DevOps. DevSecOps. AIOps. NoOps. RevOps. FinOps. It's hard to keep up sometimes. No worries, though. CloudZero sits at the intersection of finance and operations — and we recently joined the FinOps Foundation, which brings together FinOps practitioners to collaborate, learn, and network.
In this guide, we'll share more about FinOps and why it matters to you as a SaaS company that relies on cloud services and OpEx financials.
Table Of Contents
What Is FinOps In The Cloud?
According to Finops.org, “FinOps is shorthand for ‘Cloud Financial Operations’ or ‘Cloud Financial Management’ or ‘Cloud Cost Management’.
It is the practice of bringing financial accountability to the variable spend model of the cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.”
Credit: FinOps Foundation
The FinOps framework goes beyond just reporting spending. It also enables teams to accurately link spending to the people, products, and processes that generate those costs. You can track who gets what and why — and where your cloud budget goes.
FinOps Benefits: Does FinOps Really Matter?
For a SaaS company, controlling costs isn’t just about cutting spending. Knowing how much it costs to run specific aspects of your business, and exactly what levers you can pull to change it, can give you a competitive edge.
How?
FinOps can help you answer questions such as:
- Where do we cut spending without negatively impacting performance, security, or engineering velocity?
- Which products do we invest more in to generate more revenue or additional revenue streams?
- Are we pricing all of our product features for strong margins? Are there any with unusually low margins?
- Which aspects of our architecture are “always on” versus which are we only paying for when customers utilize them?
- If we doubled our customers tomorrow or hit our sales plan next quarter, how would our cost change?
- Which product features are most expensive to run but are popular with customers?
- Which product or features should we retire in favor of revenue-producing ones?
- Who are our most expensive customers, and are we pricing their services profitably?
- How would our costs change if we onboarded new customers tomorrow, next week, or next month?
- What happens to our cost of goods sold if the unit price of one of our inputs changes?
These are all specific examples of the importance of FinOps to SaaS companies. The FinOps approach takes cost data and breaks it down into granular, actionable insights that tell a story in the context of your business.
How To Implement A FinOps Program
So, how do you get a better handle on your cloud spend? You can do this in three phases — the lifecycle of FinOps: Inform, Optimize, and Operate.
- Inform is about ensuring all stakeholders have the information they need. This starts with allocating all costs and transforming them into the metrics and dimensions that make sense to your business.
- Optimize is about reducing cloud costs. This can be done with either financial levers or by enabling engineering to architect more cost-effective infrastructure.
- Operate is about the processes that support these practices and help scale the effort.
That’s the short end of implementing a FinOps framework. The FinOps Foundation breaks down the process further as you can see in this image:
Credit: Adopting FinOps - FinOps Foundation
Now, let’s break this FinOps implementation plan down real quick.
1. Plan for FinOps adoption
Start by researching pain points, operational issues, and other challenges that your organization's teams/business units face. Encourage teams to articulate issues in a clear, concise manner, including how they believe other teams affect them.
For instance, finance might complain that engineering provisioned more cloud resources than necessary. Engineering might feel finance only focuses on the money rather than providing redundancy to minimize service disruptions.
Then assemble a pilot team of engineers, finance, and C-Suite representatives to brainstorm a vision of what you’d like to accomplish. It is okay to ask an external consultant for guidance at this point.
Credit: How to plan a FinOps adoption - FinOps Foundation
2. Socializing FinOps to the team
The next step is to vividly communicate how adopting a FinOps framework works so you can foster goodwill. You're also trying to prepare all involved mentally about what they'll have to improve in terms of their values and routines to start seeing progress (a cultural shift).
How to promote a cultural shift to FinOps in your organization
3. FinOps preparation phase
You can use this phase to establish your key performance indicators (KPIs), which you’ll use to measure your FinOps progress.
You can also create a roadmap, defining the progression of your FinOps adoption journey: Crawl (starting), Walk (scaling), Run (mature, full-blown cost-conscious operations).
Preparing for FinOps adoption
4. Launch FinOps
After laying down the fundamentals, both theoretically and in terms of infrastructure changes, it is time to implement FinOps best practices at a sustainable pace.
Change the basics first. Getting the simple things right will help your team develop the enthusiasm and momentum needed to build more complex workflows.
How to launch a FinOps program in your organization
5. FinOps running phase
In this phase, you’ll actively implement several FinOps principles in production. Be sure to compare actual performance against the KPIs you established earlier to gauge progress.
Monitoring continuously will help you identify which areas need more attention to achieve your FinOps goals.
So, what are some FinOps best practices you’ll want to apply right away?
FinOps Best Practices To Make Your FinOps Initiative A Success
Here are some of the critical FinOps principles to apply right away.
- To chart the course for FinOps, bring together a diverse team that represents all stakeholders.
- Consider inviting external experts to strengthen your team's expertise at any stage.
- Sell the benefits of FinOps to specific teams or business units to get buy-in. This creates an incentive for your people to overcome resistance to change.
- Align engineering and finance teams by encouraging early and frequent communication so they understand each other's priorities and problems.
- Agree on which decisions to shift left to engineering to encourage faster responses to architectural issues where delayed answers may lead to overspending.
- Measure unit costs, such as cost per customer, cost per deployment, and cost per team. This way, you can identify key levers, trade-offs, compromises, and opportunities you can use without compromising smooth service delivery.
- Encourage practices that foster a cost-awareness culture, such as right-sizing resources and terminating idle ones.
- Leverage user-friendly and robust FinOps tools to automate continuous monitoring and optimization.
Speaking of FinOps solutions, here are some ways to automate FinOps.
FinOps Tools: Which FinOps Solutions Are Best For Getting Started?
There is a growing number of FinOps tools you can use today. We’ve covered 5 top FinOps platforms you can adopt immediately here. Here are a few you can consider for getting started.
1. AWS Cost Explorer
Cost Explorer is available to all AWS customers for free. If your requirements are relatively straightforward, and you don’t need cost visibility across complex, variable infrastructure, Cost Explorer might be enough for you.
The tool features dashboards, rightsizing, Savings Plans recommendations, and cost anomaly alerts.
Year Founded: 2014
Category: AWS Native Tools
Pricing model: Free with AWS
Best for: Businesses that have relatively straightforward billing and spending patterns
2. ProsperOps
ProsperOps autonomously orchestrates your instances to take advantage of the most cost-effective Savings Plans and Reserved Instances (RIs) — using algorithms, advanced techniques, and continuous execution.
Another benefit is that ProsperOps only charges you a percentage of the savings it generates you — not a percentage of your spend like other tools do.
Year Founded: 2018
Category: Autonomous Savings Management
Pricing model: (as of 2/2021 according to AWS Marketplace): $0.05 per dollar saved on compute and $0.35 per dollar saved on purchased/optimized convertible reserved instances
Best for: Companies looking for a new, modern approach to AWS savings plans and reserved instances
3. CloudZero
CloudZero provides accurate, granular, and actionable cost insights for finance, engineering, product teams, C-Suite, the board, and even investors.
- Engineers can view costs per product or software feature, per deployment, per environment, per team, per project, per Kubernetes cluster, and more.
- Finance can see cost per customer, per product, per project, COGS, and more.
- Management and investors can assess the organization's competence, gross margins, and profitability with metrics like COGS, gross profit, and cost per customer.
Anyone can see where money is flowing using this unit economics approach. So, they can tell exactly where to cut unnecessary spending and where to invest more to maximize ROI.
Year Founded: 2016
Category: Cloud Cost Intelligence
Best for: Companies looking to transform spend into business-centric dimensions
Pricing Model: CloudZero pricing is custom to your environment.
to see CloudZero in action. One of our Cloud Cost Analysts will engage with your team, providing insider tips and tricks to get you from Crawl to Walk to Run in weeks — not months or years.
FinOps FAQs
Here are some answers to some frequently asked questions about adopting FinOps.
What is the difference between FinOps and DevOps?
DevOps, a combination of development and operations, is all about automation, breaking down silos, collaboration, and “shifting left”, which means finding and resolving potential engineering issues before they become problems.
Like DevOps, FinOps aims to transform cultures and practices, and it uses various tools. But while DevOps emphasizes delivering high-quality software at speed, FinOps focuses on optimizing engineering cost efficiency.
Is FinOps about reducing cloud costs?
The end result of FinOps can be savings — but it doesn’t need to be. As the FinOps Foundation puts it, “FinOps is about making money.” FinOps-based decisions can range from pinpointing where to cut costs to improve overall margins to which high-margin products to invest more money in to maximize ROI.
Resources
Blog
Case Studies
Events
Free Cloud Cost Assessment
