What Is Cloud Cost Management?

Kevin Bogusch | Oracle Senior Competitive Intelligence Analyst | December 20, 2023

For all the benefits of moving computing infrastructure to the cloud, it can be difficult to make informed decisions about how to stay within budget. Cloud costs vary depending on the provider, the amount of storage being used, computing demand, and the application running on each cloud instance, among other variables.

Tracking and managing cloud costs has become a significant challenge. In a recent IDC poll, 64% of responding CIOs said they are outspending their budgets on the cloud. And their C-suite colleagues are noticing: More than half the executives polled in a 2022 IDC worldwide CEO survey said they worry about cloud spending.

An effective cloud cost management strategy requires detailed knowledge of all cloud costs and service requirements. The million-dollar question: Is the money being spent on cloud infrastructure appropriate given the company’s needs?

What Is Cloud Cost Management?

Cloud cost management is the process organizations use to keep cloud costs under control. An effort to increase convenience and save money by replacing on-premises infrastructure can quickly become a shadow IT nightmare as the cloud becomes less mysterious and easier to provision for nontechnical, line-of-business users. Not only may they spin up redundant services, but they also often don’t realize that the company is attempting to focus cloud spending on a single vendor. Using multiple cloud service providers, especially when it isn’t explicitly authorized, not only greatly increases the difficulty of managing expenditures, but it can also cost you in terms of lost volume discounts.

Cloud service providers use several common cost models, each with advantages and disadvantages. Typically, choices include a pay-as-you-go model billed by usage, a fixed-price subscription model, payment for long-term, steady-state use, discounts for volume commitments, and discounts for use during times of slack demand. Effective cloud cost management can rein in unauthorized spending and help harness available discounts while ensuring that IT departments are budgeting efficiently. You’ll minimize waste and administrative effort, save time—and avoid unpleasant surprises when bills arrive.

Key Takeaways

  • Careful governance is key to managing cloud costs.
  • Cloud cost management can be difficult because cloud instances are easy to spin up and equally easy to forget about.
  • Cutting costs and general budgetary control are the most important reasons to focus on cloud cost management.

Cloud Cost Management Explained

As companies’ reliance on cloud computing increases, so does the complexity of their IT infrastructures. The ease of setup and deployment, accurately attributed as a strength of cloud operations, often leads to sprawl. A multiplicity of vendors and pricing options, particularly in multicloud environments, can make it difficult to keep track of what a company is paying for, and why.

Here’s where cloud cost management comes in. Cloud cost management tools help companies control their spending by monitoring cloud use and demand. These tools can alert IT managers about cloud resources that are underutilized or that have become unexpectedly expensive. Most cloud service providers offer basic cost management tools, but specialized third-party systems give companies full visibility and governance across multiple providers.

Why Is Cloud Cost Management Important for Businesses?

Simply put, cloud cost management is important because no business can afford to waste money. In a decentralized IT environment, it’s so easy for teams to spin up new cloud instances that cost is often a secondary consideration—or not thought through at all. Frequently, cloud services are bought for specific purposes and then abandoned while the meter continues to run.

As important as cost management is for the budget, it’s just as vital for accountability. When cloud instances are casually set up and forgotten, it’s easy to lose track of them. That may lead to data duplication, corruption, or security issues. Cloud cost management helps companies understand what cloud instances have been created, by whom, and at what expense so costs can be allocated and problems traced back to the source.

Why Is Cloud Cost Management So Difficult?

It comes down to a mix of complex pricing and ease of provisioning. Cloud providers often have detailed and dynamic pricing models, with factors including the number of users, storage, data egress, and add-on services affecting what your cloud infrastructure costs on any given day. Understanding and managing fluctuations is difficult.

In addition, cloud services are all too easy for line-of-business employees to buy and install. Teams or departments may be using many different services or instances, scaling them up more often than scaling them back down and leaving IT to worry about the costs.

What Factors Contribute to Cloud Costs?

Cloud costs can be difficult to wrangle simply because there are so many factors that go into pricing, not all of them immediately obvious. Here are some factors that may contribute to excess spending.

  • Resource usage: The more resources—computing power, storage, bandwidth—each cloud instance uses, the higher the bills will be. A company that doesn’t keep an eye on resources may be surprised by unexpectedly high charges.
  • Instance types: Virtual machines (VMs) and containers have different costs, and cloud providers charge depending on the contracted performance of each instance. A VM is a computing resource that uses software to emulate an instance of an operating system, rather than deploying an entirely new hardware server. A container is a prefabricated set of software that runs a particular application when needed. Several containers can run on a single VM, so containers are usually less expensive, although usage fees can eat up the difference.
  • Storage costs: The amount of data stored online and the type of storage used will affect the size of the bill. Also, costs are associated with moving data into and out of storage. A data-intensive business—particularly one that frequently uploads and downloads data from the cloud—can rack up charges.
  • Autoscaling: Some cloud services include automatic monitoring that scales available resources up or down on demand. This makes sense because surges can be expensive; think of a company that advertises on social or broadcast media and has a product or service go viral. Autoscaling, though expensive, can allow a company to handle traffic spikes that might otherwise cripple its servers when performance is needed the most.
  • Geographic location: Many cloud service providers have data centers all over the world. Some offerings cost more than others, and a company’s decision (or indecision) about where to host its services may affect what it pays. Hosting data far from where it’s used—say, in Asia when the customer base is in the United States—may be less expensive than using geographically closer data centers because of lower-cost resources, utilities, and infrastructure in remote locations. Additionally, some countries offer tax incentives or government subsidies that can further reduce costs. However, it’s important to balance performance trade-offs, such as increased network latency and slower response times, as well as security and regulatory issues with cost savings.
  • Support: If a cloud contract includes support or if support is required on an ad hoc basis, it frequently comes at an additional cost. Support guaranteed by contractual service level agreements (SLAs) may be expensive—until you need it, at which point it can be priceless. Still, not every cloud instance requires 99.999% uptime with 24/7 telephone support.

Advantages of Cloud Cost Management

There are many advantages to managing cloud costs, some of them obvious, others less so. They fall roughly into the categories of money, governance, and budgetary process control.

  • Cost cutting: When a business tracks what it spends on cloud infrastructure, it can eliminate inefficiencies and optimize spending. Companies with poor IT governance often buy duplicative services and pay for resources that have long since outlived their usefulness. Cloud cost management can help find waste and, even better, prevent it in the first place.
  • Cost allocation: Often, companies are unable to decipher which departments have incurred which IT expenses. Managing cloud spending lets a company charge costs back to the departments that are using the services. That gives individual departments an incentive to manage spending.
  • Budgetary control: In companies where IT governance is lax and costs aren’t allocated, casual and uncontrolled IT spending often happens because it doesn’t count against any department’s budget. Cloud cost management tools help companies understand what they spend on cloud services, making them better equipped to set and adhere to a budget or understand when and where budgets are being exceeded. For both cost allocation and budget control, chargebacks and showbacks—doing the accounting without the actual charges—are a solid way to help everyone understand what resources are being consumed.
  • Forecasting: Knowing what you’ve spent in the past on cloud services provides some understanding of what’s required to support corporate initiatives. The ability to manage cloud costs today enables companies to budget for the future.
  • Visibility: Managing cloud costs isn’t just about money; it’s also about being able to control where and how data and other resources are used. Cloud cost management is an important first step in understanding corporate data usage, eliminating duplicative and conflicting databases, and securing corporate and customer information.
  • Rightsizing: It’s not uncommon for a cloud instance to be created with what turns out to be inappropriate resources—more memory or processing cores than are required to run an application, for instance. A cloud cost management tool can detect those inefficiencies and suggest that a company optimize the instance, saving it money.

4 Key Cloud Cost Management Strategies

Once a company decides to manage its cloud costs, several strategies can help optimize spending.

  1. Remove unnecessary instances: There’s no reason to pay for an idle cloud instance, and the meter is generally running whether it’s being used or not. This is an easy win: Identify and turn off what you don’t need.
  2. Set organizational rules: Many companies have had significant success with internal processes to control shadow IT. A similar effort, such as rules that manage who is allowed to contract for cloud services, under what circumstances, and within what spending limits, can keep departments from spinning up unauthorized and wasteful cloud instances. If nothing else, mindfulness in departmental cloud spending, particularly in concert with cost allocation, can go a long way toward reducing costs.
  3. Implement autoscaling: Rather than provisioning cloud instances for maximum load, companies can use autoscaling to allow those instances to efficiently accommodate demand surges and dips. Autoscaling may be expensive, but it’s less costly than paying for more services than are necessary day in and day out.
  4. Schedule demand: Not all instances need to be available 24/7/365. Shutting down or “sleeping” instances at night or on weekends when no one is likely to use them might save money without affecting service.

What Are Cloud Cost Management Tools?

Cloud infrastructure can sprawl across multiple vendors and offerings, driving costs out of control and making governance all but impossible. Cloud cost management tools, often offered in a software-as-a-service (SaaS) model, monitor your infrastructure and help eliminate waste by tracking and reporting on cloud use. Managers can analyze reports to identify and eliminate underused or redundant resources.

Each cloud vendor has its own native cost management tools, but a third-party solution is best when a company needs to manage its cloud infrastructure across multiple vendors. A third-party tool can provide important insights into the comparative costs of various cloud providers and even specific service offerings.

And, in many cases, a third-party tool has features, such as customization, visualizations, and granular visibility into usage, that a vendor’s native tools can’t match.

Top 8 Cloud Cost Management Tools

There are likely hundreds of cloud cost management tools, each with strengths and weaknesses. Here’s a sampling of popular tools worth investigating.

  1. pptio Cloudability: Focuses on budgeting, forecasting, and rightsizing cloud costs.
  2. AWS Cost Explorer: Amazon’s native tool; best for small-scale management.
  3. Azure Cost Management + Billing: Microsoft’s native tool; works with AWS instances too.
  4. CloudZero: Monitors Kubernetes and Snowflake instances.
  5. Densify: A machine learning tool that operates across cloud environments.
  6. Harness Cloud Cost Management: Relieves staff of having to do the labor-intensive tagging of resources that’s often required for accurate usage tracking; provides hourly updates.
  7. nOps: Focuses on AWS.
  8. Oracle Cloud Infrastructure (OCI) cost management and governance services: Particularly well-suited for managing usage and costs on Oracle Cloud Infrastructure.

Which Cloud Cost Management Tool Is Best for Your Business?

The “best” cloud cost management tool depends on the size, scale, and composition of your cloud infrastructure, as well as your IT maturity and management culture. In the smallest and most centralized companies, those that use few cloud services, and those in which only one person or a small team handles purchasing and management, a spreadsheet, combined with the manual tagging of each instance to help with tracking, may work just fine. But if a company has several teams working on multiple groups of cloud instances—and if corporate governance can’t quite manage or enforce the manual tagging of cloud resources to allow for accurate tracking—it should probably consider a dedicated cloud management tool.

When determining which tool to use, answer the following questions:

  • Do we use a single cloud service or multiple providers?
  • Are operational teams buying cloud instances on their own authority, or is cloud purchasing strictly centralized under IT?
  • How big is our company?
  • How sophisticated are our IT and finance teams, and how rigorous do control systems need to be?
  • Are cloud costs allocated across business units/projects, or are they rolled into a single budget that isn’t really controlled?

Oracle and Cloud Cost Management

Oracle Cloud Infrastructure (OCI) delivers complete cloud services around the world, across clouds, or in a company’s data center. It offers innovative features, such as flexible compute, lower pricing, autotuning storage, up to 10-times lower data egress fees, and free tools and reports to help eliminate needless overpayment and billing surprises.

OCI’s cost management and governance services include cloud cost management tools that monitor spending, increase accountability, and optimize efficiency. Financial leaders can use the tools to set up guardrails that help ensure cost control and governance without getting in the way of growth. Services include organization management, cost analysis and reporting, governance and control, budgeting and forecasting, and optimization.

Even companies with the simplest cloud infrastructure can benefit from attention to cost controls, but the need becomes more acute the more a business relies on the cloud. To make informed decisions about cloud expenses, leaders require data about how much they’re spending, on what, and why.

Cloud cost management can help. It tracks cloud instances and how they’re being used so companies can control their budgets, improve governance over their IT infrastructures, and gain more and deeper insights.

AI can help CIOs crunch data to optimize cloud spend. Learn how to harness the power of artificial intelligence now to address talent, security, and other challenges.

Cloud Cost Management FAQs

What are the three different cloud costing model strategies?

Cloud costs generally are based on one of three models: time-based, cost-based, or auction-based. The first is built around how long the resource is used. Cost-based models are driven by how expensive the service is to provide. Auction-based systems are based on competing levels of demand by multiple clients on finite computing resources.

Who is responsible for cloud cost management?

Ultimately, top company management is responsible for cloud cost management. Depending on how a company is structured, costs may be the responsibility of an IT department, functional lines of business, or each individual project. Allocating cost responsibility is one reason why cloud cost management is so important.

What are the cloud cost models?

Cloud services use several common cost models, each with advantages in particular applications.

  • Pay as you go: Companies are billed by actual usage.
  • Prepaid fixed subscriptions: Customers pay up front for a specified time and level of service.
  • Reserved instances: Companies commit long term for steady-state usage.
  • Savings plans: Many cloud providers have package deals that offer flexible pricing in exchange for specific usage commitments.
  • Spot instances: Short-term contracts use a cloud vendor’s excess capacity at a deep discount.