FinOps Terms to Know

Whether you’re new to FinOps, looking for a resource to help explain FinOps terms to your colleagues, or just want a recap, here is a list of the most popular must-know FinOps terms. Also, scroll to the bottom for a free downloadable PDF.

FinOps Definition

Short for Financial Operations, FinOps is the intersection between finance and cloud technology. It is the practice of bringing financial accountability into cloud spend by enabling teams to manage their cloud costs more effectively.

FinOps Processes

FinOps involves a set of key processes to enable financial accountability in the cloud:

• Cost Monitoring: Tracks cloud spending in real-time and provides detailed insights into usage patterns.
• Cost Allocation: Mapping costs to specific organizational units (i.e., teams, departments, projects, products).
• Cost Attribution: Mapping costs to specific activities or services.
• Tagging: Applying standardized labels to cloud resources to enable accurate mapping of costs.
• Amortization: The costs of a cloud service distributed evenly over its term, rather than all on the payment date.
• Showback: Reporting cloud costs back to organizational units without actually charging money between them.
• Chargeback: Charging cloud costs from a central budget to the organizational units.

Cloud Financial Management

Effective cloud financial management is at the heart of FinOps practices. Here are some terms related to optimizing and governing cloud costs:

• Cost Optimization: Identifies opportunities to reduce cloud costs.
• Rightsizing: Ensuring that cloud resources are provisioned at the optimal size to meet the actual resource requirements of the workloads.
• Forecasting: Predicting what your cloud costs are expected to be for a period.
• Unit Costs/Economics: The cost per unit of service (i.e., per transaction, per service, per query).
• Effective Savings Rate: Metric to measure the savings of cost optimization efforts. Calculated using the following formula: (Potential Savings / Total Cloud Spend) x 100%.
• Utilization: The ratio of which cloud resources are being used to their provisioned size.
• Cost Anomaly: An unexpected spike in cloud spend, taking into consideration normal usage patterns.

Cloud Pricing Models

Understanding the various cloud pricing models helps teams to optimize costs:

• On-Demand: The default, pay-as-you-go pricing model, where you pay for resources used without commitments.
• Committed Use Discounts: Pricing models that offer discounted prices (compared to On-Demand) on cloud resources (i.e., Amazon EC2 instances) for commitments to a period or compute. Note—the actual name of the pricing model may differ between providers.
  • Reserved Instances: Discounted price for a commitment to using specific instance types and regions. Typically one or three-year commitment periods.
  • Savings Plans: Commit to a specific amount of usage per period, with similar discounts to Reserved Instances but more flexibility, since you don’t have to commit to specific instance types or regions. Typically one or three-year commitment periods.
  • Spot Instances: Use excess compute capacity at no commitment from you or the cloud service provider, for the highest levels of savings. The drawback is that these instances can be interrupted by the cloud provider with little notice when the capacity is needed elsewhere.
  • Enterprise Agreements: Long-term contracts between a large organization and a cloud service provider that offer customized pricing.

Cloud Architectures

An organization’s cloud architecture choices can significantly impact FinOps practices:

• Single Cloud: Using a single cloud service provider for all cloud services.
• Hybrid Cloud: Combining on-premises infrastructure with cloud services from one or more providers.
• Multi-Cloud: Using multiple cloud service providers for cloud services.

FinOps Technologies

FinOps leverages various technologies and tools to automate and streamline cloud cost management processes:

• FinOps as Code: The practice of automating cloud financial operations and cost management with code, similar to how Infrastructure as Code (IaC) manages cloud infrastructure.
• Terraform: Open-source IaC tool that automates provisioning and managing your resources in a version-controlled manner.
• Kubernetes: An open-source platform for automating deployment, scaling, and operations of application containers across clusters of hosts.
• Cloud Cost Management Platforms: Platforms (i.e., Vantage) that provide visibility and optimizing capabilities across multiple cloud providers.

Downloadable FinOps Cheat Sheet

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