August 16, 2023 By Keith O'Brien 5 min read

Cloud computing can add a collective $3 trillion to organizations that harness it correctly, according to McKinsey. It is poised to transform businesses and industries, revolutionize how employees and other stakeholders collaborate, and drive digital transformation initiatives.

Many organizations have spent the past few years investing heavily in the cloud. Gartner predicted that cloud spending would reach nearly $600 billion by the end of 2023. There are many reasons why organizations have embraced cloud services, including improved efficiencies, cost savings, scalability, flexibility and quicker time-to-market.

However, organizations have considered slowing cloud spend because of recent economic headwinds. As a result, IT budgets are experiencing decreases along with overall operational budgets. Additionally, many struggle to capitalize on the cloud’s full potential due to initial cloud costs, which are driven up by inefficiencies or cost overruns due to “lifting and shifting” applications or underestimating data transfer costs. In addition, companies can run up cloud costs because they provision more resources than necessary for their normal business functions. Many companies are reporting 20–30% annual cloud cost increases as a result of these actions.

It isn’t always easy to move from on-premises to the cloud, and it doesn’t always reduce costs initially. With the right guidance and cost management approach, a cloud migration can and should decrease overall IT costs, while increasing operational efficiency and improving IT services.

Like other IT expenditures, cloud costs can skyrocket and threaten ROI without the right cloud management solutions. Organizations should not abandon their cloud goals because of initial challenges. Executives should remember that there is a reason why so many organizations embrace the cloud. On-premises data centers incur significant costs from labor, licenses, system maintenance and the physical location itself.

A comprehensive, intelligent cloud strategy done correctly often costs less than on-premises data centers and can unlock significant value for both incumbent organizations and startups alike.

Here are six ways organizations can improve their cloud cost management, increase cloud cost optimization and drive as much value from their cloud budgets as possible.

1. Take a disciplined financial operations (FinOps) approach to managing expenditures

Organizations that migrate to the cloud must embrace financial management as a core component of cloud optimization. Those who fail to do often run into expensive consequences, according to McKinsey, which attributed overruns to immature cloud financial management capabilities (FinOps). Cloud spend, like other IT spend, can proliferate quickly if there is no cloud management platform that provides clear cost visibility or usage visualizations.

Proper financial management requires FinOps—a combination of financial personnel and DevOps. It is imperative for FinOps to participate in cloud management from the beginning—negotiating pricing, setting budgets and tracking overall cloud investments. It is also responsible for rightsizing resources and workflows to understand usage patterns and chart the perfect combination of cost efficiency and value creation.

One way that organizations can do this is through cost allocation tagging; this provides deeper visibility into tracking cloud usage and associated costs, providing visibility into excess costs within compute and memory.

2. Build cloud-native apps when possible

Many organizations begin their cloud migrations with significant technology debt stemming from legacy apps. Technology debt occurs when organizations fail to upgrade or replace older applications at the end of their lifecycles because they had other priorities or chose to patch an issue than replace the entire application. This legacy debt can often transfer to the cloud, where the shortest path to migrating the application is “lifting and shifting,” or rehosting. With lift and shift, IT teams migrate an exact copy of an application or workload from on-premises to public or private cloud. This is an expedient method for moving apps or workloads to the cloud, but it can incur greater costs because the “shifted” app is likely not flexible or scalable enough to take advantage of the cloud environment’s ability to scale up and down depending on data needs. Organizations need to investigate each app to determine whether they need to replace it with something cloud-native.

3. Pick the best cloud provider and ecosystem for your business

Organizations with high cloud bills may not have the right cloud platform. Optimizing cloud spend is not only about cutting costs; it’s about making decisions that produce optimal results for every use case. Organizations today can choose between several services, all of which have benefits and challenges. First, organizations should discover whether the private cloud, public cloud or hybrid cloud or multicloud environments is best for their needs. Organization looking to choose the right solution should understand their specific use cases, their security concerns and the current applications that would run on the cloud.

The organization should also decide which cloud service type to utilize from three different options:

  • IaaS (Infrastructure-as-a-Service) provides on-demand access to cloud-hosted physical and virtual servers, storage and networking—the backend IT infrastructure for running applications and workloads in the cloud. It enables the lowest-level control of resources in the cloud.
  • PaaS (Platform-as-a-Service) provides on-demand access to a complete, ready-to-use, cloud-hosted platform for developing, running, maintaining and managing applications. A PaaS provider hosts with servers, networks, storage, operating system software, databases and development tools at their data center so customers can build, test, deploy and scale applications at a faster rate and lower cost than if they built and manage their applications on-premises.
  • SaaS (Software-as-a-Service) provides on-demand access to ready-to-use, cloud-hosted application software. SaaS providers will then manage the software and the infrastructure on which it runs.

Companies like IBM provide several IaaS, PaaS and SaaS solutions to meet every type of organization’s specific needs.

4. Use automated cloud cost management and usage tools

The cost of cloud infrastructure can easily increase dramatically if not carefully monitored and addressed through cloud cost management tools, such as anomaly detection dashboards, cost analysis algorithms, automatic scaling, load balancing and spot instance tools, and automation. One common mistake is scaling up to meet high-demand instances, but failing to scale back down when cloud resource requirements return to normal. Intelligent tools based on machine learning algorithms and other predictive technologies can assist in this regard. They can track API and application usage metrics, manage an organization’s workload and avoid over-provisioning resources.

These tools can also forecast future usage and costs. This way, the organization can work with the cloud provider can scale up or down resources depending on real-time needs. Embracing cloud optimization tools and automation can keep costs down, especially for periods of low resource usage.

5. Consider using chargebacks

Cloud budgets can proliferate if they all go into one budget because individual business units are held responsible for their specific spend. Organizations that use chargebacks more directly attribute cloud spend based on which business unit is using the services. Chargebacks identify which business units are using more cloud services than others and attribute specific costs to those business units. Chargebacks often alter perceptions of the cloud as a “free resource,” according to Gartner, and can drive more efficient usage.

6. Renegotiate with cloud providers

This is especially important for organizations that migrated to the cloud years ago. They may have agreements based on old expectations, reserved instances or managed services that are no longer needed. A McKinsey article provides a great question every organization should ask itself about its cloud relationship: Would you sign the existing contract that you have today given the opportunity? If the answer is no, you should attempt to renegotiate regardless of how much time is left on the current deal.

Get started with IBM Turbonomic

No organization will approach the cloud the same, but every organization should instill dedicated and methodological cost control with their cloud deployment. Failing to do so could create unnecessary costs that put unnecessary pressure on the entire IT operations. The right approach can easily cut up to 25% of the costs of their cloud programs, according to McKinsey.

Increasingly, complex applications run your business, and they can run your teams ragged trying to stay ahead of dynamic demand. The IBM® Turbonomic® hybrid cloud cost optimization platform allows you to run applications seamlessly, continuously and cost-effectively to help assure app performance while lowering costs.

Learn more about IBM Turbonomic
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