What is cloud cost management?

Companies are increasingly turning to cloud services to manage operations and IT infrastructure, marking a transition away from slower, less portable systems. But cloud migration isn’t without its complications.

While they offer tremendous app scalability and flexibility, cloud services often follow a pay-per-use pricing model where the business incurs costs based on usage (that is, storage, data transfer and computing power). Without careful monitoring and management, cloud bills can quickly balloon out of control.

Market research suggests that enterprise spending for public cloud services top USD 1 trillion by 2026.¹ And despite significant waste in enterprise cloud computing expenditures, and the fact that most organizations report struggling to manage cloud spending, most large enterprises—those with more than 1,000 employees—expect cloud investment to increase in the coming years.²

Cloud cost management attempts to address the budgeting inefficiencies that often accompany cloud adoption. When implemented effectively, cloud cost management strategies enable FinOps teams to proactively identify and eliminate wasteful spending, scale cloud resources and automate cost control policies.

Cloud cost management tools take cloud cost management to the next level. Leading cloud service providers, like Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform, Kubernetes and IBM Cloud®, provide cost control features like:

Cost visibility and reporting for granular, comprehensive tracking of cloud expenses.

Resource tagging for cost and usage tracking, cost allocation, chargebacks and showbacks.

Intuitive application programming interfaces (APIs) for real-time usage notifications.

Artificial intelligence (AI) and machine learning-powered cost analysis and forecasting tools for optimizing cloud budgets.

Cost and usage dashboards for increased transparency around cloud spending and budgets.

Seamless integration with other IT management and DevOps tools.

Generally, cloud service providers offer customers 4 cost models:

Also called on-demand models, pay-as-you-go models charge customers based on cloud usage, typically by the hour (but sometimes by the minute or second).

This model offers users plenty of flexibility and scaling capabilities, and can serve as a practical solution for smaller, less complex operations. However, as organizations grow and require a broader range of cloud resources, pay-as-you-go models can become prohibitively expensive.

Under the subscription model, customers pay a fixed monthly or annual fee for a set of services over a specific time period, regardless of usage. This model is common with SaaS solutions and is often used by large businesses with predictable workloads.

Cloud providers offer users the ability to reserve instances for a certain period—generally between one and three years—for a deeply discounted rate. Under reserved instance models, providers charge by capacity (as opposed to the number of instances), so they work well for businesses with predictable workloads and those that are prepared for a long-term commitment to a cloud platform. Reserved instances typically cost a fraction of on-demand cloud services.

Spot instances allow customers to bid for unused capacity in the cloud provider’s infrastructure with the understanding that such instances can be interrupted or reclaimed by the provider at any time.

Often offering the steepest discount compared to on-demand services, this model is best used for short-term, high-load processing and for processes that won’t be negatively impacted by disruptions.

Keep in mind that many businesses choose to adopt a hybrid cloud model, and will therefore use a mix of traditional on-premises data centers, private and public cloud services (and sometimes multiple public cloud providers, as in a multicloud environment) with orchestration between platforms.

Unsurprisingly, cost models for hybrid models can be incredibly complex, since they require teams to manage and optimize costs across different environments.

Cloud cost management, which ideally involves a combination of education, governance, usage forecasting, software tools and continuous real-time monitoring, is a critical component of any company's cloud management strategy.

Fostering awareness and education around cloud costs is a natural first step toward helping to ensure that all stakeholders—particularly those involved in the provisioning, deployment and operation of cloud services—understand the financial impact of their decision-making.

Financial education programming (for example, trainings, webinars, case studies, use case reviews) for topics like cloud pricing models and cost management tools can help team members learn invaluable cost-saving skills.

Using cloud financial management tools is also crucial for optimizing cloud spend and identifying areas for optimization. Cloud cost management tools, like the IBM® Turbonomic® platform, offer insights into usage patterns and cost trends, recommendations for cost reduction, and features for cost and resource allocation, forecasting and optimization.

Processes like load balancing, right sizing and autoscaling can be used to make more efficient use of cloud resources and spend:

Load balancing is the process of distributing incoming traffic evenly across available resources.

Right sizing is the process of adjusting instance type and sizing to match workload capacity and performance requirements. Whereas overprovisioning creates unnecessary costs and underprovisioning affects application functions, right sizing helps businesses balance competing priorities, optimizing both application performance and cloud expenditures.

Autoscaling enables the dynamic scaling of resources to meet the demands of unpredictable or constantly changing workloads.

A successful cloud cost management strategy should incorporate FinOps processes and personnel. FinOps is a dynamic cloud financial management discipline that combines finance and DevOps practices to help companies promote financial accountability in hybrid and multicloud environments.

A FinOps approach to cloud cost management helps ensure that business stakeholders are making smart, data-driven cloud-spend decisions. Given the financial complexity of expansive cloud environments, FinOps helps companies foster a collaborative, all-hands-on-deck culture that prioritizes cloud cost management and ultimately maximizes business value from the cloud.

Cloud cost management empowers businesses to make informed financial decisions about resource usage and cloud governance. Other key benefits of embracing cloud cost management include: