Cloud Cost Management Tips & Tools to Reduce Costly Budget Overspending

Software Asset Management Software / October 2024

The outcome for adopting cloud cost management tools and ways of working is simple; to reduce overspending on cloud infrastructure and applications. Cloud spending among organisations typically averages 23% over budget. While 61% of cloud practitioners openly admit they don’t do a good enough job at managing cloud usage and costs.

So how can cloud cost management strategies and tools help?

Think of it like paying for multiple streaming services. If you’ve subscribed to Netflix, Prime, and Apple TV – but only watch Netflix, you’re wasting money by subscribing to the other two platforms (also known as idle resources). So, you decide to cancel those services that you’re not using.

Cloud management tools are designed to help organisations monitor their cloud spending, enabling them to make better decisions regarding their cloud spending by optimising resources through the use of billing alerts, spending analytics, and resource planning.

5 Signs You Need a Cloud Cost Management Strategy

1. Unexplained Bill Increases: High cloud bills without an increase in business activity. When this happens, it usually indicates ineffective cost management and a lack of spending controls. This could be caused by inefficient resource allocation, forgotten test environments, or unoptimised configurations.
2. Lack of Cost Visibility: In larger businesses, it is sometimes difficult to allocate costs to specific departments or applications. This makes it challenging to manage and optimise spending if you don’t know who to bill. Unchecked spending makes it difficult to hold teams accountable for their cloud usage. If left unchecked, it reinforces bad habits in your operations teams and leads to further inefficiencies over time.
3. Idle Resources: Underutilised or completely unused cloud resources are a common source of unnecessary costs. This happens when development or test environments are needlessly left running outside of business hours. Temporary resources are not de-provisioned after their intended use and add to unnecessary costs as they remain online.
4. Over-Provisioning: If your organisation frequently over-provisions resources “just in case”, then you’re likely paying for more than you need. While it’s important to ensure adequate resources for peak times, constant over-provisioning can lead to ballooning costs.
5. Shadow IT: Bypassing IT procurement procedures to procure cloud services can lead to uncontrolled spending and security risks (meaning an increase in security measures such as patch management). Decentralised cloud adoption has the potential to create duplicate services and allow for unnecessary spending to occur. This leads to inefficient resource use and potential compliance issues.

Best Ways to Manage Cloud Overspending

To keep cloud spending in check, there are five key steps:

1. Review bills. Simply looking at your current cloud bills and invoices is a good place to start, enabling you to identify any surprises or idle resources.
2. Right-size your cloud infrastructure. Right-sizing is a way to scale down on unused resources or reduce cloud provider plan sizes that are too big for your usage.
3. Take advantage of a provider’s saving plans. Some cloud providers and applications typically offer reduced prices if you commit to long-term plans such as 3-year and 5-year service subscriptions.
4. Set up a regular audit process. Deploying a cost management team and strategy helps to highlight idle resources and overspending before it becomes an issue.
5. Utilise tools with cost management capabilities. Specific cloud cost management tools and software asset management systems offer the features to track and manage cloud spending.

As well as these five steps, there are also cloud cost optimisation strategies to take advantage of. One plan is Gartner’s 5-step framework, which focuses on planning, tracking, reducing, optimising, and evolving cloud cost management.

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What Are Cloud Cost Management Tools Best Used For

Monitoring Infrastructure Costs

This includes payments related to computing instances, file and data storage, networking, and other IaaS components. Cloud cost management tools provide detailed breakdowns of costs to visualise your current spending. An organisation can identify areas for optimisation and spending reduction when spending analytics are implemented correctly.

Tracking Software Licensing Costs

Licensing costs associated with SaaS applications and platform services can mount quickly. Unfortunately, many organisations underestimate the impact of SaaS spending on their budgets, which has knock-on effects further into the financial period. The good news is that effective cost management tools can help track and optimise these expenses.

Analysing Data Transfer Costs

Moving data between cloud regions or within the cloud may incur additional expenses that you didn’t plan for. These costs can be significant, especially for data-intensive applications, and are often overlooked in basic cost assessments.

Planning Resource Utilisation

Tracking how effectively your cloud resources are being used and identifying opportunities for optimisation can save you money. This includes analysing usage patterns to recommend the right-sizing of instances and identifying idle resources. Once analysed, cloud cost management tools can suggest more cost-effective instance types or pricing models for better savings.

Reserved Instances and Savings Plans

By using these tools, organisations can make better decisions about long-term commitments. This allows them to project and forecast potential savings before going all-in on new projects.

Multi-Cloud and Hybrid Cloud Environments

Many modern businesses use a combination of different cloud providers and on-premises infrastructure. Cost management tools provide a single view of your spending across a variety of environments. This approach simplifies reporting and budgeting and highlights potential issues.

Managing Container and Serverless Costs

As container-based and serverless architectures become more popular, cost management tools evolve to provide granular insights into the costs associated with these technologies.

How Companies Can Utilise Cloud Cost Management Tools

Cloud cost management tools offer benefits and features that help organisations to take control of cloud spending. These include:

Cost Reduction

By identifying waste, organisations uncover significant opportunities to save money. When properly implemented, these tools lead to substantial reductions in cloud expenses. For instance, some organisations reported achieving up to 30% savings within the first month of adopting cloud cost management practices.

Improved Budgeting

Accurate forecasting and real-time monitoring help to create accurate budgets. This leads to better financial planning and reduced risk of budget overruns.

Enhanced Accountability

Cost allocation features allow organisations to attribute expenses to specific teams or projects which promotes responsible usage. This can encourage a culture of cost-awareness throughout the organisation.

Optimised Performance

Many tools offer recommendations for right-sizing resources, making sure you’re not overpaying for underutilised capacity. This often leads to improved application performance as well as cost savings.

Time Savings

Automated reporting and analysis saves time compared to manual cost management processes. This allows IT and finance teams to focus on strategic initiatives rather than getting bogged down in spreadsheets.

Improved Decision Making

With detailed cost data at their fingertips, managers can make more informed decisions about cloud investments and resource allocation. This allows your teams to be more agile, showing potential costs and speeding up approvals for important projects.

Competitive Advantage

By optimising cloud costs, organisations can free up resources for innovation and growth, potentially gaining an edge over less efficient competitors.

How Various Business Departments Use Cloud Management Tools

CIOs (Chief Information Officers):

CIOs need to have a firm grasp of the current cloud costs of the organisation. It is for this reason that they would prioritise the below features for measuring cloud expenses.

• CIOs can quickly gain a holistic view of cloud spending across the organisation.
• They can make strategic decisions about cloud adoption, multi-cloud strategies, and costs.
• Cloud investments need to be aligned with overall IT strategy and business objectives.
• They use cost data to justify IT budgets and demonstrate the value of cloud solutions.
• It allows them to identify opportunities for standardisation and consolidation across the organisation.

CFOs (Chief Financial Officers):

CFOs are responsible for financial strategies throughout an organisation, and IT is usually an area of great expense. Cloud expenses are quite large. It makes sense for the CFO of an organisation to have visibility over the services in this area.

• CFOs can enjoy improved financial forecasting and budgeting for cloud expenses.
• They can analyse the financial impact of different cloud usage scenarios.
• Cloud cost management tools ensure cloud investments are delivering expected returns.
• CFOs can work with IT to develop chargeback or showback models for cloud costs.
• Cost data informs decisions about capital expenditure vs. operational expenditure.

IT Teams:

IT departments need to justify their budgets at certain intervals, which means data is needed. Cloud cost management tools help IT teams by providing important information about their current expenditure.

• Helps Identify and eliminate wasteful spending on unused or underutilised resources.
• Implement and enforce tagging policies for better cost allocation.
• Optimise cloud architectures for cost-efficiency without sacrificing performance.
• Use cost data to make informed decisions about which cloud services to use, or not use.
• Set up and manage automated cost control policies for precise billing information.

DevOps Teams:

DevOps is a specialised role that uses cloud services extensively when rolling out solutions for an organisation. DevOps has to justify costs in the same way that IT departments do, with a focus on production.

• It allows DevOps to integrate cost considerations into CI/CD pipelines.
• Implement cost-aware auto-scaling policies to encourage responsible spending.
• They can use cost data to make decisions about container orchestration and serverless architectures.
• DevOps teams need to implement and manage cost allocation tags for accurate project-level costing.

FinOps Teams:

FinOps teams have become quite popular in enterprise-level organisations. They serve a vital function as a bridge between finance, IT, and business units.

• FinOps Develops and implements cloud financial management strategies for better budget control.
• They provide cost transparency and accountability across the organisation.
• FinOps optimises the use of reserved instances and savings plans, creating additional savings.
• They conduct regular cost reviews and optimisation exercises to streamline budgets and save money.

Business Unit Leaders:

Companies rely on BU leaders to fully understand where their budgets are being spent. Traditionally, these roles were not necessarily technical. Modern requirements in business mean that visibility of cloud expenses is essential for financial success. BU leaders need to get the following out of cloud cost management tools.

• They must understand the cost implications of their cloud usage and show value to the business.
• They must make informed decisions about resource allocation within their units.
• BU leaders have to align cloud spending with business outcomes and KPIs.
• They have to collaborate with IT and finance to optimise costs without sacrificing productivity.

Cloud Cost Management vs. SaaS Spend Management

While there is some overlap, cloud cost management tools and SaaS spend management platforms perform different functions.

Cloud Cost Management Tools

• The main focus is on IaaS and PaaS resources (this includes items like computing, storage, and networking)
• They provide detailed usage metrics and resource-level optimisation
• Features usually include methods for managing reserved instances and savings plans
• They integrate deeply with specific cloud providers (AWS, Azure, Google Cloud)
• They offer recommendations for architectural optimisations to reduce costs
• They include features for managing container and serverless costs

SaaS Spend Management Software

• Primarily deals with software subscription costs
• Focuses on licence management and utilisation
• Often includes features for contract management and renewal tracking
• Covers a broader range of applications, including on-premises software
• Provides insights into user adoption and engagement with SaaS tools
• Often includes features for managing software procurement processes

While these two categories of tools have clear differential focuses, the lines between them are quite blurred. Organisations often use different solutions for managing cloud infrastructure costs and SaaS spending.

The choice between these tools (or the decision to use both) depends on an organisation’s specific needs and cloud usage patterns. For example, a company that is heavily invested in IaaS might prioritise a cloud cost management tool. A business with a large portfolio of SaaS applications might focus more on SaaS spend management.

Companies that have different technology stacks might favour a blend between the two. Each situation is different, and there are tools available to cater to everyone.

FAQs

What Is Cloud Cost Management?

Cloud cost management is the process of regularly adjusting and reviewing payments and usage of cloud services to save money and reduce waste, ultimately reducing costs without needing to sacrifice the performance or functionality of cloud deployments.