The primary motivation for companies to shift IT infrastructure to the cloud has been the highly touted benefit of reduced technology spend. As organisations move from a fixed expense, capital model (CAPEX) for managing technology procurement to the variable cost, pay-as-you-go model (OPEX) of the cloud, many companies overshoot their cloud budget due to a lack of proper governance and resource management.

In Part Two of our IT Transformation series, we explore the hidden costs of the cloud and five strategies to reduce the risk of overspend.

Hidden Cloud Infrastructure Costs

Underutilised Resources

Oversizing is one the most common causes of overspend and is usually the result of limited visibility into actual resource consumption. Oversizing can also be triggered by the fear of system outages caused by spikes in usage. Maintaining overprovisioned server instances during times of low usage without rightsizing resources to meet demand will ultimately lead to wasted capacity and a more expensive cloud bill.

Spinning up too many server instances is another costly mistake organisations make since unused instances still incur costs while active. It is important for companies to implement an automated process to deprovision cloud resources during times of low/no usage to avoid paying for unused capacity.

Overutilized Resources

IT organisations can also create overinflated cloud bills by exceeding the capacity of on-demand resources and incurring overage charges.  Under-provisioning cloud instances can lead to application performance issues and avoidable systems outages which may tarnish the company image.

Lack of Cost Optimisation

Cloud service providers offer a wide range of solutions that can meet the specific needs of your organisation.  Failure to properly identify the correct combination of services and pricing before making purchasing decisions can result in missed cost savings due to misaligned resource planning.

Unused SaaS

Companies can also leave money on the table by paying for unused SaaS licences. To avoid this common mistake, companies must accurately forecast the number of end users that will be using SaaS platforms at any given time and actively manage licenses as users are onboarded or deactivated.

Hidden Cloud Vendor Costs

Vendor Pricing

Many cloud vendors offer free trials for services that may come with hidden costs that can inflate your cloud spend. Free services often come with limitations on capacity and fine print that allows the vendor to charge for exceeding these limits. Failure to closely monitor your organisation’s usage can result in unforeseen spend.

Vendor Contract Periods

Cloud vendor agreements can also include a mandatory length of service and steep early-exit costs for . These backend fees can make it difficult to switch providers and cause your company to be locked in for an extended period with suboptimal pricing.

Hidden Intangible Costs

Aside from the monetary costs of cloud, organisations can also experience intangible costs such as lack of critical support for services, performance issues, and cybersecurity risks. Since the infrastructure is managed by the cloud vendor, your organisation will need to rely on the vendor to resolve outages and degraded performance. Data breaches in the cloud vendor’s architecture can result in compromised customer data, negative financial impacts, and compliance issues. It may be necessary to pay for redundant systems to mitigate the risks associated with compromised performance and disaster recovery.

5 Strategies to avoid overspend

Understand the financial impact of cloud service options

Understanding how the services offered by vendors align with your business use cases and budget is essential to ensuring you purchase the optimal combination of instance types, availability, and reserved capacity. Establishing fully-burdened unit costs ($ per GB) for your existing on-premises data centres and current consumption will help your organisation compare cloud options and avoid sticker shock. ClearCost can help your organisation benchmark your current IT infrastructure against the services offered by cloud vendors to help you make a well-informed purchase decision.

Identify the best fit for each workload

Identifying how existing workloads align with the cloud offerings is essential to ensure that the selected service can deliver optimal performance and availability. Workloads with more predictable usage can be migrated to a cloud solution with a longer-term contract for significant discounts. Workloads will a high volatility in usage may need to remain on premise to avoid costs associated with overage or require the upfront purchase of more reserved instances.

Choose the best Cloud Cost Management tool

Optimising cloud spend will require your organisation to analyse utilisation and costs on a daily/weekly/monthly basis to avoid monthly sticker-shock. . Choosing the right Cloud Cost Management solution will allow your company to perform scenario analysis, identify trends, compare costs across vendors, predict future costs, and allocate expenses internally for chargeback. Many Cloud Cost Management solutions offer the capability to automate provisioning, rightsizing, and purchases to ensure that your cloud consumption is optimised.

Leverage analytics to drive cloud strategy

With a Cloud Cost Management tool in place, your organisation will have the necessary insights to identify bottlenecks, shift workloads, set up automation, and plan for future migrations. Leveraging ClearCost and a Cloud Cost Management tool simultaneously will allow your IT department to make side-by-side comparisons of internal infrastructure and your cloud environment to help rationalise digital transformation decisions.

 Enable strategic planning through cloud insights

Having a comprehensive, granular understanding of cloud spend will allow your organisation to accurately estimate the impact cloud purchases will have on the bottom line and systems performance. With this knowledge your company will be able to confidently make strategic decisions that will enable innovation and transformation efforts.