A Complete Guide to Cloud Cost Management

As cloud adoption accelerates, more organizations are struggling to control runaway costs from their investments. Pay-as-you-go pricing models make cloud costs unpredictable, while ease of implementation often leads to deploying more services than your teams actually need. A 2022 survey found that 94% of enterprises are overpaying for cloud services, with 66% of respondents claiming underused resources as the top reasons for overspending.¹ But while many public cloud providers offer basic cost management tools, businesses need more powerful solutions to gain full visibility and control over cloud spending.

In this blog, we explain the importance of cloud cost management for overcoming the key challenges businesses face in tracking and optimizing cloud costs.

What Is Cloud Cost Management?

Cloud cost management involves continuously monitoring, analyzing, and optimizing spending on an organization's cloud computing resources. By tracking usage and billing data, businesses can gain clearer insight into how and where their cloud budgets are allocated. This allows them to identify unused services and overprovisioning, enact policies for cost control, and more accurately forecast future cloud costs.

Cloud infrastructure is increasingly complex, making cloud costs difficult to track. To further complicate matters, the pay-as-you-go pricing used by many cloud providers can fluctuate significantly depending on the actual resources a business uses.

Proactive cost monitoring and management are critical for getting cloud costs under control. Cloud cost management helps by tracking the bills associated with a company's cloud use and allocating them to the teams responsible for their accumulation. With the right cloud cost management strategy in place, businesses can create a framework for budgeting and shared responsibility to ensure cloud resources are used with the appropriate controls.

Why Is Cloud Cost Management Important for Businesses?

Cloud computing delivers immense advantages to businesses, such as rapid scalability without major upfront investments. By adopting next-generation cloud services, your IT teams can quickly roll out solutions and scale usage based on needs. However, the on-demand nature of the cloud also comes with the risk of unexpected costs that can easily exceed budgeted amounts – which is why implementing cloud cost management strategies has become essential.

Specialized cloud cost management services offer deep insights compared to solutions offered by cloud providers. With comprehensive cost visibility, businesses can pinpoint savings opportunities by enforcing accountability across all teams, optimizing the performance of cloud services, and strategically allocating workloads to the best environments.

Challenges of Cloud Cost Management

Some of the biggest challenges businesses face when trying to manage cloud spending include:

Lack of Visibility

In a dynamic cloud environment, usage and spending fluctuate frequently based on changing workload demands and traffic spikes. Manual tracking of cloud usage is time-consuming, incomplete, and always a step behind. Most organizations struggle to maintain clear visibility into their resource usage, making it nearly impossible to control cloud costs.

Complex and Distributed Billing

In large organizations and multi-location enterprises, cloud expenses are typically spread across several departments, projects, and branch offices. Multiple cloud services contribute to overall monthly bills that are complex and highly distributed, resulting in unexpected charges, budget overruns, and billing disputes between teams.

Inefficient Usage

Suboptimal usage patterns like idle instances, over-provisioned resources, and storage inefficiencies can easily bloat your cloud bill. Rightsizing cloud workloads for your organization's current usage needs can help with cost management, but doing so manually requires expertise and monitoring capabilities that most IT teams lack.

Uncontrolled Provisioning

Developers can provision cloud resources with a click of a button. But while self-service access can give your business more agility, it often leads to uncontrolled cloud provisioning. Forgotten test instances, unused storage volumes, and zombie virtual machines contribute to increased spending. Depending on the size of your cloud environment, manually overseeing cloud provisioning is simply too time-consuming.

Inaccurate Cost Allocation

Many businesses have internal models to determine how to allocate costs for shared cloud resources to departments, but manual allocation calculations are often error-prone, inconsistent, and difficult to verify. Without precise usage and spending data associated with each department, organizations can struggle to incentivize smart usage behavior or predict budget overruns in departments whose behavior is impacting shared cloud spend.

Poor Forecasting

The lack of visibility into historical cloud usage and spending patterns makes it difficult to predict future cloud expenses accurately. Actual cloud costs can double the original budgets due to unpredictable usage spikes and steady spend creep happening under the surface. Without clear insight into cloud usage trends, seasonal traffic patterns, and growing resource consumption, budget predictions are ineffective.

Cloud Cost Management and Cloud Cost Optimization: Compared

While cloud cost management focuses on tracking detailed cloud usage data to allocate expenditures and generate spending reports, cloud cost optimization leverages these insights to minimize costs while aligning cloud resources with business objectives. Essentially, cloud cost management delivers visibility, while optimization reduces spending and improves performance and growth.

Cloud cost management:

• Tracks detailed cloud usage data.
• Attributes expenditures to teams and services.
• Generates cloud spending reports.

Cloud cost optimization:

• Actively calibrates cloud usage.
• Links infrastructure expenses directly to growth objectives.
• Balances cost savings with strategic investments.
• Weighs spending tradeoffs relative to revenue gains.

What Are Common Cloud Cost Models?

Pricing for cloud services typically uses dynamic models that fluctuate based on changing supply, demand, and usage factors. Most cloud costs revolve around these three core components:

• Compute - Cloud providers often offer varying tiers of compute instances featuring different CPU, memory, storage, and networking capacities. Customized hardware for graphics, high-speed processing, machine learning, and more is also available. Fees accumulate based on factors like chosen instance types, numbers provisioned, and runtime duration.
• Network - Most public cloud providers charge based on the amount of data a business transfers to or from the cloud services. Supplementary networking services like static IPs, VPNs, and load balancing may incur additional fees.
• Storage - Storage-as-a-service options simplify cloud data storage costs by offering monthly pricing that scales to provision capacity for managed storage services, such as a managed disk attached to a service's compute instance.

Here's an overview of the primary cloud cost models:

Flat Rate

Large enterprises can negotiate substantial discounts by committing to an upfront payment on Reserved Instances (RIs). This guarantees your business will receive a predefined number of cloud instances at locked-in rates, typically over one to three-year contract periods. While this option is expensive initially, the predictable workloads and service levels typically justify the capital outlay through long-term cost savings.

Pay-Per-Use

Pay-per-use plans allow businesses to dynamically scale their cloud services to match fluctuating demands by charging only for actual usage. If your organization has variable needs, this cost model can help ensure you're not overpaying for unused cloud resources to minimize waste. However, the lack of bulk discounts typically results in higher per-unit costs.

Spot Instances

Various cloud providers leverage spare capacity to sell discounted spot instances via bid-based auctions. Although cloud costs are extremely low with this model, instance availability varies according to supply-demand dynamics. A drawback of this option is that it's not predictable, so it's typically only suitable for organizations that prioritize cost savings over reliable access to cloud services.

Streamline Your Cloud Cost Management with TailWind

Getting a handle on cloud costs is no longer optional – it's a strategic imperative. Implementing the right combination of cloud cost management tools, best practices, and organizational governance is essential for overcoming roadblocks like lack of visibility into usage trends and spending patterns.

If you're struggling to control your multi-location enterprise's cloud costs, TailWind can help. We offer professional telecom audits that provide visibility into your telecom, IT, and cloud environments, no matter how many locations or invoices your organization deals with day-to-day. Additionally, our telecom expense management services provide dedicated support to navigate the challenges of managing technology and optimizing spending. Get in touch with TailWind today to learn more or get started.

Sources:

1. https://www.cio.com/article/404314/94-of-enterprises-are-overspending-in-the-cloud-report.html