Balancing the books: can ERP cash in on FinOps?

FinOps

It’s time to cash in and balance the books. Experts from Workday, Red Hat, Nutanix and more talk about FinOps’ influence on ERP.

 

As organizations embrace FinOps evolution and take proactive steps to really count the cost of cloud computing and its ancillary IT services, how will FinOps evolve next? What questions do we need to ask of the platforms contending for share of voice in this space, how will key ERP metrics in spend management and procurement management be impacted and, come to think of it, how will we balance the books better once commercial enterprise really gets its head around the FinOps mindset?

FinOps borrowed its naming convention from the portmanteau-style coming together of developers and operations teams in DevOps. Although possibly misleading in its name, FinOps is not the provision of operations practices (system administration, database management, application testing, quality assurance and so on) for financial professions; it is Ops in a cloud-native world with a view to controlling spend on Software-as-a-Service (SaaS) tools, services and all related functions.

As we ride the buoyant wave out of the CapEx-centric era of pre-cloud into the OpEx epoch of cloud itself, FinOps seeks to unify the finance function’s role, interest and goals with the work carried out by the business and technology teams, and to establish cross-discipline workforce units dedicated to collaborating on making the best decisions regarding performance, quality and cost. The core philosophy stemming from FinOps is the need to make the “best” technology investment decisions in terms of operational, functional and environmental excellence, not just the cheapest ones.

With those defining cornerstones in mind then, how will we balance the books with this new, more important than ever technology practice and how will it impact key ERP metrics in spend management and procurement management?

 

Balancing deadweight economy turbulence 

To Tim Wakeford, VP of financials product strategy at Workday, the impact of FinOps is already here, if enterprises can grab it: “FinOps has been in the ascendancy for much of this decade (if not before) and now stands at a point where it impacts modern enterprises’ ‘cloud stacks’ to drive both financial and operational efficiency. This is perhaps no surprise as CFOs and finance leaders with ERP responsibilities are prioritizing collaboration within departments on fair-cost technology that enables agile decision-making.”

It comes as a recent survey from Deloitte suggested that given the turbulence experienced in a “deadweight economy” across many world territories, CFOs are maintaining a defensive strategic stance, with over half (56 percent) of finance leaders rating reducing costs as a strong priority and four in ten (43 percent) rating increasing cashflow as a strong priority.

“Taking these realities in the context of procurement and deployment in the ERP sphere, CFOs now need FinOps to enable them to optimize system deployments in terms of cost first, but without compromising performance or scalability. On top of this, given wider changes in our economies, many leaders want functions in FinOps to promote data analysis supported by AI, across purchasing, finance and other cloud integrations,” Wakeford says.

But as financial leaders tackle their FinOps strategy, ensuring compliance is increasingly important for ERP in a world of increasing regulatory compliance restrictions. “In a competitive marketplace, with many companies onboarding AI-enhanced capabilities, safely navigating a complex regulatory landscape in the context of the EU AI Act, as well as other legislative controls, will be mission-critical,” he advises.

Despite economic growth indicators slowing, management analyst house Gartner found around 90 percent of CFOs projecting higher AI budgets in 2024 – and, in fact, none are planning a reduction. Wakeford says that this echoes Workday’s research into so-called “AI pioneers” – including CEOs and the heads of finance, IT and HR – with more than half of FinOps-focused AI innovators in this space calling the technology a gamechanger for the finance industry, demonstrating the long-term value finance leaders are seeing with AI and automation.

“With all of these thoughts in mind – and with the intersection between ERP and FinOps implementation at the heart of this story – we know that ultimately, CFOs want the right FinOps strategy at a fair cost, but with a higher focus on delivering ROI while not introducing operational difficulties,” states Workday’s Wakeford.

“CFOs are looking to bring financial, IT and DevOps leadership together to successfully manage the total cost of cloud deployments collaboratively across the enterprise while mitigating risk for rising litigation-related challenges. They are also battling shrinking EBITDA [earnings before interest, taxes, depreciation and amortization] margins and want robust FinOps that won’t put them in the red while providing scalable outcomes from digital investments with clear paths to identifying new growth opportunities, financial management strategies, data-driven insight and market forecasting.”

 

Opening up SaaS software’s secret costs

As the discussion in this space develops, commercial organizations and public bodies running substantial cloud computing deployments are perhaps starting to reevaluate the “flexibility and convenience” messages they were sold at the early onset of the cloud computing era.

This is not to suggest that cloud computing is going the way of  X (formerly Twitter), i.e. adoption, expansion and diversification practices are still increasing, obviously. Still, there may be a more direct validation for FinOps practices if businesses are going to be able to tackle spend and procurement management in a more wholly digital-first sense. As a member of the FinOps Foundation governing board, Brian Adler puts his weight behind this notion.

In addition to his FinOps board role, Adler is senior director of cloud market strategy at IT cost and operations management platform company, Flexera. He thinks that the future of FinOps in the ERP space and elsewhere will be shaped by addressing the hidden costs of SaaS software and the blind spots that enterprises face with Bring Your Own License (BYOL) software licenses in the cloud.

“As FinOps evolves and takes on more essential accountability roles across the spectrum of ERP, the next steps will involve deepening visibility into an organization’s entire hybrid IT estate – including SaaS management and cloud-based software contracts – to uncover and manage obscured cost structures and usage terms,” advises Adler.

“Integrating FinOps practices with ERP systems will enhance key metrics in spend management and procurement, improving accuracy and enabling real-time financial oversight. This integration empowers businesses to track, predict and manage cloud and SaaS expenditures more effectively. The result is a more strategic approach that is informed by comprehensive insights.”

Adler’s thoughts here suggest that FinOps plus ERP multiplied by financial management fundamentals (possibly also divided by responsible AI practices) can drive organizations towards achieving optimized spend and maximized value throughout repeated business cycles. If all the forces are aligned in unison, the virtuous circle sees firms drive better financial health and operational efficiency in increasingly cloud-centric business environments. The onward benefits experienced in environmental and social governance (ESG) and workforce well-being complete the circle, but that’s a story in and of itself.

 

Better books with cloud computing, or an alternative?

An important question starts to arise at this point: Is FinOps good news or bad news for cloud service providers (CSPs)? We know that the official line from the big three hyperscalers would be something along the lines of “all efficiency in cloud deployments is good”, or some such platitude. But actually, there could come a time when FinOps enables some organizations to look for cloud alternatives.

“By instilling the practice of forecasting and analyzing variances – good and bad – FinOps helps software engineers and data analysts to improve their craft significantly. As FinOps evolves – especially in the ERP space where core procurement management practices are fundamental to business health – I expect more emphasis on identifying areas where cloud computing needs to be compared to alternatives due to various engineering, compliance or scale considerations. I also expect additional frameworks to emerge that showcase those tradeoffs. Within the area of cloud spend specifically, I expect an additional emphasis on understanding and forecasting the costs of AI/ML workflows and associated data infrastructure costs (storage, backup, retention, etc.), in addition to compute costs,” says Mark Khavkin, CFO MinIO, a high-performance object storage company that caters to the AI data infrastructure space.

Where do we go next? The answer in FinOps land is always the balance sheet. Ask 99.99 percent of IT managers where the IT balance sheet is most profoundly impacted from a profit and loss perspective over the next 18 months? They’ll respond with two words: Artificial intelligence. The cost of AI and how it is implemented productively, profitably and prudently is where ERP-centric FinOps can have its most important impact.

This is the view shared by Dr. Kjell Carlsson, head of AI strategy at Domino Data Lab. Carlsson insists that while there are plenty of opportunities to use AI for better FinOps, the real opportunity lies in using FinOps to efficiently manage the costs of an organization’s AI strategy.

“Every organization needs to embed AI technologies to survive and compete but training and operationalizing AI models – not to mention storing and processing the necessary data – can be extraordinarily expensive,” states Carlsson. “Managing that cost is critical to boost AI ROI and adoption. Unfortunately, it is particularly challenging to track costs across the fragmented ecosystem of rapidly maturing AI technologies.

“Therefore, it is important that companies implement FinOps capabilities that provide visibility across AI expenses and track and control infrastructure spend without the need to manually tag assets and reconcile cloud bills,” Carlsson continues. “Sadly, general FinOps solutions today do not have these capabilities for AI services, technologies and infrastructure and they are unlikely to be able to catch up to the rapidly evolving and expanding AI landscape.”

In Carlsson’s view, for the foreseeable future, companies will need to rely on integrated AI/ML platforms – that streamline access to these AI technologies – to provide these FinOps capabilities. On the plus side, they also offer the tools necessary to analyze and predict your FinOps costs.

Given where we’ve got to thus far, if organizations are starting to embrace FinOps evolution and taking more proactive steps to really count the cost of cloud computing and all related ancillary IT services, how will FinOps evolve next? Monica Sasso, digital transformation lead, global financial services at Red Hat, wants us to get granular. She says that firstly, it will be about getting to the cost of each application, not just at the container level, but at the app level. From its perspective, the Red Hat team thinks it will also include CO₂/kWh consumption at the app level as well.

“The bottom line is that lines of business need to see how much their applications cost them so they can make decisions about where their applications run. This is about using all the data we have to make the right decision at the right time at an application level,” says Sasso. “It could also be about reducing complexity of an IT estate and simplifying it so that firms can have a single pane of glass for their entire estate. The open hybrid cloud provides that common, unified layer across all environments to be able to compare like for like, bringing not just technological observability but also cost observability.”

For the impact on key ERP metrics in spend management and procurement management, Sasso thinks that when executed properly, FinOps will be able to shine a light all the way from the application to the operating system. Firms and lines of business will be to make data-based decisions about where an application is run instead of relying on sentiment or gut feeling.

Three core technology pillars 

Steen Dalgas, hybrid cloud leader, UK and Ireland, Nutanix, is also a senior cloud economist. Dalgas says that technology leaders are being tasked with three key pillars in 2024.

“Firstly, they need to become true partners to the business in enabling innovation. This is achieved primarily through supporting the work of the application development team to be able to add new application features which drive revenue. Secondly, they are being asked to bring down the cost of IT by better managing people and technology resources. Thirdly, they are being tasked with making sure the business is secure, agile and adaptable to change,” says Dalgas.

The Nutanix view is that a key strategy to support these outcomes is the building out of a “Cloud Center of Excellence” in every business. The primary staffing role needed within is the FinOps team, aligned closely with the three key pillars to save the company money, enable innovation and future-proof the business.

“To meet the objective of enabling innovation, the FinOps team should be focused on supporting the needs of the application development team,” advises Dalgas. “Eliminating process friction, including time delays, is critical. The application team wants access to IT resources on their timescales. These are typically expensive and scarce resources so enabling their success should be a high business priority. We support these objectives through our data services features which enable self-service access to database clones for example, and infrastructure as code to meet resource requirements on a timely and consistent basis.”

Dalgas further notes that achieving cost reduction in the cloud is hard due to the complexity of managing hybrid multi-cloud. The FinOps team is typically responsible for managing IT resources associated with day two operations – which are subject to almost daily changes and often need to learn skills to deal with different cloud vendors. FinOps has to deal with consolidated invoices from hyperscalers that can run to thousands of line items. Managing these costs is a huge task.

“The future of FinOps in the ERP space and elsewhere needs to see an evolution of those teams to move away from collating and managing resource consumption data and more towards analyzing the data, drawing on insights and adding value to the business. But without simplifying the messy layer of cloud infrastructure this will be much harder to achieve,” he added.

New Relic CTO Siva Padisetty agrees with these sentiments and says that the evolution of FinOps will require more strategic modeling that includes product and sales approaches.

“As a baseline, most have come to understand FinOps practices that convert usage to costs,” says Padisetty. “Engineering and finance teams have aligned on how the final cloud bill gets calculated and why it changes. The missing piece of the puzzle is the integration with product and sales teams. Understanding the portfolio of product costs – particularly which products help your gross margin and which ones hurt – will change the strategy of the entire organization. Perhaps some products are loss leaders and others are cash cows, but understanding how that pendulum swings will greatly impact how you view your total cloud costs as ‘good’ or ‘bad.’ Adding that context will help all leaders make better decisions on where to apply pressure in cloud cost optimization.”

 

Expenses transformation with AI

Alex Antonov, managing director of e-commerce solutions Unlimit, follows the consensus here. He says that machine learning technologies have long been employed to manage cloud expenses. However, the rapid advancement of generative AI technologies will soon make the application of FinOps practices more straightforward.

“Specifically, cloud resource expenditure optimization management will be driven by business objectives set in natural language. CFOs will be able to define goals and set tasks within FinOps systems much like they would with company specialists, receiving outcomes (such as cost reduction recommendations) in natural language,” says Antonov. “This shift will lead to greater automation in managing cloud budgets, positively impacting company costs. Fewer FinOps specialists will be needed to support these automated processes.”

In Antonov’s view, AI should fully take over transforming business goals and tasks into specific requirements for cloud architecture, suggesting possible configurations of cloud services that meet the requirements, business tasks and load change plans. AI can also play a role in modeling operations and calculating infrastructure costs based on plans and forecasts, and ultimately delivering an optimal solution based on functions, budgets and business requirements.

“Such advancements will not only streamline financial operations but also enhance the strategic capabilities of CFOs, enabling more dynamic and effective financial management in cloud-centric environments. Deploying AI for FinOps will require more than a leap of faith in procurement management; AI will need to ‘show its working’, transparency and explainability will need to be built in, with the ability to drill down into the detail to demonstrate the cost benefits of each option explored.”

There is much to take account of (pun intended) when it comes to the application of FinOps in the ERP sector and the increasing complexity of cloud is sure to make organizations now look for more accountable (pun again intended) methods for procuring and deploying cloud computing in the near and immediate future.