What is cloud cost management?
Cloud cost management (CCM) is essential for organizations looking to harness the power of the cloud without succumbing to its potential financial pitfalls. With the shift towards cloud-based operations accelerating, the need to manage the associated costs has never been more critical.
The scope of CCM is broad, covering several key areas such as cost visibility, budgeting, forecasting, cost optimization, and governance. These components work together to provide a comprehensive approach to managing and reducing cloud expenses while ensuring that cloud services meet business needs effectively.
Flexera’s 2023 State of the Cloud Report found that managing cloud spend is now the greatest challenge for organizations, ahead of security and a lack of resources and expertise. This shift underscores the increasing complexity and significance of cloud cost management as companies navigate a volatile economic landscape.
Furthermore, Gartner has predicted that end-user spending on public cloud services by companies around the world will jump from $563.6 billion last year to $678.8 billion in 2024, highlighting the urgency for companies to adopt cloud cost management.
This blog post will explore the consequences of not optimizing cloud spend while also outlining some best practices to allow you to get started with CCM.
What is cloud cost management
The scrutiny of cloud costs has intensified recently, not because cloud adoption is a new trend but due to the evolving economic landscape marked by fears of recession and financial instability. While the cloud has been a cornerstone of digital transformation for years, offering scalability, flexibility, and cost-efficiency, the current climate has forced businesses to reassess their operational expenses more rigorously.
However, regardless of economic trends, the financial implications of unmonitored cloud usage cannot be overstated. Without effective cost management strategies in place, businesses can face unexpected expenses, quickly turning the cloud’s benefits into financial burdens.
The ultimate aim of CCM is not merely cost reduction but enhancing the overall value gained from cloud investments.
CCM: Not only for hard economic times
A focused effort on managing cloud expenses can unearth opportunities for substantial cost reductions. Identifying and eliminating inefficiencies allows companies to decrease their overall cloud expenditures. Meanwhile, the funds saved through these efforts can be redirected toward other areas of the business, fostering growth and innovation.
Increased agility
Moreover, adept management of cloud costs enhances a company’s agility. By maintaining a detailed understanding of cloud expenditures and actively managing these costs, you can swiftly adapt to changes in demand. This is crucial when scaling cloud resources up in response to increased business needs. Without effective cost controls, scaling can become financially burdensome, hindering a company’s ability to react to market demands.
Less waste
Avoiding resource wastage is another critical aspect of cloud cost management. It’s common in cloud environments for companies to pay for more resources than they actually use. Identifying such wastage and making adjustments can lead to significant savings, ensuring you only pay for the resources required.
Enhanced governance
Lastly, cloud cost management is integral to maintaining governance and compliance within a business’s cloud operations. Through diligent monitoring and management of cloud usage and expenditures, organizations can be certain they are adhering to relevant regulations and policies. This oversight is crucial for demonstrating efficient use of resources and making sure IT costs are within the defined budget.
In essence, effective cloud cost management is not just about cutting costs; it’s about optimizing resource utilization, ensuring financial flexibility, and maintaining compliance, all of which are pivotal for the sustained success and growth of a business in the digital age.
The benefits of getting CCM right
There are several success stories of companies getting cloud cost optimization right. Let’s explore some of these examples to see the benefits of CCM firsthand.
A FinTech startup was facing scalability challenges as it grew. By migrating to Google Cloud and adopting containerization, it was able to overcome these hurdles, resulting in a 60% reduction in cloud hosting costs. This move also led to a 400% improvement in app development time-to-market and an 80% decrease in error resolution time.
The FinTech’s adoption of CCM not only provided financial gains but also resulted in better overall efficiency and proper resource utilization.
Another organization, a large media company, migrated to AWS, significantly cutting its cloud costs via strategic cost management practices. The move not only saved money but also enhanced the company’s operational agility by allowing it to:
● Reduce its on-premises server footprint.
● Leverage reserved instances for compute savings.
● Utilize Amazon S3 Intelligent-Tiering for efficient storage.
● Capitalize on volume discounts.
The organization’s use of CCM also highlights how companies must navigate different cloud pricing models. Service providers offer a vast array of pricing options, from on-demand to reserved instances and spot pricing. This can make it difficult for businesses to select the most cost-effective option; however, it also increases the risk of unnecessary spending due to a lack of understanding of the pricing structures.
In this case, the company was already using AWS but took advantage of the pricing structure of different AWS services and subscribed to S3 Intelligent-Tiering.
Best practices for effective cloud cost management
Now that we have an understanding of what CCM entails and the benefits that can be achieved for your business, let’s dive into some of the best practices to employ.
Apply visibility and accountability
The cornerstone of cloud cost management is visibility into where and why costs are incurred. Without this information, managing cloud spend is a shot in the dark. A study by Gartner suggests that companies can save 10%-20% on their cloud services by increasing cost visibility and accountability. This is because it helps identify services that can potentially be shared.
The right solution will enable real-time visibility into cloud resource consumption, tracking resource usage and expenditure across different departments and projects. Furthermore, assigning cost centers and creating a culture of accountability will provide visibility on cloud spend and ensure steps are taken to optimize usage.
Perform budgeting and forecasting
Cloud budgets align spending with corporate objectives and are vital for avoiding cost overruns. Effective budgeting starts with a historical analysis of cloud costs and trends. Forecasting tools can then predict future needs based on these patterns.
The use of predictive analytics can reduce cost variances significantly. This proactive approach enables companies to anticipate and plan for changes in usage, ensuring that budgets remain relevant and accurate.
Employ cost optimization strategies
Refining costs within your cloud infrastructure involves a continuous and complex procedure, segmented into various components.
Resource optimization
Right-sizing entails matching allocated cloud resources with the actual workload demand. For instance, a report by ParkMyCloud indicated that companies waste 45% of their cloud spend on oversized resources or resources meant for development that don’t need to run 24/7. By regularly reviewing and adjusting resource allocations, you can shut down idle resources or scale them to meet demand, avoiding unnecessary costs.
Reserved instances and savings plans
By committing to certain usage levels, we can capitalize on discounts offered by cloud providers. AWS, for example, offers up to 75% savings for reserved instances compared to on-demand pricing. These financial instruments provide cost certainty for predictable workloads and can be a significant part of your cost optimization strategy.
Tagging and resource management
Tagging is a simple yet effective way to track cloud spending. By assigning metadata tags to resources, you can categorize costs by project, department, or usage type. This granular view enables more precise cost allocation and helps identify inefficiencies.
Adhere to governance and policies
Governance frameworks and policies serve as the guardrails for cloud usage. These policies dictate what types of instances you can provision, enforce compliance with budgetary constraints, and mandate security standards.
A strong governance framework can reduce cloud costs by up to 30% by eliminating maverick spending and ensuring that resource usage is in line with company policies.
Leverage cloud cost management tools
To support these best practices, a plethora of cloud cost management tools are available. Manageengine CloudSpend, for instance, allows for detailed visualization of multi-cloud spend and usage patterns, helping businesses uncover savings opportunities. This also leverages AI to identify anomalies and optimize costs continuously.
Cloud cost management is a comprehensive approach that includes:
● Identifying dormant or minimally used resources.
● Selecting cost-efficient pricing options.
● Applying best practices in resource management.
With the cloud becoming an integral part of business operations, it’s clear that managing cloud costs effectively is paramount to maintaining financial efficiency and enhancing value. Start exploring the latest CloudSpend features by visiting our features page. To learn more, refer to our help documentation and schedule a demo today.
