Strategic Cloud Cost Management: 3 Steps to Maximize Efficiency

The cloud computing paradigm has a major impact on the business landscape because of its key characteristics, such as agility, adaptability, continuous availability, and scalability. In addition, this model has helped organizations evade cumbersome and costly IT infrastructure development tasks. Instead, they can buy services and infrastructure from other cloud service providers to run their business operations.

Cloud service providers offer a wide range of services and resources, including virtual machines, data storage, databases, and networks. Organizations acquire services from the providers of their choice per their requirements, preferences, and budgets. Nonetheless, there has been a significant increase in cloud infrastructure procurement and management costs as many businesses continue to rely on cloud services from various providers.

The increase in the cost of cloud infrastructure has significantly impacted both tenants and service providers. Therefore, controlling and optimizing cloud infrastructure costs by reducing waste and cutting down unnecessary expenses is becoming increasingly important to carry out effective business management and operations.

Challenges at Hand

For business enterprises, handling the costs related to cloud infrastructure is a complex problem due to many reasons. First, the pay-as-you-go cloud service model means that organizations are paying for resources they have been using. This offers flexibility but also needs careful resource usage monitoring and optimization to avoid excessive spending. Businesses may quickly be faced with unexpectedly high bills without appropriate cost management practices in place.

Second, cost management becomes more difficult due to the inherent complexity of cloud environments. Tracking and allocating costs accurately is an emerging challenge as more services, instances, or storage options are available. Unnecessary costs and inadequate resource allocation may result from a lack of visibility on how resources are used.

Moreover, the elastic nature of cloud infrastructure makes it a challenge to predict and control costs effectively. As the workloads and resource demands fluctuate rapidly, accurately estimating the required resources and associated costs becomes harder.

Cloud Tenants

Increasing costs are also a problem for cloud tenants in addition to service providers. About 40% of organizations purchasing cloud services from different providers have more expenditures than they plan.

Typically, cloud tenants get overbilled due to:

Complex billing and pricing models
Information overload
Cloud resource sprawl
Frequently changing features and services
Architectural limitations

3 Steps to Optimize Cloud Costs

It is essential to overcome the challenges mentioned above to optimize cloud costs strategically. In this regard, the following steps should be considered.

Step 1: Evaluate Cloud Infrastructure to Determine Cost Baseline

The first step for optimizing cloud costs is for organizations to evaluate their resources and services. This helps them identify the nominal expenses required for essential resources, thus avoiding unnecessary procurement.

Step 2: Identify Cost-Saving Opportunities and Define Optimization Goals

This step requires the organizations to identify the areas where costs could be reduced. Moreover, organizations should clearly define the optimization goals to keep them focused on cost-saving objectives.

Typically, organizations can consider the following to reduce costs:

Analyzing resource utilization to determine if cloud resources are underutilized to help rightsize instances and reduce unnecessary allocations;
Assessing data storage and management requirements to avoid unnecessary payments toward this head;
Following informed purchasing practices by reviewing the pricing models of several cloud service providers;
Analyzing workload performance to identify the areas where there is a need to enhance performance and achieve cost efficiency;
Periodically reviewing the subscriptions and current resource utilization to make adjustments, if any.

Step 3: Deploy Cost Optimization Techniques

There are several cost optimization techniques that organizations can use. Some of them are discussed below.

Rightsizing

Rightsizing is a very effective process to control cloud costs. The process continuously analyzes the performance of each instance, its need for use, and its pattern, and then shuts down unused instances and rightsize them whenever they are overallocated or underpopulated with the workload.

Because the resource needs of organizations continue to evolve, therefore, the proper allocation must be an ongoing process to optimize costs continuously.

Unused Resource Decommissioning

Identifying and removing unnecessary or idle cloud resources can help organizations reduce spending. This includes termination and decommissioning instances, storage volumes, databases, and additional cloud components that are no longer in use.

Organizations may reduce administrative costs related to provisioning, storage, and service charges by eliminating these unused resources.

Leveraging Automation Tools

Using automated tools and processes is beneficial for optimum resource allocation and management and cost reduction. As tools monitor and record resource usage, organizations can adapt resources available on-the-fly according to their needs through automation.

Moreover, these tools assist in automatically starting or shutting down instances and services that result in optimized resource use and reduced costs based on actual needs.

Use Reserved and Spot Instances

Organizations can significantly reduce costs by purchasing options, such as reserved and spot instances. A reserved instance concept is a discounting method that, in return for a commitment to an established usage level, enables businesses to receive substantial discounts from the normal prices of On-Demand cloud services. Amazon EC2 Reserved Instances offer up to 72% discount compared to the On-Demand services.

On the other hand, a spot instance is where extra cloud resources are available at very low prices compared to the cost of On-Demand services. As spot instances allow organizations to get cloud instances they no longer need at a great discount, they can significantly cut their cloud costs.

Serverless Computing

Embracing serverless computing is also a strategy to optimize the cost of cloud resources. Serverless computing refers to providing back-end services as they are used. There are still servers available, but organizations get charged according to usage instead of the fixed bandwidth or server numbers.

This technique minimizes the costs and maximizes the efficiency and scalability of cloud applications.

What Benefits Does Strategic Cloud Cost Optimization Bring for the Organizations?

Organizations can yield several benefits from strategic cost optimization for cloud services. The benefits include:

Reduced Costs

Organizations procuring cloud services can optimize and reduce their expenditure through strategic cost optimization. For example, allocating resources per requirements, minimizing unnecessary expenses, and eliminating unused resources, such as storage and virtual machines that are procured but not used.

Improved Cost Transparency

Strategic cost optimization offers more visibility into the cost of cloud services. This allows organizations to track and monitor their cloud expenditure, identify the cost drivers affecting various services and workloads, and understand what costs are incurred by each of them. Increased visibility allows informed decisions and aids in allocating resources according to cost-effectiveness.

Scalability

Scalability is another benefit of strategic cost optimization practices. Organizations can scale up or down their resources as per varying demands. Through analysis of cost patterns and usage trends, demands can be anticipated. This allows businesses to respond efficiently to changing requirements, thus avoiding over-provisioning of resources and optimizing costs during peak hours.

Improved Financial Planning

By strategically optimizing costs, organizations can plan their budgets in a better way. Analysis of historical cost data can help organizations forecast their future cloud expenditure and enable better financial planning.

Increased Return on Investment (ROI)

Finally, organizations can increase their ROIs through detailed cost analysis and optimized resource allocation. As a result, organizations can find ways to reduce expenses, exercise better cost control, and increase the ROI.

Commercially Available Tools and Services for Cloud Cost Optimization

Several tools and services are commercially available to help organizations optimize their cloud expenditures. Among the popular cloud cost management platforms are:

Large-scale enterprises, such as Philips, Hitachi, HP, and Mercedes Benz, use these tools to manage and optimize cloud costs effectively.

Similarly, to help organizations optimize their usage of reserved instances and identify opportunities for possible cost savings, Amazon Web Services (AWS) is offering tools such as AWS Costs Explorer and Anomaly Detection.

Moreover, there are other tools, such as cost analysis and optimization tools, resource optimization, and rightsizing tools, that help enterprises analyze and control their operational costs.

The Bottom Line

In conclusion, enterprises need to optimize cloud expenses and enhance their ROIs because currently, around 40% of the organizations have more cloud spending than their initial estimates. Organizations can have greater control over costs, increase resource utilization and reduce unnecessary expenses through strategic cost management techniques.

Moreover, the tools and services typically designed for optimizing cloud costs by monitoring usage patterns and spending can help achieve significant cost savings and give organizations better financial control.