What is cloud cost optimization?

Shifting data and applications from traditional on-premises data centers to cloud infrastructure presents companies with the opportunity to achieve significant cost savings while simultaneously fostering innovation, maintaining a competitive edge, and enhancing interactions with customers and employees. Additionally, with most public cloud providers, IT infrastructure transforms into a pay-as-you-go operational expense, allowing for the scalability of cloud resources to meet fluctuating demand, with costs aligning accordingly. However, it is crucial to note that cloud service expenses can exceed initial expectations, emphasizing the importance of diligent monitoring and optimization of cloud expenditure.

Cloud cost optimization encompasses a range of strategies, techniques, best practices, and tools that aid in reducing cloud costs, identifying the most cost-effective approach for running applications in the cloud environment, and maximizing overall business value.

The complexity of managing multiple cloud vendors with distinct dashboards can make it challenging to monitor metrics and compare data, potentially leading to overspending. Whether you rely on IBM Cloud, Amazon AWS, Google Cloud, Microsoft Azure, or a combination of these platforms, comprehending, evaluating, and optimizing cloud operational expenses remains essential.

Why is cloud cost optimization necessary?

Organizations are currently squandering approximately 32% of their cloud services expenditure, which amounts to a substantial sum regardless of whether you’re a small business or a large enterprise with a six or seven-figure annual cloud spending. Cloud optimization plays a crucial role in reducing waste and preventing overspending by identifying unused resources and overlooked tools.

However, cloud cost optimization is not solely about cost reduction. It also entails aligning costs with the organization’s business objectives. In other words, paying higher costs may be justified if it leads to increased revenue, enhanced productivity, or improved profitability from a specific cloud service.

Cloud cost optimization involves understanding the expenses associated with your cloud operations and making intelligent adjustments to exercise control over costs without compromising performance.

Questions to ask yourself about optimizing cloud costs    

To effectively manage cloud costs and avoid unexpected overspending, your IT team should consider the following questions before, during, and after implementing cloud services:

1. How can we evaluate cloud costs at various levels within the company and manage cost allocation at the organizational and team levels?
2. How will we provision cloud resources and monitor and control spending over time?
3. How can we prevent overprovisioning and overspending?
4. What metrics should we track? In addition to the cloud bill, this may include service costs, capacity, utilization, performance, and availability.

Tools for cloud cost optimization:

There are several cloud cost management tools available that can assist in tracking bills, features, and configurations, enabling you to optimize costs. Cloud providers offer their own tools, such as Azure Cost Management, Google Cloud Cost Management, and AWS Cloud Financial Management tools.

There are also independent cloud cost tools provided by third-party companies that can assess multiple vendors. For instance, IBM® Turbonomic® automates critical actions in real-time, ensuring efficient utilization of compute, storage, and network resources without human oversight. These tools can operate across multiple clouds and generate reports that consolidate multi-cloud data. Some tools even compare your cloud costs with the expenses associated with building and maintaining your own on-premises server room.

Understanding and leveraging cloud pricing models:

Cloud providers offer various pricing models and service levels that can be utilized to match resources and costs with application requirements, availability needs, and business value. Navigating these options can be complex. Here are some general strategies to consider:

1. Utilize reserved instances (RIs), which are pre-paid computer instances offering significant discounts (up to 75%) for use over a specific duration.
2. Consider savings plan pricing, which provides lower prices based on one- or three-year commitments.
3. Take advantage of Spot Instances, which are auctioned leftover resources that can be used for last-minute purchases. Spot Instances are suitable for scenarios like processing big data or machine learning workloads, managing distributed databases, and running CI/CD operations.
4. Minimize data transfer fees by avoiding unnecessary data transfers.

Exploring FinOps for cloud cost optimization:

FinOps, short for financial operations, is a cloud financial management practice that helps organizations maximize business value in hybrid and multi-cloud environments. Many organizations adopt a cross-functional FinOps team comprising members from IT, finance, and engineering to establish financial accountability in the cloud.

FinOps practices rely on reporting and automation to enhance ROI by continuously identifying efficiency opportunities and taking real-time action for cloud optimization. Through automated dynamic resourcing, organizations can ensure that the underlying infrastructure of their cloud environment consistently meets service-level objectives.

According to the FinOps Foundation, a mature FinOps practice allocates more than 90% of cloud spending, resulting in minimal variance between forecasted and actual expenses.