Kevin Bogusch | Oracle Senior Competitive Analyst | January 22, 2024
Anyone who’s owned a home is familiar with the challenge of maintaining a clean garage. You start with a neat environment and what feels like limitless space for storage, a workbench, and maybe even some exercise equipment. But soon a few boxes go here, a few more go there, and the area becomes a chaotic maze with little room to walk, much less park a car.
Cloud computing can present the same challenge. As businesses take advantage of the cloud’s scalability and flexibility to provision servers and computing instances in minutes, cloud environments can quickly become cluttered with unused or underutilized resources, adding unnecessary complexity and chewing up IT budgets. After all, though cloud computing offers customers the benefit of paying for only the cloud resources they choose, cloud service providers (CSPs) may still charge customers whether they use those resources or not.
This is where cloud cost optimization comes in. Its goal: Make cloud environments more efficient and less complex, and ultimately less costly. This article examines how this process works, why it can be difficult to implement, and which best practices to follow to optimize cloud costs successfully.
Cloud cost optimization is the process of reducing the overall costs of cloud computing services while maintaining or enhancing performance. The goal of cloud cost optimization is to align costs with actual needs without compromising on service quality or performance, typically by limiting expenses such as overprovisioned resources, unused instances, or inefficient architecture. It’s a balancing act between keeping costs down and providing the appropriate cloud resources to maintain peak performance, fuel growth, and ensure compliance and data security.
Cloud cost optimization is also a dynamic process because cloud workload requirements constantly evolve, as do cloud pricing and service options. As a result, cloud cost optimization requires detailed metrics, analytics, and automated tools.
In general, cloud cost optimization involves two core initiatives.
In the early days of cloud computing, companies eagerly took advantage of the cloud’s scalability, flexibility, and easy provisioning, often without fully understanding costs. But as cloud adoption soared, pricing and service models became more complex, resulting in underutilized cloud resources and unexpected cost overruns for many businesses.
And so cloud cost optimization was born. Early attempts at cloud cost optimization involved manually monitoring usage and adjusting resource allocation, but continued cloud growth made this process a challenge. For example, cloud providers began to offer almost unlimited options for instance sizes for workloads. In addition to server size, IT teams had to select options for memory, databases, computing power, graphics, storage capacity, and data transfer speed, among other variables. With so many factors to consider, choosing the correct size instance for workloads became difficult, with many companies unwittingly purchasing more capacity than they needed.
To help customers avoid unnecessary expenditures, cloud providers have started to offer comprehensive cost management tools that provide insights into resource utilization, cost breakdowns, and recommendations for optimization. In addition to these cost management tools, many companies have developed strategies and best practices to maximize their cloud investments. These include using automation to scale resources up and down as needed, identifying discount opportunities with cloud providers, and continuously monitoring and adjusting their active cloud services.
Many companies also take a structured approach to cloud cost optimization by assigning dedicated team members to oversee the process. That responsibility can span roles, including cloud architects, cloud operations managers, cloud financial analysts, and cloud cost engineers. More commonly, companies create a cloud governance board with multiple stakeholders. Also referred to as financial operations or FinOps, this team is charged with developing and implementing best practices for cost management, maintenance, bulk shutdowns of unused resources, and other cost-cutting procedures.
Cost control is obviously a primary goal of cloud cost optimization, but it’s not the only reason this process is important. Cloud cost optimization also addresses challenges with cloud performance optimization and security, while providing other benefits.
Here are the most important reasons to implement a cloud cost optimization strategy.
Keeping cloud costs under control can feel like an exercise in futility. That’s because many of the benefits of the cloud, such as self-service and limitlessly scalable resources, can be a blessing and a curse if not properly managed. Complex cloud pricing models are often the root of the problem.
For example, software-as-a-service (SaaS) pricing is typically based on the number of cloud subscriptions a company purchases, requiring companies to carefully monitor their subscriptions to ensure they don’t go unused. Meanwhile, infrastructure-as-a-service (IaaS) models are often based on the amount of computing, networking, and storage capacity a company reserves on a CSP’s platform each month, creating even more complexity.
In a decentralized cloud environment, IT teams may find themselves with a newfound ability to make immediate decisions regarding new cloud resources. As more teams across an organization take advantage of this ability, the costs can quickly add up, particularly if no one monitors whether new resources are necessary or how long they’re required. Autoscaling features offered by some cloud providers can help control costs, but they’re not a panacea. Companies still need to establish clear autoscaling policies that specify scaling triggers based on performance metrics and establish minimum and maximum scaling limits.
The complexity of cloud billing can also compound the challenges of cloud cost optimization. The problem: All those countless cloud configuration options can have their own respective pricing model. As a result, the average cloud bill contains hundreds if not thousands of lines of data. As CSPs add new features and pricing structures, the complexity increases further. This is especially true for companies that use multiple CSPs, each with its own billing terminology. In most cases, the task of understanding and allocating each line from a cloud bill falls to a finance professional who likely doesn’t have the training or experience to interpret the charges. As a result, they will likely be unable to advise IT teams on how to optimize spending.
Cloud cost optimization is a daily practice. Unlike accounting, for example, where monthly or quarterly reporting requirements dictate when companies must ramp up their activities to meet established deadlines, cloud cost optimization is proactive and constant. Ongoing cloud innovation and shifting organizational priorities make careful attention to detail vital for cloud cost optimization. With this in mind, the sooner companies can build a standing group of diverse cloud stakeholders to oversee cloud costs and policies, the easier ongoing cost control will be.
Clear policies for purchasing and implementing cloud resources are foundational to best practices for cloud cost optimization. Once these policies are in place, companies can embed them into cloud workflows to automate the process of real-time discovery and timely response.
The following eight best practices can help companies establish cost discipline for cloud spending:
Successful cloud cost optimization doesn’t start after cloud implementation. It begins before migration. As companies build a case for moving to the cloud—and as they navigate the provider selection process—they have a unique opportunity to establish a culture of cost awareness.
Building a collaborative FinOps team is the first step. This group should oversee cost control and all policies related to how cloud technology gets purchased and implemented throughout the organization. Here’s how the FinOps team can get a head start on crafting a cost-effective cloud strategy.
As well as offering flexible pay-as-you-go and subscription-based pricing models, Oracle Cloud Infrastructure (OCI) features a suite of cost management tools to help proactively manage and modify cloud usage and spending, making it a cost-efficient cloud solution. Oracle cost management tools focus on the following five critical areas of cloud cost optimization:
Cloud cost optimization is as much a cultural initiative as it is a technical one, though cost management tools will always play a key role. By combining those tools with clear policies and effective communication strategies, companies can maintain control over their cloud spending and reduce the likelihood of exceeding their budgets.
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How much does a cloud setup cost?
Cloud implementation costs can vary greatly based on several factors, including the size of the company’s data stores, its computing requirements, the number of applications migrated to the cloud environment, and the amount of data transfer required. Typically, cloud implementation costs include setup fees from a cloud service provider as well as per-user subscription fees for cloud applications, the cost of internal and external resources to plan and manage the implementation, data migration costs, and employee training costs. Depending on the scope of the project, additional full-time IT resources may be required as well.
What are the different types of cloud costs?
In addition to the initial implementation costs described above, cloud costs include monthly fees for subscriptions and the consumption of cloud resources such as server, storage, and networking capacity. Cloud service providers may have different pricing structures, but businesses typically are charged monthly for the number of servers used, the amount of data stored in the cloud, data transfers between the cloud and external sources, database services, technical support, and additional services such as analytics or security.
Why is the cloud so expensive?
While some companies may consider cloud computing expensive, many others view the cloud as the most cost-efficient computing model. Compared with on-premises computing, for example, the cloud eliminates the up-front expenses of hardware and software, as these are handled by cloud service and application providers. While cloud computing includes monthly subscription and consumption costs that don’t apply in an on-premises computing model, many companies find the flexibility of the cloud and the ability to scale resources based on demand make it easier to keep costs under control.
Is the cloud really worth it?
Determining whether investments in cloud computing are worth it comes down to the individual needs of each company. Many organizations have found that cloud computing is well worth the investment, and spending trends on the public cloud bear that out. In general, cloud computing customers have cited cost-effectiveness, scalability, and on-demand services as top benefits of the cloud.