Cloud Cost Management - What You Need To Know

What Is Cloud Cost Management?

Nowadays, the cloud is one of the most expensive resources for any modern business, second only to salaries for employees and overhead costs. End-user spending on public cloud services is expected to reach $396 billion in 2021 and $482 billion in 2022, according to recent Gartner research. From less than 17% in 2021, Gartner projects that public cloud spending will account for more than 45% of all enterprise IT spending by 2026. To maintain their competitive edge, accelerate innovation, and transform interactions with partners, employees, and customers, businesses are shifting to the cloud.
Cloud costs, on the other hand, are notoriously difficult to manage. Multiple teams, cloud providers, containerized and non-containerized environments, and cloud assets are dispersed. Cloud spending is susceptible to significant swings, making forecasting and management challenging.

Therefore, according to Flexera's 2020 State of the Cloud Report, 73% of cloud decision-makers place the highest priority on optimizing the existing use of the cloud for cost savings. The news that the typical business wastes 35% of its cloud computing budget prompted the publication of the report. In 2017, Flexera demonstrated that this percentage resulted in a waste of $10 billion in public cloud spending and that the majority of businesses also underestimated their waste by 15%. Analysts at Gartner, Brandon Medford, and Craig Lowery make the bolder claim that up to 70% of cloud costs are wasted. Based on these figures, it's clear why engineering, operations, and FinOps teams are placing an increasing emphasis on cloud cost management and optimization.

What Is Cost Optimization In The Cloud?

By selecting, provisioning, and right-sizing the resources that a company spends on specific cloud features, cloud optimization is the process of eliminating cloud waste. The ongoing process of optimizing the cloud entails determining the most effective method for allocating cloud resources to various use cases with the intention of improving cloud performance while simultaneously reducing waste.

This seems like a straightforward premise on paper. However, optimizing cloud costs is not without its difficulties. The main ones are as follows:

Visibility and business context

The key to finding cost-saving opportunities is having visibility into cloud spending. The majority of teams struggle to read and understand billing data from multiple cloud providers and allocate costs appropriately because they lack true visibility into their cloud spending. It is nearly impossible to measure unit economics like cost per customer, product, or feature due to the sheer number of billing items (SKUs) and secondary charges like storage, data transfer, and networking. As a result, it is impossible to make decisions about how to use resources effectively, and businesses do not know for sure whether an increase in spending is caused by business expansion or just inefficiencies.

Wasted resources 

Because you only pay for what you use, there are opportunities to waste resources as cloud environments grow in size. There are numerous opportunities to eliminate wasted cloud resources for every organization. However, the first step is to identify real-time cost spikes and inefficiencies like overprovisioning, and idle, or unused resources.

Complex pricing and billing 

According to Garner's research, cloud billing is the most confusing aspect of public cloud services for 95% of IT and business leaders. Multi-cloud and hybrid environments, which are common in most businesses, make cloud expense reporting particularly challenging. There are no standardized billing models, formats, or services offered by major public cloud providers like AWS, Azure, or GCP.

Budgeting and forecasting 

Organizations must switch from a well-known static CAPEX model to a highly dynamic usage-based OPEX model, which is notoriously difficult to control and forecast, in order to successfully transition from the on-premises environment to the public cloud. The cloud makes it simple to spin up new resources, which has made it easier for businesses to innovate more quickly but also made it easier for them to rack up huge costs. Budgeting and forecasting become more difficult as a result, which is crucial for a company resource that frequently ranks among the top three COGS items.

Lack of governance

Teams that make decisions about new resources are frequently unprepared for the self-provisioning nature of managing cloud costs and usage, which results in resource sprawl and cost overruns. The difficulty of controlling spending and reducing waste is exacerbated by the fact that many organizations lack formal governance over new workloads. Companies that run services in the cloud use cloud governance, or a set of policies, to ensure that deployments run smoothly and securely. The following are some important aspects of cloud governance that should be included in a cloud management strategy: security and compliance, operational management, and financial management

Kubernetes cost allocation

The introduction of Kubernetes adds yet another layer of virtualization to manage, making cost optimization in the cloud even more difficult. If stakeholders don't have a clear understanding of which resources are being used and in what context, how can you control costs? It is a very difficult problem to reach inside each container cluster to determine who is driving resource consumption and fairly allocate the costs that result. When it comes to dividing and distributing Kubernetes costs among delivery teams, customers, products, or features, businesses frequently find themselves compelled to perform intricate, manual tasks in spreadsheets. Because of this, containerized environments have poor financial management and it is hard to understand the specific costs of operating containerized services, which are necessary for accurate unit economics reporting.

Cloud Cost Management and Optimization Best Practices

Cloud optimization is an ongoing process of improvement. It is heavily reliant on cloud cost management tools that monitor cloud KPIs such as utilization, cost, and performance as well as FinOps, a cross-functional team comprised of IT, finance, and engineering with the objective of enhancing an organization's capacity to comprehend and optimize cloud costs. A successful cloud optimization strategy is dependent on having a clear understanding of your cloud environment's activities. Some of the best ways to manage your cloud environment are as follows:

1. Achieve a unified view with granular billing visualization

Gaining control over cloud costs begins with being able to see the big picture and drill down into it. Visualization and reporting tools that provide complete, end-to-end visibility into the multi-cloud infrastructure and associated billing costs from a single platform are essential for cloud teams. These tools make cloud KPIs transparent, allowing teams to comprehend the cost of each resource, service, project, or team; keep track of all project spending and usage; drill down to the resource level and create custom dashboards and reports for each customer or project. The ability to visualize cloud usage and cost data is crucial to effective cloud financial management.

2. Know and track your cloud unit costs

The average costs directly related to a particular unit delivered by an organization, such as a customer, product, feature, or delivery team, are referred to as unit costs. Cloud costs may rise as a result of business expansion, but not always. Allocating costs according to the ownership and function of the business is necessary to determine whether a cost increase is proportionally linked to revenue growth.

3. Monitor your cloud costs in real time 

Cloud cost monitoring is necessary for both cloud cost optimization and management. In contrast to other costs incurred by an organization, it can be challenging to monitor cloud spending in real time. If cloud activity is not tracked in real-time, it can lead to costs that could have been avoided. Additionally, it is essential for cloud teams to comprehend the business context of their cloud usage and performance. An AI-based monitoring solution can instantly notify the appropriate teams of any deviations from anticipated usage and cost patterns.

4. Continuously optimize your infrastructure 

AI-based automated insights and forecasting can help you automate your cloud optimization strategy. With real-time, environment-specific recommendations that are easy to implement, advanced cloud cost optimization solutions assist you in continuously optimizing your cloud spending. They can also take in every cloud-based metric, even in multi-cloud environments, learn its normal behavior on their own, and create cost forecasts that make it easier to plan budgets and allocate resources.

5. Analyze your Kubernetes with unit economics

Organizations must extend their FinOps capabilities to containerized environments as a result of the switch to Kubernetes deployments. This will enable them to comprehend the precise distribution of container costs among products, features, teams, and their other non-containerized services. Understanding realized the business value and tracking the effectiveness of your Kubernetes investments can be made easier with the help of unit economics.