Introduction – Tackling Cloud Spending Challenges
Cloud computing revolutionized organizational digital infrastructure. Despite its advantages, it presents new challenges, especially in cost management. Public cloud IaaS and PaaS services use continuous billing, complicating cost estimation. This can lead to surprise bills and financial mishaps. Our article offers insight into cloud cost management and outlines strategies to control cloud expenses effectively.
The Growing Need for Cloud Cost Visibility
Cloud cost visibility is gaining importance in the industry. As the second-highest expense for IT companies after salaries, cloud cost management is crucial.
At VMware Explore India, over 3,000 cloud enthusiasts gathered, discussing various cloud services and management tools. Raghu Raghuram’s CloudSmart Keynote emphasized both Offense (accelerating app delivery, cloud migration, empowering employees) and Defense (reducing cloud expenditure, modernizing hybrid infrastructure) in business strategies. Conversations with attendees revealed a trend: organizations are shifting from Offense to Defense strategies due to market conditions.
Cost management is vital for both enterprises and cloud service providers, encompassing three key capabilities:
- Level 1 – Understanding and Managing costs: This includes visibility, analysis, and optimization.
- Level 2 – Planning: This involves new projects, employees, budgets, and even new cloud types.
- Level 3 – Chargeback: Essential for service providers or large enterprises with their own finance model, billing tenants or LOBs accordingly.
In this three-part series, we’ll dive into each capability, beginning with Level 1: ‘Understand and Manage.’ Join us on an adventure into cloud cost management!
Level 1 for Cloud Cost Management – Understand and Manage your Cloud Spend
For successful cloud cost management, use a structured approach. We’ve identified three cost capability levels, each addressing particular questions:
1. What is the overall cloud cost? – Total Cost of Ownership (TCO) or Cost Overview
2. Total Cost seems off – Cost Drivers or Expense Management
3. Why is the cost high and where is it coming from? – Cost Analysis
4. How can I inform my lines of business (LOBs) about their cloud expenses? – Showback
5. What actions can I take to optimize costs? – Potential Savings or Cost Avoidance or Cost Optimization Opportunities
6. Have my optimization efforts been effective? – Realized Savings or Cost Avoided or Cost Optimization Accomplishments
Implementing Cost Management Capabilities
The following capabilities are crucial for managing cloud costs effectively:
Cost Overview (Total Cost of Ownership)
answers the question “What is my overall cloud cost?“
Total Cost of Ownership (TCO) or Cost Overview in cloud computing encompasses all costs related to owning and operating cloud infrastructure throughout its lifecycle. TCO covers direct cloud service costs and indirect expenses like migration, management, and maintenance. To accurately determine TCO, businesses must consider factors like usage patterns, pricing models, and vendor lock-in risks.
Cost Overview/ TCO capabilities should-
- Provide a detailed view of total cloud infrastructure costs across various services, data centers, and clusters.
- Offer insights into the total capacity (CPU, Memory, Storage) of the purchased infrastructure, including used, remaining, and unusable capacity.
Cost Drivers (Expense Management)
answers the question “Why does my Total Cost seem off?”
Cost drivers impact costs of products, services, or activities. In cloud computing, they include resource usage, data transfer, storage, network connectivity, and software licensing fees. Understanding these drivers is key to managing cloud costs and optimizing spending. Identifying cost drivers helps businesses make informed decisions and reduce unnecessary costs.
Cost Drivers capabilities should-
- Identify key cost drivers such as server hardware, maintenance contracts, facilities, network, storage, labor, and licensing.
- Enable users to edit cost drivers, maintain reference costs, factor in bulk discounts, and track additional costs based on tags or metadata.
answers the question “Why is the cost high and where is it coming from?”
Cost analysis is a methodical process for organizations to examine and compare cost, price, and cloud bill metrics across objects, groups, applications, and tenants. Utilizing cost analysis, organizations gain insights into cloud spending, pinpoint inefficiencies, and make informed decisions to optimize cloud investments.
Cost Analysis capabilities should-
- Offer list-based (top 10 high costing LOBs etc.), object comparison (compare across multiple Business Applications), and metric comparison (Compare Potential and Realized savings) analysis for various cost and price metrics.
- Provide graphical and tabular views for deep dives into cost details, which can be exported for further analysis.
answers the question “How can I inform my LOBs and drive behavior?”
Cost showback is a practice where organizations allocate IT costs to business units, departments, or users consuming IT resources. This approach increases internal customers’ awareness of IT resource value and encourages efficient usage.
Cost Showback capabilities should-
- Allow IT admins to view, analyze, compare, and bill back or showback costs per user, VM, application team, etc.
- Help determine the cost allocation of resources per business milestone/metric (e.g., number of units sold).
answers the question “What do I do now to avoid further expenditure/waste?“
Cloud cost optimization involves managing and reducing cloud expenses while maximizing resource value. Strategies for potential savings include right-sizing instances, reclaiming powered-off VMs, using Reserved Instances and Savings Plans, utilizing spot instances, implementing auto-scaling, optimizing storage, monitoring and budgeting costs, adopting multi-cloud strategies, using containerization technologies, and adapting cloud infrastructure to business needs. Regular review and optimization help manage cloud expenses and achieve cost savings
Potential Savings capabilities should-
- Identify opportunities for cost savings through reclamation or revoking resources like idle VMs, snapshots, powered-off VMs, or downsizing oversized VMs, or migrating to another cloud/ infrastructure model etc.
- Quantifiy savings by displaying the cost associated with these resources.
answers the question “Have I done enough to avoid cost?”
Realized savings are actual cost reductions achieved after implementing optimization measures. These savings are measurable and result from changes in processes, systems, or infrastructure. To calculate realized savings, establish a baseline by measuring pre-optimization costs. Analyzing realized savings helps evaluate cost optimization strategies and informs future initiatives.
Realized Savings capabilities should-
- Measure cost savings achieved or cost avoided through recommended opportunities.
- Show the amount of reclaimed capacity and allocation changes for formerly oversized VMs.
In conclusion, effective cloud cost management demands understanding cost visibility, analysis, and optimization. A structured approach and available tools help organizations streamline expenses, optimize infrastructure, and gain financial control. As economic challenges arise, managing cloud costs becomes vital for competitiveness and growth.
Stay tuned for the next two parts, discussing Cost Planning and Chargeback use cases.
Note: The screenshots used are all from VMware Aria Operations that helps with Multi-Cloud Operations (Observability, Availability, Performance, Capacity, Cost, Compliance and Sustainability). Reach out to me (Soumya Kapoor) or Kameswaran Subramanian, Sajan Liyon to know more about Aria Operations.