Cloud computing and SaaS have made managing IT costs increasingly complex. At the same time, the traditional view of IT as a cost center is giving way to a more business-oriented perspective. To achieve this dual transformation, organizations are embracing initiatives like FinOps, aiming to streamline large areas of expenditure such as cloud and SaaS with a focus not just on cost savings, but on cost optimization.
The Rise of FinOps
Businesses are rapidly increasing their use of cloud solutions and subscription software making the need for financial transparency and optimization greater than ever. Enter FinOps, a collaborative approach that aims to bring financial accountability to the variable spend model of the cloud.
Since its inception, FinOps has focused primarily on optimizing cloud infrastructure costs. However, in February 2024, the FinOps Foundation expanded its scope to include SaaS management. Recognizing that SaaS represents a significant and often overlooked portion of cloud-based IT expenditure, this inclusion underscores the importance of managing SaaS costs as part of a comprehensive FinOps and IT cost optimization strategy.
The Evolving Role of IT
The rise of FinOps is a reflection of the ongoing transformation in many organizations to change IT from a cost center to a strategic business partner. This shift necessitates a change in mindset and approach, requiring IT leaders to become financially savvy communicators who can engage stakeholders in IT budget discussions.
For FinOps and efforts to make IT a strategic business partner to succeed, CIOs must go beyond merely managing the IT budget. They need to offer stakeholders choices, help them understand those choices, and generate a willingness by those stakeholders to invest in what they choose. FinOps efforts work best and have the most impact when teams understand the common goals and collaborate well.
So, how can CIOs elevate their budgeting prowess to navigate these evolving demands? Gartner proposes six pillars of IT Financial Transparency to help CIOs meet this challenge.
Pillars of IT Financial Transparency
1. IT Budgeting: CIOs must be able to present the budget from various angles, enabling them to defend it effectively and collaborate with the CFO to extract maximum value. These perspectives include:
- Traditional: An asset-based view showcasing hardware, software, personnel, and external services.
- Technical: A breakdown of servers, storage, networks, etc., allowing for analysis and benchmarking of technology spending on a per-unit cost basis.
- Business Services: A service portfolio communicating IT’s cost in terms understandable to business stakeholders.
- Investment: Differentiating between operational expenses and investments in new capabilities, highlighting potential value.
2. Investment Planning and Effective Project Management: Implementing an investment-planning process that spans the entire lifecycle of IT investments to manage costs and maximize value. This involves tracking both actual and forecast project costs after approval.
3. Chargeback, Allocation, and Showback: CIOs must understand and communicate various chargeback options to gain business unit leader acceptance. This may involve choosing acceptable weaknesses and ensuring stakeholders comprehend the trade-offs.
4. Benchmarking IT Costs: Incorporating benchmarking into annual planning promotes financial transparency and highlights opportunities for improvement.
5. IT Cost Optimization: CIOs should develop a cost optimization program, including establishing a spending baseline, benchmarking against peers, strategizing, executing, and tracking realized benefits.
6. Demonstrating the Business Value of IT: IT metrics should extend beyond operational and cost metrics to include value metrics that showcase IT’s contribution to the business.
SaaS Management as a Foundation for FinOps and IT Financial Transparency
SaaS management is a logical first step towards effective IT Financial Transparency and FinOps. SaaS is a top 3 expense at many organizations along with real estate and payroll. Yet, because SaaS purchasing is often decentralized, Gartner estimates that the average IT team is only aware of about ⅓ of the SaaS applications in use at their organization. This blindspot creates room for redundant or inefficient spend. Furthermore, SaaS management efforts often have rapid time to value, making it a quick win for IT and finance teams.
To gain control over SaaS spending and lay the groundwork for broader financial transparency and efficiency, organizations need a SaaS management platform (SMP). Manual tracking often falls short of providing the necessary visibility into SaaS usage and spend. An SMP, such as FinQuery Software Management, equips organizations with the tools and insights needed to effectively manage their SaaS expenditure and address a significant portion of their IT budget.
Implementing an SMP is a strategic move that directly supports several of Gartner’s IT financial transparency pillars, including:
- IT Cost Optimization: SaaS management platforms (SMPs), like FinQuery Software Management, provide the visibility needed to identify underutilized licenses, eliminate redundant subscriptions, and optimize the SaaS portfolio. This directly contributes to cost savings, a core tenet of the IT Cost Optimization pillar.
- Demonstrating the Business Value of IT: By reducing unnecessary SaaS expenditures, IT showcases its ability to contribute to the bottom line, demonstrating its business value.
- IT Budgeting: Understanding and optimizing SaaS costs allows for more accurate budgeting and forecasting, contributing to the “Business Services” view of the IT budget, and making it more comprehensible to non-technical stakeholders.
- Investment Planning & Effective Project Management: Proactive SaaS management helps avoid unexpected costs and ensures that SaaS investments align with project needs and overall business strategy.
Furthermore, SaaS management fosters a culture of financial awareness within IT. By tracking and analyzing SaaS usage data, IT teams gain insights into spending patterns and can make informed decisions about future SaaS investments. This data-driven approach aligns with the principles of benchmarking and promotes collaboration between IT and finance, driving the transformation of IT into a strategic business partner.
In essence, SaaS management is not merely about cost control; it’s a strategic enabler for broader FinOps initiatives and IT cost optimization. By investing in the right solutions to proactively manage SaaS expenditures, organizations can strengthen multiple pillars of IT Financial Transparency, paving the way for a more financially savvy IT department that contributes significantly to the overall business success.
Conclusion
In conclusion, the evolution of IT’s role from a cost center to a strategic business partner necessitates a proactive approach to financial management. FinOps, with its expanded focus on SaaS management, provides a framework for achieving this transformation. By embracing SaaS management and SMPs, like FinQuery Software Management, as a foundational step, organizations can unlock greater financial transparency, optimize IT costs, and foster collaboration between IT and finance. As the lines between technology and business continue to blur, mastering the pillars of IT Financial Transparency, including effective SaaS management, will be crucial for CIOs to navigate the complexities of the digital age and drive sustainable growth.
