillip Coletti, Renaud Brosse, Rich Hoyer, Rick Ochs, Sarah Grey, Sascha Curth, Shane Anderson, Stephanie Gooch, Stephen Elliot, Tom Cross, Tom March, Tom Marrs, Tony Curry, Umang Sehgal, Virginia Wilson, Webb Brown, Wendy Smith, and William Bryant.
Cheers to everyone who allowed us to quote them throughout the book.