Cloud Cost Management Best Practices
According to McKinsey & Company, enterprise-level businesses plan to spend 80% of their IT budgets on cloud computing infrastructure by 2024. If your company is going to spend this much on cloud services, you want the best value for your investment.
Unfortunately, moving more workloads to the cloud can drive the already high cost of cloud services out of control. This is where cloud cost management (CCM) becomes critical to monitor how your organization uses the available infrastructure and holds users to account.
In this guide, you'll learn what cloud cost management means, the best practices, and the essential tools for monitoring cloud resources.
A small business or startup wondering how cloud computing can be of benefit to your operations? Check these benefits of cloud computing for small enterprises.
Defining cloud cost management (CCM)
Cloud cost management is a planning strategy that helps businesses save money on their cloud infrastructure, especially when the infrastructure is complex.
CCM is part of the broader FinOps discipline that places greater emphasis on the financial management of technology resources in a business. CCM is also called cloud financial management (CFM), or cloud financial optimization (CFO).
Typical cloud costs could cover:
- Virtual machine instances
- Network traffic
- Web services
- Memory and storage
- Software licenses
- Team training and support
If your business uses services from various vendors or has little control over permissions and access, you could be losing money on your cloud-related IT budget. Efficient cost management will help you put the expenses in perspective and have better control.
That said, cloud cost management comprises the following key components:
- Monitoring: Gather data about how your business utilizes cloud resources in terms of instances and consumption trends.
- Analysis: Study your data to find out where you're overspending or underutilizing your cloud resources and find optimization opportunities.
- Tagging: Categorize your resources and add metadata to each instance, such as business units, departments, projects, workloads, billing codes, etc.
- Reporting: Generate reports and create dashboards that show how each stakeholder uses their allocated cloud resources.
- Forecasting: Analyze your usage data to estimate future spending and see if it aligns with your IT budget.
- Optimization: Consider right-sizing your resources, using serverless architecture, or switching vendors or subscription plans to save money.
- Automation: Set up cost alerts and automate policies to keep resource usage in check.
Benefits of cloud cost management for organizations
As you can see, cloud cost management is a comprehensive strategy with numerous benefits, including these key ones:
1. Cloud cost management helps to optimize spending
The CCM process is a methodical approach to reveal areas of overspending and underutilization. It shows you how to allocate resources better and get maximum value from your cloud services budget.
2. Cloud cost management eliminates unexpected costs
Sometimes, your cloud service costs can shoot up suddenly and leave your organization at a loss. CCM can anticipate and avoid these shocks in several ways, including:
- Tracking usage tier limits and reserved instances
- Scheduling upgrades and maintenance
- Flagging shadow activities before they hit your budget.
3. Cloud cost management introduces transparency
CCM includes detailed analysis and reports about cloud usage for each project, department, service, and resource.
You can dive deep into the usage data, trace all the costs, and hold individuals and teams accountable for their resources.
4. Cloud cost management improves resource allocation
CCM data gives an accurate understanding of resources so that the organization uses only what it’s paying for.
It also makes it possible to apply strategies like right sizing, chargebacks, and showbacks to keep the budget under control.
5. Cloud cost management enhances scaling
Businesses need the flexibility to scale their cloud spending up or down with different projects and market trends.
CCM enables you to match your budget to the organization’s needs at any given time using strategies like load balancing, anomaly detection, and auto-scaling.
Cloud cost management best practices
A recent survey by Enterprise Strategy Group shows that 85% of businesses deploy applications on at least two IaaS providers. The majority of organizations deploy a multi-cloud strategy combining on-premise data centers, PaaS, and colocation services all at once.
These distributed applications can stretch a company's IT budget significantly. To navigate this, apply the following best practices:
1. Consolidate cloud accounts
This simply means to centralize multiple separate cloud accounts into a unified structure. With all the cloud accounts combined into one dashboard, you can design a unified pricing model to leverage volume discounts and saving plans.
Once consolidated, you can connect the accounts to a cost management tool to monitor them in real-time and analyze the data for trends, habits, and optimization opportunities.
One common discovery during consolidation is overspending on infrequently accessed data. Consider archival or cold storage (migrating data older than 90 days for backup and compliance) to save money.
3. Use tagging practices
Tagging adds metadata to the cloud resources to attribute them to the right department, project, or individual. The tags facilitate transparency and accountability when you generate usage reports or run audits.
The most common tags for CCM include:
- Environment tags (production, development, staging)
- Team tags (engineering, sales, marketing)
- Business unit tags (HR, operations, accounting)
- Data tags (public, confidential, sensitive)
- Resource tags (database, compute, storage).
4. Use cost-saving plans from cloud providers
Review your cloud service plans to see whether you can change your subscriptions to save money.
For example, you can commit to a long-term plan at a discounted rate or leverage reserved instances to maximize your current plan.
In some cases, you can customize your service plan with your provider to pay for only what you use if standard pricing tiers don't fit your business.
5. Train teams on cost awareness
A cost-aware culture empowers teams and stakeholders to use their allocated cloud resources wisely.
All applications and projects must be built around the right services, and everyone is held accountable for their share of the IT budget.
This requires consistent education and training about CCM best practices to promote good stewardship.
6. Use data (NOT habits) to allocate resources
Poor cloud usage habits include storing obsolete data, depending on an expensive on-premise system, and running inefficient or unpredictable workloads on already stretched cloud resources.
Instead of straining your IT budget to accommodate these habits, make data-driven decisions based on your CCM analytics to allocate your resources.
Prioritize effectiveness and cost savings over familiar but harmful habits in the organization.
7. Get rid of idle resources
There are two main ways to eliminate idle resources in cloud management: auto-scaling and scheduling resource termination.
Auto-scaling is a dynamic strategy that is based on demand. It automatically adjusts resources according to workloads and application traffic, so you only pay for resources when you need them.
Scheduling turns off idle resources for predictable usage patterns, e.g., after hours, weekends, holidays, or other unproductive times.
Instead of running all resources throughout, employ this best practice to optimize efficiency and cost savings.
8. Check and eliminate overprovisioning
Overprovisioning is a common cause of budget problems in cloud management. Businesses spend unnecessary funds on storage and network processes that their workloads don't use or need.
To identify overprovisioning, you can study the historical data about workload patterns, service level agreements, and workload demands.
If you discover bottlenecks or mismatched instances, use auto-scaling and scheduling to rightsize resources.
9. Implement an automated cloud cost optimization solution
Automated cloud cost optimization tools rely on algorithms that analyze your billing reports, usage metrics, and cost anomalies to save costs.
These tools also monitor and optimize the cloud resources continuously, giving you real-time alerts whenever resources reach their thresholds.
Leveraging automation for cloud cost management can streamline your budget with minimal manual processes.
10. Conduct regular cloud resource reviews
Even with fully automated CCM, you still need to run quarterly and annual audits to control the IT budget.
Regular audits provide valuable insights into the cloud cost-saving strategy, including trends that you may otherwise miss if you completely relied on automation.
Constantly compare your resource use to determine needs as the organization evolves.
Challenges in implementing cloud cost management
A 2020 study by Gartner revealed the following common risks and pitfalls when implementing cloud cost management strategies:
1. Poor visibility into cloud costs
Many businesses lack insight into their resource usage and billing details, often relying on estimates and rounded figures. This can disguise waste.
Instead, use dedicated cloud monitoring and reporting tools to break down costs, resources, and usage habits. Since cloud vendors bill continuously, you need to track your cloud resources continuously, too, and limit overspending.
2. Unanticipated usage
Cloud costs can blow up in one of the following scenarios:
- You may have a sudden increase in demand, e.g., if your company has seasonal or regional fluctuations or new projects in development.
- You may be paying for unused resources, e.g., after completing projects or reorganizing departments.
- You may be paying for poor performance, e.g. services that don't deliver the desired ROI.
Keep in mind that cloud vendors have complex pricing models packed with features, so it's likely that you're already paying for unnecessary services.
Assess your cloud resources methodically to identify these unprecedented cloud costs.
3. Lack of expertise
Cloud cost management is not a set-and-forget software implementation. It requires specialized knowledge about cloud services, best practices, and vendor pricing models.
You also need data analysis skills to understand your usage data and derive valuable insights for cost optimization.
It's best to have a dedicated in-house CCM expert on your payroll and invest in training your stakeholders.
4. Lack of accountability
Many organizations find it difficult to attribute costs to individuals and teams if they don't know their impact on the available resources.
If you're already allocating resources inefficiently or overspending on your service subscription, poor accountability exacerbates the costs.
Create a culture of cost-awareness across the organization to ensure everyone uses their allocated resources responsibly.
Cloud cost management tools to consider
Investing in a robust cloud cost management tool is a core step to overcoming the challenges above.
Choose a solution with features like automated cost analysis, forecasting, cost allocation, resource tagging, reporting, and support.
You want a solution that integrates with existing cloud infrastructure and one that is easily customizable to the organization’s specific use cases. It should also be scalable to meet increasing cloud demands as the business grows.
Based on these features, here are some of the CCM solutions that many organizations are already using:
1. CloudKeeper
CloudKeeper is an AWS partner that optimizes AWS cloud costs by leveraging AI for reservation management, Availability Zone (AZ) savings, and Enterprise Discount Program (EDP) opportunities.
According to CloudKeeper, organizations can cut up to 60% of compute costs and up to 25% of the AWS bill. It also unlocks more discounted prices and buybacks depending on usage.
2. AWS Cost Explorer
AWS Cost Explorer is AWS's native FinOps tool that displays cloud usage at a glance, but you can also get granular with your data at an hourly and resource level.
You enable Cost Explorer via the Billing and Cost Management console, after which AWS generates your cloud cost data for the current month and past one year. You can also use it to forecast cloud costs for the coming year using daily-updated cost data.
This tool is the ideal starting point to understand things as they stand, then use the data to find cost-saving opportunities.
AWS is used widely by many organizations and it’s very critical that you understand how to manage the costs with the AWS environment. To dig deeper, this resource covering AWS cost optimization will offer you valuable insights.
3. Google Cloud Billing
Google Cloud Billing is part of the Billing and Cost Management console, which helps users to manage cloud spending, optimize costs, and pay bills monthly or per threshold. It is based on Identity and Access Management (IAM) roles, so you can assign individuals to their allocated Google Cloud resources and monitor their usage.
Only authorized users can access instances, storage buckets, or workloads. Google Cloud Billing meets the accountability component of cloud cost management.
4. nOps
If you're looking for a fully automated CCM solution, nOps offers AI-powered cloud resource optimization for AWS. Think of it as a hands-free version of CloudKeeper.
It's ideal for startups with limited resources to spend on IT because it leverages automation and frees you to focus on business growth.
nOps can cut the AWS infrastructure costs by half by consolidating bills, tracking usage, and implementing showback and chargeback strategies for different business units.
5. Apptio Cloudability
Apptio Cloudability is ideal for businesses that use multiple cloud vendors in their operations. It integrates with AWS, GCP, and Azure to give a total cost of ownership (TCO) breakdown.
Instead of using native FinOps features for each vendor, Cloudability gives a user-friendly dashboard for multi-cloud resources, plus rightsizing, workload planning, and anomaly detection.
Apptio Cloudability brings all cloud bills onto one platform to help with budgeting, forecasting, and cost savings.
CCM is a core pillar of financial responsibility!
Cloud cost management is a critical part of financial responsibility for IT resources. Since cloud spending can be complex and easily overlooked in favor of other profit-generating aspects of the business, it can lead to resource waste that ultimately impacts the bottom line.
These best practices coupled with a robust CCM solution can help you save money in the long term and improve the organization’s overall cloud performance.
Finally, cloud cost management best practices foster accountability and discipline among teams and other stakeholders. This is the most effective way to ensure every cloud resource is put to good use across the entire organization. For overall IT cost reduction strategies, please refer to this guide to learn what you can do to reduce others costs beyond the cloud.