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Image: How To Target Software and Cloud Costs by Uniting Software Asset Management and FinOps: Insights from Gartner®

The escalating costs of software and cloud services necessitate a comprehensive approach to governance and optimization. Executive leaders are confronted with the imperative to establish an integrated SAM (Software Asset Management) and FinOps (Financial Operations) unit to ensure maximal value extraction and elimination of wasteful consumption. This blog explores our understanding of the key findings and recommendations and other sections/insights from Gartner® ‘Target Software and Cloud Costs by Uniting Software Asset Management and FinOps’1.

Overview

Impacts

  • Senior executives are starting to challenge the value of digital transformation, having encountered dramatic growth in software and cloud usage without adequate management and optimization.
  • Where software asset management (SAM) and FinOps do exist, they have limited influence or authority to optimize consumption and value across a growing, increasingly complex set of environments.
  • Despite their interdependencies, SAM and FinOps often operate independently, in different silos and with limited resources, eroding their value-maximization potential.

Recommendations

Executive leaders responsible for maturing software and cloud governance disciplines should:

  • Consolidate and mandate SAM and FinOps disciplines to drive enhanced visibility and understanding that maximizes value and opportunity while minimizing cost and risk.
  • Create an integrated unit that profits from the synergy of both disciplines to deliver optimum benefit across an increasingly complex technology environment.
  • Check that the consolidated functions are adequately staffed with skilled team members to work with key stakeholders to eliminate unproductive cost overruns.

Strategic Planning Assumption

By 2025, 50% of organizations will unify SAM and FinOps into a consolidated discipline delivering portfolio cost management and governance.

Impacts and Recommendations Mandate SAM and FinOps to Optimize Cost and Value

FinOps and SAM are kindred spirits; although founded from different eras of technology adoption, their disciplines share objectives. Both represent coordinated, continuous undertakings to realize value from evolving investments and expenditures. Their frameworks exploit many of the same cost-efficiency principles and capabilities, incorporating a combination of consumption, rightsizing, optimization and mitigation management fundamentals.

Rightsize SaaS With SAM

As the organization becomes dependent on each cloud service and its features, buyer bargaining power is eroded (see Predicts 2023: Inflation’s Permanent Impact on SaaS/Software Costs, Commercials and Business Practices). While procurement experts earnestly attempt to resolve these issues, they are often frustrated by their inability to limit cost increases at each contract renewal. Options to switch to an alternative may be limited and/or costly to execute (see Identify and Mitigate SaaS Switching Costs), while cost increases are most dramatic in monopolistic scenarios. Therefore, organizations require consumption management to offset or limit cost increases in advance of renewal, with estimates of unused applications ranging from 30% to 50%.2 Execution requires a well-resourced, adept SAM team with the directive to manage consumption and eradicate waste.

Confront CIPS Wastage With FinOps

As a core contributor to the cloud center of excellence (CCOE), FinOps fills a key role in reducing waste and costs. In parallel with SAM processes, FinOps-driven optimization will minimize waste.3 For example:

  • Scale back or retire services provisioned without ongoing use cases that remain unutilized.
  • Scale down valid yet underutilized services, including; underutilized CPU, memory, storage, backup or bandwidth, triggering actions to rightsize and reprovision the relevant instances.
  • Deprovision services that served a useful term but have since remained running without any delivered value. Switch off or reassign services accordingly.

Without effective SAM and FinOps disciplines, waste is inevitable, with the majority of applications and environments significantly underutilized. Meanwhile, unplanned consumption growth in CIPS environments can turn into toxic overconsumption if left unchecked, resulting in significant, ongoing unproductive costs. The combined SAM and FinOps functions must be tasked with eliminating growth of unnecessary costs as one of their key goals.

Recommendations for Executive Leaders: 

  • Establish budget risks by reviewing software and cloud cost escalation rates.
  • Create a mandate for investing in SAM and FinOps as key mechanisms to offset material risks of continually escalating costs.
  • Establish an expectation that both disciplines operate with a shared understanding of what assets and resources are used within each environment or platform.
  • Create authorization, empowerment and a culture that drives action and realization from SAM and FinOps optimization and mitigation recommendations executed throughout IT.

SAM and FinOps Role in Delivering Business Value From Cloud Adoption

Cloud services and software both deliver significant value to the organization and its customers, thus representing high-value business capabilities that necessitate management. Executive leaders seek to ensure they’re not only benefiting from rapid adoption, but also seeing broader benefits including understanding costs and leveraging robust processes, particularly in regulated industries.

SAM plays a critical role in advancing cloud adoption and providing a platform for driving optimization maturity, laying the platform for forecasting future requirements and the resulting costs. Assessing consumption against projections while identifying underutilized licenses must be incorporated into the organization’s overall cloud strategy. Unlike predictable costs of preinvested assets, cloud services scale rapidly, requiring continuous management. SAM professionals have previously addressed virtual server sprawl and its impacts, however, unlike the virtual on-premises data center, cloud services are an unlimited, direct and immediate cost. Accordingly, continuous discipline is required to drive value (see Figure 3).

Ephemeral cloud systems are subject to consumption spikes where costs may rapidly erode expected benefits; accordingly, anomaly detection and management are fundamental to protecting business value. The key is being able to tell the difference between bad growth, creating unnecessary cost and good growth that delivers business value. Therein lies the role of FinOps in underpinning value. For example, alerts for consumption growth trigger investigation to validate authentic spikes in consumption, finding that the spike was driven by onboarding a large new client, supporting validation of valuable use rather than unproductive use.

Detailed usage data collection and reporting and effective use of analytics depend on asset life cycle management processes, interpreting data and executing the actions they inform. For example, by implementing effective provisioning and metering processes, SAM can align the licensable functionality of an application to appropriate use cases, reducing the likelihood of inflated costs. Recommendations for Executive Leaders: 

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Cloud Management

Take control of cloud use with out-of-the-box and customized policies to automate cost governance, operations, security and compliance.

  • Sponsor the governance mandate for software and cloud services management, with clear roles and responsibilities across consolidated SAM and FinOps teams.
  • Verify that SAM and FinOps teams have the skills, resources and processes needed to manage cloud service consumption.

Conclusion

In conclusion, the integration of SAM and FinOps is essential for organizations to navigate the complexities of software and cloud governance. By leveraging the synergies between these disciplines, organizations can achieve enhanced visibility, cost optimization, and value maximization across their technology portfolios. With the right resources and strategic direction, SAM and FinOps will continue to play pivotal roles in driving business value and ensuring cost containment in an ever-evolving technological landscape. To learn more about the value of aligning SAM and FinOps, download the complimentary Gartner Report, FinOps: The Answer to Cloud Cost Governance in 2024?

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1Gartner, “Target Software and Cloud Costs by Uniting Software Asset Management and FinOps” by analysts Stephen White, Yoann Bianic, Stewart Buchanan, 6 April 2023.

2
Unused application rates from Flexera’s October 2022 survey data: desktop, 38%; data center, 34%; SaaS, 33%. According to Nexthink 49% of all software is unused, and according to Zylo, 40% of software licenses are wasted.

3
Reducing Waste Opportunities, FinOps Foundation, and State of ITAM Report, Flexera, which reports that 33% of integration-as-a-service/platform-as-a-service spending is underutilized or wasted.

3
Licensing Oracle Software in the Cloud Computing Environment, Oracle, and Microsoft Product Terms for Azure Services, Microsoft.

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