According to Gartner, businesses will be spending about $333 billion by the end of 2022 on cloud infrastructure, and according to McKinsey, cloud spending will increase by 47% in the year 2021. These numbers are staggering and certainly depict a very positive picture here. However, cloud consumers need to assess the pay-off of such significant cloud spending.
McKinsey also reported that companies exceeded their cloud budget by 23% and that 30% of their outlays were wasted. This leads me to wonder if businesses have been able to optimize operations from their cloud investments. Whether the Cloud has just added to their costs or has it been good value for their money? And lastly, why do some companies still grapple with mismanaged costs or added costs during their cloud journey?
These pertinent questions need to be debunked in times where companies are struggling to stay afloat and are trying to mitigate their overall costs. Cloud costs don’t necessarily mean IT costs but also include certain operational and managerial costs as well.
So, how do organizations harness the cloud cost optimization journey? Let me guide you through the same in this blog.
According to Gartner, 45% of the organizations that perform a ‘lift and shift’ to cloud architecture endure higher costs and end up overspending by 70% in the first year. Mckinsey calculates, “80% of the enterprises believe that managing cloud spend poses a challenge”. Flexera noted, “organizations waste an average of about 35% of their Cloud spend.
Other than just high overhead costs, poor cost management certainly reflects on business innovation and overall agility. Additionally, according to a cloud ability survey, more than 57% have experienced a negative business impact due to inefficient cloud cost management. This is because much of the importance is only given to cloud adoption and not cloud optimization. Organizations must look to save costs here and look to bring about a cultural and behavioral change to maintain a fiscal discipline. As we enter the post-COVID world and the next stage of the economic cycle, IT leaders must now work smart to ensure business efficiency through cloud cost management.
Despite conceding to the benefits derived from cloud cost optimization, many organizations struggle with it. It is essential to address key challenges and hurdles faced by cloud users in optimizing cloud costs. Let me take you through some common ones:
Let’s investigate seven mantras that IT and Business leaders can use to accelerate their Cloud Cost Optimization journey.
Cloud deployment entails some structural and systemic changes in an organization. A cloud-first mindset helps organizations become agile in bringing forth these changes, whether in business or revenue models. It also helps if IT teams can make decisions around the movement of the Cloud-based on the dynamic needs of various groups. Investing in PaaS capabilities and cloud-native toolsets can help here.
Cloud optimization is not something you do per se but rather a mindset you inculcate. An organization needs to arrive at the most cost-effective cloud architecture to meet their requirements by factoring in what’s on offer in the cloud catalog, including newer features, and knowing what resources to use by interpreting usage trends from billing.
In the past, organizations designed for availability, performance, and security to be delivered from a finite set of pre-resources planned for peak workload. The Cloud reverses this paradigm and allows for a more precise design that’s perfectly aligned to workload requirements. The architectural components in the Cloud carry a price tag, and thus optimal cloud architectures need to be designed with cost in mind.
Some of the core elements or principles of cloud economics today include:
Many organizations need to rethink what the Cloud can do for their business in the current climate. Acceleration and optimization of the Cloud are critical components to a successful cloud journey; both must be considered and intertwined. Whether an organization looks to optimize first for maximum cost and consumption efficiencies or accelerate first for greater scalability, there is no “best way.” Moving to the Cloud could reduce IT costs if it is planned and managed correctly. When you optimize as you go, the savings are significant, controlled, and scalable.
You cannot optimize Cloud cost if you don’t have visibility into the spent and a baseline. A good starting point for the Cloud Optimization framework is to ensure visibility of your spending and control over cloud expenditure.
Organizing cloud costs could entail resource tagging, cost allocation, and chargeback and show-back models. Additionally, creating and using a clear BI dashboard for visibility and control can help your organizations tremendously in the following ways:
To maintain an optimal state, you need to ensure that sound policies around budgeting are adhered to. In terms of Governance, the framework should oversee resource creation permissions as well. Microsoft offers automation tools like Microsoft Advisor and Microsoft Cost Management to monitor your spending and cost spikes.
The journey for any cloud cost optimization starts with initial analyses of current cloud estate and identifying optimization opportunities across compute, network, storage, and other cloud-native features. Any cloud cost optimization framework needs to have a repository of cost levers with associated architecture and feature trade-offs. Businesses would need governance — the policies around budget adherence, resource creation permissions, etc. — to maintain an optimal state.
The key here is to focus on quick wins first, followed by dashboard creation for better visibility and control. Lastly, establish a Governance model to maintain an optimal state.
To maintain an optimal state, you will need:
The Cloud is ever-evolving, and hence, organizations must also ensure to evolve their portfolio as well. For example, automation, autoscaling, serverless services, containers, etc. have evolved the cloud game and, if adopted, can ensure continuity in reducing costs. Hence, it becomes of utmost importance to find new optimization strategies and opportunities to ensure continuous reviewing. The key here is not just to have a one-time cloud cost optimization journey but to ensure a continuous optimization cycle at every stage.
Cloud consumers should be responsible for what they consume. Enable them to create forecasts and pursue optimization opportunities. A good starting point would be to develop a resource tagging (e.g., usage, ownership, department, and cost center) model to implement the chargeback model. With proper resource tagging, it is possible to associate resource cost to resource owner — thus, a cost center code.
Choose the suitable sourcing model from allocation-based and consumption-based services.
With the advent of pay-as-you-go (PAYG) models, financial decisions have been decentralized. This means that, in previous traditional IT models, only a few people were responsible for making financial decisions about infrastructure purchases. With new pricing models, anyone can make cloud spending and cost management decisions, and how has now become everyone’s responsibility.
Hence, it becomes imperative to integrate FinOps. FinOps is nothing but a combination of FINance (budgeting and cost modes) and OPerations (infrastructure, apps, data).
Cloud cost optimization calls for a paradigm shift at the organizational level and at the behavioral level to ensure that cloud investments are utilized responsibly and optimally. It is not just an operational concern or merely about “cost reduction”; it’s a value-driven strategic move. The path toward it will not be linear and requires tight collaboration among governance, architecture, operations, product management, finance, and application development to be successful.
With the right strategic interventions, control, and operating model, the Cloud provides excellent visibility to organizations on IT spends and is undoubtedly the most crucial and promising/futuristic technology investment an organization can make.
Keywords: Cloud, COVID19, Digital Twins