Controlling cloud spend presents numerous challenges at the enterprise scale. Organizations that actively and thoroughly manage their cloud environments get the most out of the cloud for each dollar spent. However, many enterprises second guess their cloud investments as cloud service provider bills keep increasing.
This is where Cloud Cost Optimization can be a game-changer for companies. So, what is Cloud Cost Optimization? It’s the strategic process of identifying and remediating suboptimal cloud infrastructure provisioning while establishing cloud financial management best practices.
By adopting these practices, enterprises can harness the cloud’s benefits of scalability, high availability, reliability, and agility, without compromising on cost efficiency. In this article, we will outline for you 15 best practices to achieve optimal cloud cost management and get the full benefit of your cloud environment.
What Is Cloud Cost Optimization?
Cloud cost optimization is a method of reducing cloud computing expenses while maximizing value. It involves analyzing current usage, identifying inefficiencies, and eliminating waste. Key areas include intelligent procurement, utilizing savings programs like AWS Savings Plans, and capacity reservations, and intelligent optimization, matching workloads to optimal configurations.
Effective optimization integrates FinOps practices to link cloud spending with financial accountability, enhancing efficiency by rightsizing resources and using discounts. The goal is to ensure the cost-effective use of cloud resources without compromising performance, security, or availability.
Why Is Cloud Cost Optimization So Important?
Cloud cost optimization is essential to companies for a good number of reasons. Let’s explore some of them below.
1. Understanding Costs
It provides granular insights into spending, enabling businesses to identify where money is spent unnecessarily and where investment can yield higher returns.
2. Cost Savings
Companies can significantly reduce cloud expenditures by identifying and eliminating unnecessary cost centers and improving efficiency.
3. Improving Margins
Evaluating the Cost of Goods Sold through optimization helps increase gross margins and profits, which is essential for funding growth and attracting investors.
4. New Revenue Streams
Optimization reveals popular products and high-margin customer segments, guiding strategies to generate new revenue and attract profitable customers.
5. Performance Improvement
The goal is not just cost reduction but also enhancing cloud performance without compromising security or system efficiency.
6. Aligning Costs to Value
Mapping costs to business priorities ensures resources are allocated to areas delivering the most value.
7. Cost-Conscious Culture
Continual optimization fosters a culture of continuous improvement and cost awareness across the organization.
8. Better Cost Allocation
Improved visibility and allocation of costs help in better budgeting and accountability across various teams and projects.
9. Engineering Productivity
Enhanced cost visibility and efficient budgeting allow engineers to focus more on innovation rather than tracking expenses.
Why Is Controlling Cloud Costs So Difficult?
Controlling cloud costs is challenging due to several factors inherent to the nature of cloud services:
1. Complex Pricing Models
Cloud services offer a range of pricing models, including subscription-based pricing for SaaS and capacity-based pricing for IaaS. These models often involve intricate details and numerous configurations, leading to complex billing structures that are difficult to track and manage.
2. Decentralized Decision-Making
In a decentralized cloud environment, various teams have the autonomy to provision new resources as needed. This can lead to unchecked and rapid cost accumulation if there is no centralized monitoring or control over resource usage and necessity.
3. Autoscaling Challenges
While autoscaling features can help manage costs by adjusting resource usage based on demand, they are not foolproof. Without clear policies and defined scaling triggers, companies can still face unexpected cost increases.
4. Cloud Billing Complexity
Cloud bills often contain hundreds or thousands of lines of detailed charges, each corresponding to different services and configurations. This complexity is compounded when using multiple cloud service providers (CSPs), each with unique billing terminologies and structures.
5. Lack of Expertise
Finance professionals responsible for interpreting cloud bills may lack the technical expertise needed to fully understand and optimize cloud spending. This disconnect between financial oversight and technical implementation hinders effective cost management.
6. Dynamic and Scalable Nature
The cloud’s inherent advantages—self-service and scalable resources—also contribute to the difficulty. Without proper management, these benefits can lead to resource sprawl and unnecessary expenditures.
15 Cloud Cost Optimization Best Practices
Following best practices while cloud cost optimization can help maximize efficiency and minimize expenses. These 15 best practices provide actionable strategies to review, budget, and manage cloud resources effectively, ensuring sustainable and cost-effective cloud operations for your organization.
1. Review Pricing and Billing Information
Understanding and regularly reviewing the detailed billing information provided by cloud vendors is critical for identifying areas of high expenditure and generating savings. By focusing on high-spend services and workflows, companies can make informed decisions to avoid paying for redundant resources. Utilizing cost management tools offered by most cloud service providers, companies can detect trends, anomalies, and primary cost drivers, and use machine learning to uncover unusual patterns in cloud usage.
2. Set Budgets
Establishing budgets is essential for controlling cloud costs and ensuring alignment across various teams. Effective budget setting involves communication between engineering leaders, product leadership, and executives to understand cost requirements based on the packaging and delivery of products and features. Monthly budgeting helps in planning overall spending and optimizing costs without throttling the agility that cloud computing offers.
3. Identify Unutilized Resources
Unused resources, such as temporary servers or storage that are no longer needed, can lead to inflated cloud bills. Identifying and de-provisioning these unutilized resources can eliminate unnecessary expenses. Cloud cost optimization strategies should include regular audits to detect and remove unattached or unused resources.
4. Identify Idle Resources
Cloud providers charge for idle resources, even if they are not in use. Identifying and consolidating these idle resources can significantly reduce costs. For example, if CPU utilization is low, merging idle resources and using autoscaling, load balancing, and on-demand options can optimize costs and ensure resources are available when needed without unnecessary expenses.
5. Right-Size the Services
Right-sizing involves analyzing computing services to modify them for optimal performance and cost efficiency. Given the numerous combinations of instance types and configurations, right-sizing tools can provide recommendations to adjust instance sizes appropriately, thereby reducing cloud costs while maintaining peak performance.
6. Use Reserved Instances
Reserved Instances (RIs) offer significant pricing discounts for prepaid compute instances over a period of 1 or 3 years. These discounts, often up to 75%, are beneficial for stable and predictable workloads. Proper planning based on historical usage can help companies make informed commitments to maximize savings.
7. Use Savings Plans
Savings Plans provide flexible pricing models, offering up to 70% savings on cloud usage based on commitments of one or three years. Unlike RIs, Savings Plans allow more flexibility regarding instance types and regions, making them suitable for companies with changing needs but predictable spending patterns.
8. Limit Data Transfer Fees
Data transfer fees can accumulate quickly when migrating data between regions or services. To minimize these costs, companies should assess their vendor’s transfer fees and optimize their cloud architecture to reduce unnecessary data movements. Strategies include consolidating frequently accessed data and utilizing efficient transfer methods.
9. Choose a Single or Multi-Cloud Deployment
While multi-cloud deployments avoid vendor lock-in and increase availability, they can be costly. Single-vendor deployments can use volume discounts from large-volume purchases. Evaluating whether a single or multi-cloud environment best meets the organization’s needs is crucial for optimizing costs.
10. Monitor Cost Anomalies
Using cost management consoles to set budgets, forecast costs, and monitor spending anomalies is essential for cloud cost optimization. Machine learning tools can identify unusual spending patterns, and alerts can notify users when costs exceed thresholds, enabling quick response to prevent unexpected expenses.
11. Use Appropriate Storage Options
Choosing the right storage tier is crucial for cost efficiency. For instance, Amazon S3 offers various storage tiers with different costs. Utilizing features like S3-Intelligent Tiering can automatically adjust storage tiers based on usage patterns, ensuring optimal costs without manual intervention.
12. Optimize Cloud Costs at Each Stage of the SDLC
Cost optimization should be integrated throughout the SDLC. This involves justifying budgets during planning, monitoring costs during deployment and operation, making cost-effective design decisions, and reassessing costs regularly to ensure alignment with business objectives and maximize ROI.
13. Identify and Minimize Software License Costs
Effective management of software licenses is essential to reduce cloud operating costs. Tools that track idle or unnecessary licenses can help identify and eliminate wasted spending. Additionally, utilizing license tracking and cost management tools can streamline license management and optimize overall cloud expenses.
14. Implement a Cloud Native Design
Designing systems with cloud-specific capabilities, such as auto-scaling, ensures cost efficiency. Cloud-native designs use managed services and critical cost optimization tools, although they may require additional up-front costs for training and development. Balancing performance, cost-optimization, and organizational priorities is key to effective cloud-native design.
15. Track Cost Center Spending
Different teams managing their cloud budgets need to track their spending effectively. Implementing a standard identification method for cloud resource ownership, such as resource tags or separate accounts, can facilitate easy reporting and cost allocation. This helps in optimizing costs and ensuring accountability across the organization.
Final Words
Effective cloud cost optimization is within reach for any organization with a disciplined and strategic approach. Establishing a well-defined Cloud Operating Model and formalizing a FinOps organization or Cloud Center of Excellence are foundational steps.
By adopting the 15 best practices outlined above, businesses can ensure continuous insights and actions through analytics. This structured approach not only promotes efficient resource usage but also drives significant cost savings, enabling organizations to thrive in their cloud journey.
