The cost-effectiveness of the cloud is well understood. A survey by Deloitte ranks cost savings as the No. 3 driver for cloud migration amount IT leaders. But those savings aren’t guaranteed, at least not at first.
It’s common for organizations to experience sticker shock when migrating to the cloud, writes Tom Krazit, a senior reporter at Protocol.
“Done properly, moving to the cloud actually increases short-term costs given all the work needed to migrate critical applications without downtime,” Krazit writes. “Done improperly, moving to the cloud can dramatically increase overall costs as applications designed around the assumption of unlimited hardware resources now run on a meter.”
Cost management is the key if you want to achieve the former result, not the latter.
What Is Cost Management, and Why Is It Important?
Cloud cost management means getting as much as possible out of your investment in the cloud, explains CloudZero’s Natalie Jones. By tracking, analyzing and improving cloud operations, you make sure you’re getting the best return possible on that investment.
The role of cost management becomes increasingly important as an organization’s cloud infrastructure grows. “Rapid scalability is one of cloud computing’s major strengths, but it also makes it easy for IT staff to spin up services without considering the cost,” writes the team at VMware. “Implementing a cloud cost management strategy can help an organization plan for future costs and consumption.”
Cloud costs can quickly add up for even the most careful users. Once you migrate to cloud providers, there will always be upsell options, notes Larry Dignan, editor-in-chief at ZDNet. That’s why cost optimization is such a big priority for companies, he says.
What Causes Cloud Costs to Spiral?
There are multiple cost challenges to cloud computing, says technology writer Cynthia Harvey. Chief among them are the lack of centralized management, poor storage management and multi-cloud strategies. No centralized manager means ad-hoc adoption can be rife. The fact that cloud storage is so inexpensive can mean organizations store much more data than they need. Both factors become even more complicated when you’re working with several cloud providers at once.
Lift-and-shift migration can also send costs soaring, explains Adrian Bradley, a CIO Advisory director at KPMG. Organizations make compromises when moving to the cloud and end up running entire applications on virtual machines. In doing so, they fail to take advantage of the pay-as-you-go benefits of the cloud.
Further, many organizations get tripped up by the cloud’s dynamic pricing model, writes Jonathan Shanks, CEO and co-founder of Kubernetes delivery platform Appvia. “In consequence, organisations lose out on time, budget and potential cost savings trying to navigate the muddy waters,” he says. “Respondents of [Flexera’s 2020] State of the Cloud Report estimate that organisations overspend on cloud budgets by 23 percent, and also waste 30 percent of their overall cloud spending.”
For any organization, all departments and teams should be involved in cost management. This starts with the dev teams. If the devs and the architects fail to understand the cost of a cloud solution, then expenses will pile up across the company. The key is to budget properly, down to the team level, to track cloud expenses.
Cloud Cost Management Requires a Different Way of Thinking
One reason organizations struggle with cloud cost management is the mistaken belief that strategies that work for physical servers will work with the cloud. This couldn’t be further from the truth.
The costs of cloud servers are completely different from their virtual or metal counterparts, writes Riyaz Mohiyuddeen, head of SaaS marketing at Nutanix. The latter is charged at a fixed price either for the equipment or on a monthly basis. “In the case of public cloud, the dynamics change: organizations pay for compute, storage, network, and PaaS with a different pricing model based on different usage metrics that vary vendor to vendor.”
Cloud migration turns a lot of IT spending from capital expenditure into operational expenditure. A monthly operating expense sounds great on the face of it, writes the team at NetApp. But operating expenses can increase quickly without you realizing it, especially in the cloud where pricing is dependent on a number of factors.
“Inevitably, unexpected costs will bite you in your bottom line. The culprit? Any combination of a lack of tiering, legacy virtual machines (VMs) that aren’t deprovisioned, and unnecessary snapshots, to name a few. Alas, simply living the cloud dream is not enough.”
Costs grow further when you start reserving space and paying for it upfront, writes LinkedIn engineer Andrew Hatch. In the end, finance departments will need to change workflows to handle the shift to cloud, Hatch says. “Finance departments will need good insight into cloud spending and will need to stay on top of the amount of small projects that are generating costs to keep the organisation well-informed.”
6 Cloud Cost Management Best Practices
Organizations can use the following strategies to keep costs under control.
Cloud cost management should happen in advance of migration. The first step to understand cloud providers' billing models. Then you need to know how much CPU and memory each application requires, and then you can calculate whether it would be more cost-effective to run some of those applications on-premises.
If you’re considering using multiple cloud providers, it will be important to understand where you may incur unexpected costs as a result of integration. You should also drill down into the packages of each cloud vendor. Some may offer a significantly lower price for specific workloads.
Identify and Turn Off Unused Resources
Once your cloud infrastructure has been up and running for a while, you should identify any unused resources. Any cloud provider will have tools to help you identify what resources you are using, and what you are under-utilizing. This is one of the easiest ways to keep a lid on cloud costs, writes Todd Bernhard, product marketing director at CloudCheckr.
“Often an administrator or developer might ‘spin up’ a temporary server to perform a function, and forget to turn it off when the job is done,” Bernhard writes. “In another common use case, the administrator may forget to remove storage attached to instances they terminate.”
Automation can help significantly here. Your dev teams or your cloud-migration partners can help implement automated procedures that will shut down unused resources.
Right-Size Your Cloud Resources
From there, you can begin to right-size your infrastructure more precisely. Right-sizing is the process of defining what cloud infrastructure your workloads need now and in the near future. This helps you balance risk and minimize waste.
“Because your resource needs are always changing, right sizing must become an ongoing process to continually achieve cost optimization,” the team at AWS writes. That ongoing process will involve frequently checking recent usage data over a defined period of time — e.g. 10 days in some cases, 30 days in others — to get a feel for your resource use versus your resource capacity. Over time, you can tailor your cloud infrastructure to your teams’ workloads and needs.
Understand Billing and Usage Reports
In order to identify unused resources, IT or finance executives will need to learn to read complicated usage and billing reports. These reports will often show where wastage is occurring if you know how to decipher them, says Richard Blanford, CEO of Fordway.
“As well as expected charges for servers and storage, there will be additional costs for ancillary requirements such as IP addresses, domain resilience and data transfers into, out of and between servers which need to be compared with usage and forecasts.”
Establish a Cost-Management Enforcement Group
It can be helpful to build a centralized group within your organization that is directly responsible for cost management, Capgemini’s Neelam Gupta writes. “The team should work across the different business units, different subscriptions across hybrid cloud environments.
“Overspending, which is something that didn’t happen in the data center, has resulted in the need to build escalation procedures. For example, what actions are being executed at what level of overspending.”
In large organizations with big cloud deployments, however, a single, centralized cost-management can be ineffective. In such organizations, the responsibility for managing infrastructure budgets falls to each team or department. Those groups will follow the cost-accounting procedures that the central coast-management group establishes.
Partner With an Expert
Cloud cost management isn’t a straightforward process. When organizations don’t know where to start, they should think about partnering with an experienced partner. A fresh pair of eyes can help you map your cloud infrastructure, identify instances of waste and determine how to optimize your cloud spend going forward while still achieving the performance levels you require.
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