Most of our customers are in industries that make extensive use of engineering and specialty software, where the management of software licenses and entitlements cannot be left to chance and need to be closely monitored. As a result, most of their software asset management (SAM) policies, processes, and support are well managed and mature.
This is why, when examining the six principles that define a FinOps practice according to the Foundation, they will resonate with the SAM product owner; they have much in common with the steps taken to achieve SAM maturity.
Let’s look at the Six Principles defined by the FinOps Foundation and the commonality between FinOps and SAM. We have ordered the Principles according to our view of how they align with SAM.
A Centralized Team Drives FinOps
What happened in many organizations is that each business unit became a law unto themselves and set up their own relationship with the cloud. This resulted in unnecessary costs because the company was paying the vendor several times over without getting the benefit of a discount available for a single agreement for the organization as a whole. It also resulted in multiple contracts with the vendor.
When building a mature SAM environment, one of the first actions is to identify every software license and contract within the organization (in use or on the shelf) and centralize ownership in the IT domain under the SAM team. However, the disruption of the pandemic, remote work, and the growth of cloud solutions have resulted in cloudy patches hovering over even the most disciplined and organized SAM environments, especially where the hyperscalers (AWS, Google, and Microsoft) are involved.
The costing models are also different from both on-site and legacy SaaS pricing, and this is where the FinOps team can share their expertise with the SAM and ITAM teams. There are several classes of discounts offered to Cloud users, with different nuances and benefits (or disadvantages) by both the “Big 3” and other cloud providers.
Once all the occurrences of cloud usage have been identified (IaaS, PaaS, and SaaS, although we are limiting this discussion to SaaS), it will be possible to negotiate the soundest and most appropriate discounting deal for the business, bearing in mind contract renewal dates on the existing agreements. While we are not going to explore the pros and cons of the different license types here, we would like to mention two areas where the SAM team can bring their experience to the table; one is whether a SaaS solution for a software asset is the best option for the organization, rather than on-site licenses. Supporting that decision is BYOL (“bring your own license”), where it can be very cost-effective to place on-site licenses in a container in the cloud, for which there is no additional cost.
As with SAM, if cloud costs are not centralized, they cannot be managed and charged back to the business units and employees who actually use the software, which is the next FinOps Principle that we discuss.
Everyone Takes Ownership for Their Cloud Usage
This is where SAM will have led the way. The irony of software licensing, especially with specialized software, is that contract negotiation normally falls on the shoulders of IT and SAM specialists, most of whom never actually use the software or know how it works or what it intends to achieve. Traditionally, the licensing costs also formed part of the IT Capex budget.
In organizations with a mature SAM environment, the practice of charging back these costs based on usage has been implemented. Naturally, there is some pushback from the consumers of these licenses, especially the managers, who now have new costs added to their budget. However, it also makes these managers aware of what the costs of using their software tools are and creates a new discipline of managing unnecessary usage very rapidly.
Of course, there needs to be education so that users understand how being logged into software they are not actually using, such as when they are attending a meeting, drives up departmental costs, and that such licenses can be “harvested” by the SAM administrators. There should also be documented policies and procedures with respect to software entitlement and usage. Naturally, migrating to a chargeback model needs to be handled with tact and patience.
It will not be difficult to assign accountability for cloud usage in such an environment. Again, there must be education on how and when the costs arise so that the user can optimize his or her usage, as they differ from traditional SAM costs. This also can only be done with detailed, accurate, and timely reporting at a departmental and user level. This is where cloud cost management software is essential; there is no way this can be achieved via manual processes and spreadsheets.
Reports Should be Accessible and Timely
As we mentioned above, cloud cost models differ from the traditional SAM costs, as they include both hardware and firmware costs. Our LicenseAnalyzer software was designed to cope with the complexities and all the different license models that the providers of engineering and scientific software could come up with. We heeded the call from our customers who needed additional functionality to identify cloud costs that we had not already included. As a result, we are continuously upgrading LicenseAnalyzer to support them in their SAM maturity journey. The ability to identify usage at the departmental level as to user, time of day, software, and features used from a report is invaluable to everyone in the company, from the CFO to each user and, of course, departmental managers and SAM administrators.
Teams Need to Collaborate
With precise and accurate reporting and reasonable education across the company and everyone accepting accountability for their costs, collaboration can be easily managed. Efficient and optimized usage of software should become part of the company culture, which is a benefit that FinOps brings.
Even the best SAM and ITAM units in the engineering, construction, and scientific industries often struggle to get the message across to Finance and the C-Suite, who do not have a close relationship with the specialized software, although the CFO will be keenly aware of what SAP is costing and may well be using our SAP point solution. A new mindset should soon develop, when the expected savings from migrating to the cloud turn out to be anything but a benefit. With company-wide understanding comes collaboration.
Decisions are Driven by Business Value of Cloud
While it is a principle of FinOps that the business value of cloud is a major determinant in whether one brings a new product or service to market, other factors, such as competition and market demand are the key drivers in any decision to innovate. However, the ability to predict what the software costs will be, as well as the ability to track these costs and keep them under control, is a new dimension that can only improve project planning and management.
Traditionally, project managers would calculate what software licenses were needed for a project and included them as a new Capex project cost and go ahead and obtain new licenses, which would often end up on the shelf upon project completion. Cloud gives the opportunity to add new licenses (if they exceed the capacity of the company’s current portfolio) and dispense with them upon project completion. These are also Opex costs and should result in a finer project cost for the customer and better competition in the bidding.
Take Advantage of the Variable Cost Model of the Cloud
There are definite cost and sizing models where using cloud services are advantageous to the company, not just for once-off projects. There are many different pricing models to fit every circumstance, from signing up for a three-year agreement with a heavy discount, to short-term contracts, which are more suitable for a short-term surge in usage (i.e. new product development).
This is where the SAM and FinOps teams can put their heads together and determine the best options with regard to licensing and entitlement. The SAM team has a wealth of knowledge about software optimization, while the FinOps team is cognizant of where cloud costs can escalate in unexpected ways, such as use of containers and the variances in approach between the different cloud providers.
The Foundation has a very simple three-step Maturity Model, “Crawl, Walk, Run”. We are confident that most or all our customers are at least in “Walk” mode because their SAM teams have achieved Centralization and Ownership. The first 2 principles we discussed, they may still need to integrate FinOps. Reporting is essential (Principle 3) and may require rethinking whether your current license manager covers all bases.
The last 3 principles are a journey, not a destination. But once an organization has achieved reasonable mastery of them, they can be said to have reached “Run” maturity and will have fully aligned the SAM and FinOps teams.
This is quite a long article, but this is a very broad subject and there is a lot more to discuss in aligning SAM and FinOps (not forgetting ITAM and ITSM). Feel free to contact us if you have any questions about your FinOps roadmap and journey, at firstname.lastname@example.org.