Understanding and Managing Cost in the Cloud

Governing costs is a major concern when adopting cloud technologies. After all, who likes a surprise cloud bill? If you can’t explain an increase in your monthly cloud bill because you added new employees, acquired a company, or grew in another way, you need to get to the bottom of it before wasting thousands of dollars.

The best bet is to begin from day one with an idea of what you will be spending, (here’s a pricing calculator for Azure), and an implementation of basic cost management controls and tools. These can be optimizes later in the cloud governance maturation journey. Even though computing and storage cost rates are lower in the cloud, you pay for what you use. As physical constraints of infrastructure capacity and speed of availability don’t exist in the cloud, many organizations have been shocked by massive cloud bills that are driven by resource sprawl. It’s like when we all gained weight during COVID because our sweatpants had unlimited capacity!

High-Cost Usual Suspects

Time and time again with clients, we see some of the usual suspects when it comes to driving up cloud costs. Here are some examples:

• Continuously running development and test environments
• Large scale evaluation and testing infrastructure not deleted after use
• Endless backup and replicated copies of unneeded and unused data
• Virtual machine, database, and other snapshots
• Over provisioned resources

The availability of virtually full instant snapshots and unlimited capacity, combined with the scale of the cloud, is likely to lead to cloud resource usage that dramatically exceeds expected costs. This is because without automated custodial tools, actual cloud resource consumption will be much higher than planned.

“At the end of the day, without proper cloud cost optimization you lose out on cost savings the cloud provided to begin with.”

A recent study revealed that public cloud spend was over budget by an average of 13 percent, and organizations expect their cloud spend to increase by 29 percent in the next 12 months.¹ This trend indicates it’s more critical than ever to get a handle on forecasting and cost optimization.

Lack of Visibility is a Major Concern

One of the issues is the lack of visibility that leaders have into their cloud costs. A lag in your cloud billing data makes it difficult to make accurate decisions, which can be the case with spend reports from cloud providers that are 12 to 24 hours old.

A lack of timely visibility into current costs and the inability to forecast future costs leads to cost overruns and blown budgets, which is why having a product that provides the most up-to-date information and continuously monitors your budget is important. There is no use in budgeting if it’s not being monitored.

Timely visibility and monitoring your budget are critical components of cloud governance. Cloud governance includes the development and implementation of budget controls, as well as controls to manage access and ensure ongoing compliance.

Building a Cost-Conscious Cloud Governance Model

A cost-conscious organization can divide its thinking into three different areas:

1. Visibility: For an organization to be conscious of costs, it needs visibility into those costs. Your cloud governance team is responsible for ensuring consistent, reliable cost reporting and performance telemetry. Visibility in a cost-conscious organization requires consistent reporting for the teams adopting the cloud, finance teams who manage budgets, and management teams who are responsible for the costs. This visibility is accomplished by establishing:
   • The right reporting scope
   • Proper resource organization (management groups, resource groups, subscriptions).
   • Clear tagging strategies
   • Proper access controls
2. Accountability: Accountability is as important as visibility. Accountability starts with clear budgets for adoption efforts. Budgets should be well established, clearly communicated, and based on realistic expectations. Accountability requires an iterative process and a growth mindset to drive the right level of accountability. The cloud governance team can help optimize deployed assets, change discounting options, or even implement automated cost-control options like blocking deployment of unplanned assets.
3. Optimization: Optimization is the action that creates cost reductions. During optimization, resource allocations are modified to reduce the cost of supporting various workloads. This process requires iteration and experimentation. Each reduction in cost reduces performance. Finding the right balance between cost control and end-user performance expectations demands input from multiple parties. The cloud governance team is responsible for ensuring that the monitoring and cost-reporting tools are consistently deployed.

More Cloud, Less Cost

Many organizations take advantage of Microsoft Azure’s discounting mechanisms, including Azure Reserved Virtual Machine Instances. It can help you significantly reduce costs—up to 72 percent² compared to pay-as-you-go prices—with one-year or three-year terms on Windows and Linux virtual machines (VMs). When you combine the cost savings gained from Azure Reserved Instances with the added value of the Azure Hybrid Benefit, you can save up to 80 percent.

Lower your total cost of ownership by combining Azure Reserved Instances with pay-as-you-go prices to manage costs across predictable and variable workloads. In many cases, you can further reduce your costs with reserved instance size flexibility.

What’s more, you can now improve budgeting and forecasting with a single upfront payment, making it easy to calculate your investments. Or lower your upfront cash outflow with monthly payment options at no additional cost. Be smart and choose the pricing model that works best for your organization. Velosio can help with this.

I am here to help. As Always, connect with me on LinkedIn if I can answer any questions.