TBM and FinOps: How They Work Together

TBM manages the business of technology; FinOps enables organizations to realize the full business value of the cloud.

Technology Business Management (TBM), a best practice discipline for managing the business of IT; and FinOps, the financial operating model for public cloud consumption, share a common goal of defining IT through impact rather than spend.

What is TBM?

TBM was built to serve the needs of on-prem IT with data-driven decision-making to manage, plan, and optimize spend. TBM has incorporated data-driven decision-making for cloud but doesn’t manage the complexities of allocating cloud costs and the prescriptive methods of controlling those costs. TBM looks at the “what” of all IT spend, including a macro view of cloud spend.

Without TBM, IT finance drives accountability with monthly reporting from the general ledger siloed away from other stakeholders. By bringing the people (and data) of IT finance, operations, and business together, TBM builds a stakeholder community to manage all of IT.

tbm framework - TBM and FinOps: How They Work Together - Apptio
TBM Framework v2.0

Since its inception as the leading framework for managing the business of IT, TBM encompassed public cloud spending. However, the emergence of FinOps has led to more specific and granular best practices for managing the consumption and cost of public cloud infrastructure and platform services, such as those from Amazon Web Services, Microsoft Azure, and Google Cloud Platform.

What is FinOps?

FinOps was born for the cloud. Systems, best practices, and culture increase an organization’s ability to understand cloud costs and make informed and rapid tradeoff decisions. FinOps focuses on optimizing cloud costs and usage by technical and organizational means.

FinOps puts cloud cost responsibility in the hands of cloud practitioners. Senior leadership has a say on what to work on, but not how. Application owners, particularly cloud practitioners, are better stewards of resources when they have visibility and agency to manage their cloud costs. FinOps gives the organization the ability to develop responsible cloud users.

Senior leadership sets the strategic direction, but gets out of the way regarding tactics (e.g., the budget is X; the costs to deliver the application can be no more than Y per unit). Cloud practitioners provision and optimize cloud resources to meet that guidance and keep stakeholders informed and primed for rapid change, creating a flexible, fast, and efficient organization.

FinOps process 1 - TBM and FinOps: How They Work Together - Apptio
The FinOps journey consists of three iterative phases

How TBM and FinOps work together

The use of TBM and FinOps at any given company will be based primarily on the characteristics of each company’s IT spend. If IT spend is large and complex, TBM will be indicated, whether or not there is extensive cloud use. FinOps is necessary when an organization has adopted the variable spend model of public cloud services, regardless of the breadth and complexity of its IT spend overall. When both conditions exist, use both disciplines.

Characteristic FinOps TBM
Decision-Making Cadence Near real time Monthly, quarterly, annually
Accountability Engineering, DevOps, site reliability engineering, product teams Federated across IT, finance, and the lines of business
Scope Public cloud infrastructure and platform services Total IT spend, including labor, hardware, software, third-party services (including cloud), and more
Primary Aim Optimize public cloud consumption and cost, and realize business value from cloud Optimize all costs, especially of apps, products, and services, and realize business value from all of IT spend
Forecasting Trending + business demand-driven with rapid iterations and high accuracy Trending + business demand-driven, translate IT forecasts into financial forecasts
Action Focus Bottom-up, tactical first Top-down, strategic first

TBM is like Google Maps: It will help you navigate from one city to another and give you the macro picture. But you can’t drive your car just looking at your phone—and if you do, you aren’t paying attention to your driving. For cloud services, FinOps is the windshield and dashboard you use to maintain speed, stay on the road, avoid hitting other cars, stop and accelerate, etc. You need both: A macro view with directions on where to go and a real-time tactical view of getting there most efficiently. These two views must work hand-in-hand. (Want a quick detour to avoid unexpected roadworks? That’s also FinOps.)

Hybrid IT—built on traditional, largely on-premises technologies plus public-cloud-based services—needs the perspective of both TBM and FinOps. They support the same value conversations, but TBM takes a top-down, IT-wide data approach with monthly reporting from different perspectives. In contrast, FinOps takes a bottom-up approach to real-time cloud data. Together they provide a top-to-bottom view of IT costs that deliver insights into IT business value.

Consider this scenario: migrating workloads from on-premises infrastructure to public cloud services. To do so wisely, it’s important to understand the cost and consumption of those workloads prior to migrating them, including costs that will be retained by your company. TBM allows you to do this using data to provide transparency into application and infrastructure TCO. However, migrating those workloads and then managing the cloud consumption requires FinOps. Finally, understanding TCO still depends on TBM, because a significant portion of your workload costs are labor, software, networking, and other resources that remain consistent, or even go up, when you move to the cloud.

For companies with TBM in place, FinOps addresses a challenge unique to public cloud consumption: highly variable and scalable hourly consumption patterns can quickly consume the entire budget for the month or, in extreme cases, a year. TBM’s usual cadence of monthly reporting is insufficient. FinOps provides the discipline, tools, and data to manage public cloud consumption in near real-time; use that data to optimize usage; and build the culture to continually increase your cloud efficiency and capability.

For companies that have FinOps in place, TBM provides a broader context for technology spending. TBM models and reports IT costs, including labor, hardware, and software (asset-based or delivered via a service provider), facilities (e.g., your data center), telecommunications, and more. When combined, FinOps and TBM work very well together, with FinOps providing greater rigor around a much more dynamic set of resources while also feeding TBM data for its macro-oriented monthly view of spending and consumption.

TBM and FinOps are complementary

With the ability to tune and optimize every one of the thousands and millions of lines of cloud resources, FinOps focuses on working with the details. TBM informs about all IT costs with general ledger data (e.g., labor costs, licensing, revenue) and operational data from on-prem (e.g., BMC TrueSight), private cloud (e.g., vRealize), and monthly cloud bill data.

Or, to put it another way: FinOps can function entirely on its own to help maximize cloud innovation and integrate into TBM using an API. Doing both makes both better. If you only do one, you need vital inputs, stakeholders, and understanding from the other.

FinOps, TBM, and development teams stand up the cloud economy. Start with granular cloud data coming out of FinOps and labor, cost, and revenue from a GL—together, they deliver impactful cloud chargeback. If you are doing cloud, without FinOps processes in place, the chargeback is probably inaccurate. When the unit economics of IT are under control, development teams—the innovation engine in your organization—are unblocked as they don’t have to do costly rework or stop innovating to rebuild solutions that do not meet the organization’s efficiency requirements.

For most companies with both TBM and FinOps, they are owned and operated by two different but collaborating teams. TBM is usually owned by a TBM office or by IT finance; FinOps is usually owned by teams embedded within engineering. However, they must collaborate on how consumers will be held accountable and how cost data will be used. For example, will the business be charged directly for cloud infrastructure (IaaS) costs in some way; or will those costs be attributed to the applications they support first, and then the app costs charged to the business using TCO? Clearly, TBM and FinOps must be on the same page regarding these types of decisions.

Unit economics

FinOps and TBM deliver a fully burdened and accurate unit economic cost of IT. With only cloud data, organizations only have a directionally accurate unit cost. Higher proportions of cloud spend, managed with FinOps principles, create more accurate unit costs.

Unit economics enables you to determine the revenue you’ll gain from a single unit of your business and the cost associated with servicing it—ultimately revealing the business value of spend.

The ultimate output from the integration between FinOps and TBM is the defensible unit economics for all cloud workloads and, more broadly, things like applications, services, products, and even value streams.

All stakeholders, from executive leadership all the way through to DevOps, need to align and focus on one metric that captures IT cost, quality, and value into one business-orientated KPI (e.g., for a travel company, cost/mile; for healthcare, cost/bed; insurance, cost/claim). Business-orientated IT metrics require the line of sight provided by TBM and FinOps.

Unit economics are organization- and workload-specific—there isn’t a universally accepted metric by a specific vertical (e.g., hospitals have a different KPI for inpatient and outpatient care; transportation companies’ costs vary by mode of transport). FinOps and TBM pool data and drive best practices to lower unit economics of the cloud, but the north star is for an organization to define and calculate.

IT is also just one part of unit economics. A born-in-the-cloud company trading with data or IP (think Spotify or Capital One) has a large amount of their operating budget tied up with IT. These organizations have an easier time tying changes in IT spend to changes in unit economics. In contrast, the IT spend of transportation and logistics companies is possibly dwarfed by their fleet of 18-wheelers and airplanes. In that case, though IT drives innovation, it’s a smaller contributor to unit economics.

FinOps and TBM drive down cloud unit economics, but there is a limited impact of cloud spend on unit economics when IT only makes up a small part of that overall cost of, say, $/mile or $/delivery.

TBM and FinOps drive business value

Operational and business metrics are not necessarily aligned—there isn’t a direct through-line from IT spend to revenue. FinOps and TBM drive IT efficiency and gauge customer satisfaction—a leading indicator of increased revenue.

Take a FinOps team looking at a streaming video service. For a single stream, infrastructure delivers content in 600ms and costs $0.01. By running tests, the DevOps team discovers that improving the infrastructure can cut the time to 400 milliseconds, but the cost goes up to $0.011 per stream. That’s a 10% increase in cost, but they also find that customers begin consuming 20% more paid content. That’s a win. The company spends more, but it makes more than the spending increase. Operational improvements drive customer satisfaction. Win-win.

Driving up IT spend to improve customer experience has diminishing returns. For a streaming service, offering up content that people want to watch is a more significant differentiator than video quality (“I see your 300ms streaming and raise you exclusive licensing of the latest Oscar-winning blockbuster”).

Business leaders and DevOps must ask: “How far we should push innovation with increased IT spend vs. investing in the actual product?” Setting and measuring that balance is the intersection between TBM and FinOps. It’s not a pure IT play; it’s not an aspirational “if-we-build-it-they-will-buy-it” play.

A dedicated system for TBM and FinOps

Neither TBM nor FinOps is scalable if, once operationalized, they require too much ongoing effort. TBM and FinOps must be robust in the face of change—with low manual effort and high automation.

Apptio enables finance, technology, and business leaders to apply the principles of TBM and FinOps and make trusted technology investment decisions. Apptio’s unified cost model automates data ingestion and pushes data-driven insights in minutes—accelerating planning cycles to assess performance quickly and redirect resources to opportunities with the highest return.

IT needs to measure, optimize, and operationalize management practices for IT spend—both for traditional on-prem solutions and the emerging majority of cloud-based IT. TBM and FinOps measure the business value of the new IT operating model while releasing the brake on cloud adoption.

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Additional Resources

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