Cloud Cost Optimization 101: Definition, Benefits, and Strategies

Cloud adoption continues to rise. The COVID-19 pandemic acted as a catalyst for re-establishing the value and flexibility of cloud computing, resulting in its rapid adoption. In fact, according to Gartner, global end-user expenditure on cloud infrastructure services increased by 18.4%, equivalent to $304.9 billion, in the wake of the global health crisis in 2021.

But whether your organization recently migrated to the cloud or has been operating in it for a while, you’ve likely encountered cloud cost tracking and IT asset management challenges. Fortunately, cloud cost optimization helps users minimize cloud expenses and achieve optimal cloud performance.

This in-depth article is geared to help you learn more about what cloud cost optimization is, its benefits, and key strategies to optimize your cloud spending.

What is Cloud Cost Optimization?

Cloud cost optimization (CCO) is the act of reducing cloud resource waste by carefully choosing, deploying, and scaling the resources required for particular cloud functions. Cloud migration helps determine the most effective method to distribute cloud resources among various use cases in a Development Operations (DevOps) context. In most instances, the objective of CCO is to make cloud efforts more efficient and minimize waste while improving cloud performance.

Depending on the software or applications used by your company, the meaning of cloud optimization may vary. Nevertheless, a smart CCO solution often shows you what you’re doing correctly and which aspects of your system need further development to get the most out of your Cloud and IT investments.

3 Challenges to Cloud Cost Optimization You Need to Know

While cloud optimization can detect mismanaged resources and reduce waste, the process is not immune to disadvantages. Overprovisioning, underused assets, inadequate data storage, and lack of automation are common causes of cloud waste. To further narrow down common cloud challenges users face, here are three of the most prevalent issues.

  1. Lack of or low visibility

    What you can’t measure, you can’t manage—which may eventually lead to excessive consumption. One of the most significant issues in CCO is a lack of insight into your company’s spending patterns. Your business may discover hidden expenses because you lack the necessary tools to calculate cloud expenditures. Furthermore, since your employees may misinterpret cost data, they can spend more than they need to.

    To tackle these problems, provide all your employees access to cloud expense reports to see how their actions affect spending. In addition, use tools with deep visibility capabilities to better understand your cloud expenses.

    An excellent license management software can identify and minimize cloud-related hidden costs. It can provide you with a comprehensive picture of all functions in your cloud. Ultimately, a holistic view of cost and use information might aid in CCO.

  2. Overprovisioning

    Overprovisioning occurs when your firm picks resources greater than what you need to operate. This can be motivated by a sense of security where employees are used to receiving more resources than they require “just in case.” Although engineers may find this method ideal for good performance, it results in harmful cloud waste and expenses.

    Overprovisioning leads to extra costs that may quickly spiral out of hand and accumulate to insurmountable figures. The traditional strategy for dealing with the issue is to invest in proprietary management and cost control technologies. The rightsizing suggestions may help you lessen your dependency on over-allocated resources.

    Another option is automated rightsizing. It can choose the most suitable instance types and sizes to match your licensing needs while minimizing expenses.

  3. Cloud optimization delay

    Automation can present a variety of obstacles, ranging from apprehension about new solutions to concerns that they would be too expensive to deploy or bring about the need to modify old procedures. However, the benefits of automation significantly exceed the risks. This is proven in the 2021 State of DevOps Report, which found that 97% of firms believed automation increased the quality of their work.

    So, if you’re thinking of delaying cloud automation, this means you’re missing out on advantages, such as selecting the most effective kinds and sizes for your applications. You also forego managing probable disruptions to optimize spot occurrences and reduce wasteful costs in other areas apart from the cloud (e.g., storage, backups, security, and configuration changes)–all for a quarter of the price of the manual application.

Why is Cloud Cost Optimization Important?

Cloud cost optimization is critical if you want to minimize expenses and increase your firm’s efficiency. It can help you better cope with demand surges, auto-scale your cloud, and, most importantly, reduce costs by minimizing unused resources.

  1. Reduces costs

    According to 451 Research, 73% of cloud users in the United States and 81% of cloud users in the United Kingdom consider cloud charges as fixed costs rather than variable costs. These cost inefficiencies might be attributed to the difficulty of cloud pricing plans. Similarly, based on a Gartner poll, cloud service charging irritates most consumers or businesses because querying, reading, and interpreting cloud pricing plans can be difficult for them.

    Many decision-makers who are not data scientists cannot access a large number of billing items and raw data. As a result, they cannot provide useful information to Development Operations to guide optimization choices and reduce spiraling costs.

    Fortunately, your teams can learn to tie expenses to value and pricing per unit, process, department, customer, segment, or product via a CCO solution. It entails that your employees can make cost-conscious cloud use decisions in the future based on the data they collect, rather than waiting for the finance department to make a decision.

  2. Boosts visibility

    A good cost optimization model impacts your firm’s financial and operational aspects. It will help you increase visibility and identify idle resources. Additionally, it can help you grow your firm’s profit once your cloud expenditures are monitored and organized. Thanks to CCO, you’ll be better aware of how your cloud is utilized, which will allow for better business decisions.

  3. Boosts cloud optimization

    The detection of underused features, the discovery and aggregation of resources, and the management of neglected tools are all possible with CCO. It enables cloud consumers to recognize and correct defects, thereby reducing waste. As a result of this transparency, unwanted cloud expenditures are reduced while cloud use rises. In this manner, cloud cost optimization will help you save costs and build a cost-performance balance.

  4. Fuels productivity and innovation

    Cloud-optimized businesses are adopting a new cultural paradigm that allows employees to make productive choices at their level. Consequently, an organization with diverse teams which effectively utilizes cloud resources and maximizes cloud savings has emerged.

    Equipping separate teams with cross-departmental abilities can hasten decision-making time, efficacy, and the speed with which suggestions are implemented. Once your employees have more time to focus on other aspects of your operations, they are more likely to develop new and efficient methods.

    Take, for instance, providing engineers with cloud cost information. It can help identify overspending before it occurs without limiting innovation.

Key Strategies and Best Practices for Effective Cloud Cost Optimization

You can achieve transparency and control cloud costs by following the industry’s best practices. Here are five effective tactics you can incorporate to reap the benefits of effective cloud cost optimization.

  1. Evaluate and right-size your resources

    Every company evaluates its assets to identify and combine unused resources. Major expense drivers may be overlooked, or you could make duplicate transactions if you do not right-size your resources.

    Fortunately, companies can use optimization to figure out how much computer power they need and avoid wasting money. In rare scenarios, terminated computer instances may still have storage. Perhaps, it’s for this reason that the first step in CCO is to eliminate them.

    Improved resource scheduling and price optimization can result in significant cost reductions of up to 80% in extreme circumstances. Many firms acquire too much storage capacity at an improper performance level, resulting in 25-30% cost savings when adjusted.

  2. Optimizing storage and subscriptions

    Similarly, businesses have a habit of overbuying storage and subscriptions. These cloud storage and large subscriptions may be anticipated to meet the company’s needs. Because increasing capacity was complex and time-consuming in the past, corporations held onto surplus capacity, which can now be auto-scaled and eliminates the requirement for excess capacity.

  3. Enable a chargeback model

    IT chargeback management software helps finance resource distribution, cost revitalization, and overall IT expenditure. It enables companies to bill functional areas for the IT services they use. This transfers the responsibility of IT budget justification to the resource users.

    With that, IT is becoming a department from which business units may seek resources and get commercial value rather than a cost center offering support infrastructure.

    Business units frequently become more disciplined with IT demands and consider IT expenses when assessing objectives, which drives expenditures. An IT chargeback system’s primary value is in decision support rather than cost recovery, and it focuses on services rather than infrastructure.

  4. Monitor your software licenses

    Many businesses believe they can carry their software packages to the cloud, but this is not true for most software. When you migrate to the cloud, the licensing metric changes as well. Usually, a license will not go as far to cover as many servers as it did when it was on-premise. After the switch is complete, you will find yourself with a few unauthorized servers on your hands.

    So, make sure you understand your licensing and whether or not shifting to the cloud is viable without violating your contracts or creating a massive compliance gap. Some publishers allow you to move your apps to the cloud, while others do not, and it is crucial to know which ones are which. Open iT LicenseAnalyzer 2022, for instance, meters software and license usage.

  5. Align your budget to your goals

    Ensuring your employees know their budget and objectives for each project is a big part of controlling expenses. Rather than choosing a random figure, engineering leaders should speak with CEOs and industry managers to fully comprehend cost needs.

    Requirements should establish how the items or features will be packaged and distributed. Discussing their usage and product plan will need to be mentioned during the design and development process alongside other objectives, such as performance and resilience.

Secure Your Journey to the Cloud

Carefully planned cloud cost optimization strategies can do wonders for your enterprise. Remember to align and communicate costs with all your employees, integrate your Key Performance Indicators with your expenses, and evaluate your cloud resources. It will help you increase accuracy and precisely identify where to pull strings to balance cost and system performance.

While many CCO tools can help reduce cloud spending, few can provide the detailed data needed to administer these best practices reasonably. Fortunately, Open iT software solutions can help your business make smarter decisions on managing engineering software licenses. Schedule a demo with us now and learn how to optimize the cost of your cloud assets.

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