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Discover what FinOps is, how it compares to DevOps, and why it's important for SaaS businesses to monitor.
Every couple years, it seems the tech industry mashes together different team names to make up the latest discipline — whether it’s DevOps, DevSecOps, AIOps, or most recently, NoOps. The names can seem eye roll-worthy at first.
However, when their associated practices are followed correctly, many have been transformative. They force collaboration early and often — which helps companies improve velocity and foresee potential risk before disasters occur.
The latest combination of departments is FinOps — a hybrid of finance and operations. And while these two groups might not seem like a natural combination, we’ve witnessed firsthand that practicing FinOps can be incredibly strategic and impactul.
CloudZero sits at the intersection of finance and operations — and we recently joined the FinOps Foundation, a group that brings together FinOps practitioners for collaboration, learning, and networking. We thought this would be a good opportunity to discuss what FinOps is and how it’s becoming an increasingly strategic role at SaaS companies.
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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 cloud, enabling distributed teams to make business trade-offs between speed, cost, and quality.”
Credit: FinOps Foundation
According to the FinOps Foundation, there are three phases: Inform, Optimize, Operate.
If you’ve been in the tech industry for a while, you know that DevOps is a combination of development and operations. It’s a series of practices and principles, combined with tools that emerged to support, which help companies deliver software to market at a high velocity with fewer disruptions.
DevOps is all about automation, breaking down silos, collaboration, and “shifting left”, which means measures are taken to find and avoid potential issues in software earlier in the process.
Like DevOps, FinOps is a transformation of culture and practices, supported by new kinds of tools. It starts with collaboration between teams and breaking down silos. The outcomes — like improved communication and collaboration are similar. However, the responsibilities associated with FinOps are quite different.
Whereas DevOps is all about software development, FinOps is focused on cost management and optimization. Engineering and finance collaborate to ensure there is sufficient visibility into cost to drive better decisions throughout the company.
At some companies, especially larger ones, there is a dedicated FinOps person — or even a whole team. At others, these responsibilities are taken on by subsets of engineering, such as DevOps, infrastructure engineering, or parts of finance teams, such as financial planning and analysis (FP&A) — or a combination of both.
The end result of FinOps can be savings — but it doesn’t need to be. In fact, in many cases, FinOps may drive more spending or a strategic decision to make cost a secondary priority, after something like speed of delivery.
The goal of FinOps is to provide various stakeholders with the visibility and cost understanding they need in order to drive better outcomes for the business. As the FinOps Foundation puts it, “FinOps is about making money.”
These strategic decisions can range from understanding where to cut costs to improve overall margins while weathering a downturn in business — to which high-margin products to invest more marketing money in.
With many SaaS companies spending record amounts on their cloud infrastructure, cloud is often a top contributor to cost of goods sold (COGS). If SaaS COGS get out of control, it can put a company’s margins at risk — impacting everything from pricing power against competitors to the company’s valuation.
For a SaaS company, controlling cost isn’t just about cutting spend — it’s can also be a strategic advantage. Understanding how much it costs to run different parts of your business, and which levers you can pull to change it, can be a superpower.
Mature FinOps organizations go beyond simply reporting on how much they’re spending. They align cost to the business dimensions their stakeholders care about.
For example, they understand the cost of different aspects of their architecture and how much it costs to support different features. They also know the cost of different customers — and will usually have a unit cost metric to track their cost over time, in the context of whether or not their business is growing.
With this visibility, they can start to answer questions like:
This kind of thinking can ensure you’re investing in the right areas and maximizing your margins.
There are a number of tools available to support your FinOps initiatives. You can find a complete list of them, including vendor profiles on the FinOps Foundation website. Here are a few worth highlighting:
Cost Explorer is a free tool that AWS offers to all customers. If your requirements are relatively straightforward, and you don’t need visibility across complex, variable infrastructure, Cost Explorer might be enough for you. They also offer features like rightsizing, savings plans recommendations, and cost anomaly alerting
Year Founded: 2014
Category: AWS Native Tools
Pricing Model: Free with AWS
Best For: Companies with relatively uncomplex spend
ProsperOps is focused on Savings Plans and Reserved Instances (RIs) — using algorithms, advanced techniques, and continuous execution. If you’re looking for a modern, innovative approach to RIs and Savings Plans, ProsperOps is worth looking into.
One of their benefits is that they only charge you for savings — not for a percentage of your spend like other tools.
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
CloudZero translates cloud cost into a language that makes sense to your FinOps stakeholders, including finance, engineering, product, and more.
You can measure relevant business metrics, like cost per product feature, customers, unit cost, or whatever flexible dimensions make sense for your business.
Year Founded: 2016
Category: Cloud Cost Intelligence
Best For: Companies looking to transform spend into business-centric dimensions
Pricing Model (as of 2/2021 according to AWS Marketplace): Flat annual rate
Pictured: The CloudZero Customer Intelligence Dashboard
With CloudZero, engineers can make improved decisions about how to build new products and features. Meanwhile, finance and leadership can drive strategic business outcomes based on accurate, granular COGS metrics.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.