Understanding FinOps in the Public Sector: Key Differences from Commercial Entities 

The public sector faces a growing need for robust financial management amid the projected $41.86 billion value of the Government Cloud Market by 2025. In this era of rising cloud expenditures, FinOps is vital for effective resource management.

Part of the case for FinOps is inherent in the word itself: FinOps is a portmanteau of “Finance” and “DevOps,” stressing the necessity of communication and collaboration between business and engineering teams.

While FinOps principles are universal, public-sector organizations operate with a mission-driven focus rather than profit-driven motives. This distinction emphasizes the importance of cost efficiency, transparency, and accountability in achieving policy objectives.

Public sector FinOps strategies must prioritize mission outcomes over profit margins, navigating unique constraints such as compliance requirements, public sector budgeting process and “color of money” issues, as well as stakeholder involvement.

Compliance and Regulatory Environment. One of the key factors that differentiate FinOps in the public sector from that of commercial entities is the compliance and regulatory environment they operate in. Public sector organizations, such as government agencies, are subject to specific rules and regulations that govern financial management such as the Federal Acquisition Regulation (FAR).

FedRAMP is another key cloud compliance requirement that can impose major constraints on cloud services and FinOps tools approved for use. These regulations often require stricter oversight, transparency, and accountability different than those in the commercial sector.  Furthermore, agencies may have additional requirements beyond FedRAMP to provide authority to operate these systems.  This – along with other driving forces – insert controls that impact the ability to make quick changes, resulting in slow, methodical turning of the “ship.”

Budgetary Constraints and Funding Sources. Government entities and the public sector face unique challenges related to budgetary constraints and funding sources. Public sector organizations rely on taxpayer funds, grants, and government appropriations, requiring meticulous financial planning and reporting for efficient fund utilization.

Unlike commercial entities that can make quick fiduciary decisions and adapt promptly, the public sector follows the federal planning, programming, budgeting, and execution (PPBE) process. This process entails planning and approving funding two years in advance, making it challenging for the public sector to make significant adjustments in the current or following year. Decisions in the public sector take time to materialize, leading to delays in responding to changing environments.

Additionally, public sector budgeting prioritizes public service delivery over financial gains, contrasting with the profit-driven focus of commercial entities. This difference influences budget planning, resource allocation, and financial decision-making in the public sector.

Procurement Process. Public sector cloud purchases differ significantly from commercial ones due to stringent procurement processes, compliance with extensive regulations, and multiple approval layers to ensure transparency and accountability. Government purchases are regulated by laws such as the Federal Acquisition Regulation (FAR), Government Services Agency (GSA), among others, ensuring transparency, competition, and compliance with security and socio-economic policies.

The government utilizes Service Acquisition Vehicles, which are often based on multi-year blanket purchase agreements with small business resellers. If properly negotiated, these multi-year vehicles can bring significant rate discounts from list prices. These vehicles also require additional cost data adjustments to reflect negotiated discounts, as well as collaboration with the reseller to configure IAM roles in the Master Payer Account to access the government invoicing, cost, and billing data. This type of cloud service purchase mechanisms involving lengthy procurement cycles, compliance with government procurement regulations, and multiple approvals.

Long-Term Planning and Stability. Public sector entities often have a long-term planning horizon compared to their counterparts in commercial entities. In the public sector, financial decisions must align with broader societal goals and address the needs of citizens over extended periods. This long-term perspective requires robust forecasting, risk assessment, and strategic financial planning to ensure stability and sustainability.  However, government acquisition regulations can constrain purchase commitment period lengths and upfront payment options, which in turn limit the maximum amount of commitment discounts that can be realized.

Stakeholder Engagement and Transparency. Transparency and stakeholder engagement play a significant role in the public sector. Public organizations are accountable to the public and various stakeholders, including taxpayers, elected officials, and oversight bodies. As a result, FinOps professionals in the public sector must prioritize clear communication, comprehensive reporting, and effective engagement with stakeholders to maintain trust and ensure transparency in financial operations.

Cultural and Organizational Differences. The culture and organizational structure of public sector entities play a significant role in shaping how FinOps practices are adopted and integrated. Public sector organizations often have hierarchical decision-making processes, bureaucratic structures, and risk-averse cultures that can impact the implementation of innovative cost management strategies like FinOps.

Resistance to change, siloed operations, and complex stakeholder relationships within public sector organizations may pose challenges to the adoption of FinOps principles and the alignment of financial and IT functions. Overcoming cultural barriers and fostering collaboration across departments are essential for successful integration of FinOps in the public sector.

Social Impact and Service Delivery. In the public sector, financial decisions are mission-driven, so they require focused efforts to define, implement and track FinOps KPIs that are both specific and relevant to the mission of each individual government agency. directly impact the delivery of essential services to citizens, such as healthcare, education, infrastructure, and social welfare. Balancing financial efficiency with social impact is crucial for public sector organizations, unlike commercial entities that are primarily focused on profitability. Therefore, financial decisions must be mission-driven, necessitating a focused effort to define, implement, and use FinOps Unit Economics KPIs that are specific and relevant to the mission of each individual government agency. By adopting tailored FinOps strategies, public sector organizations can optimize cloud spending, improve transparency, and drive better outcomes for citizens.

ManTech can help you navigate the complexities of FinOps and more effectively use the framework in the public sector with our expertise and tailored solutions. Reach out to us to optimize your financial operations and achieve your mission objectives effectively.