We recently held a webinar: “How to unlock 30% savings in the cloud.” In this blog post, we dive deep into the realm of Cloud Cost Optimization and report on the insightful discussions from the webinar presented by SoftwareOne’s experts – Rodrigo Queiroz-Machado, Global Technical Sales Director for Cloud and software Advisory Services, Geoff Barnett, Director of Cloud Strategy and Frederik Munthe, Service Area Manager.
They discussed the typical reasons that lead to overspending on the cloud, and the various strategies you can implement to gain control of your cloud spending as well as shared concrete examples of cloud cost optimization cases that generated significant savings for our customers.
There are several compelling reasons why organizations should consider transitioning to the cloud. One key point to emphasize is that the advantages of cloud adoption extend well beyond mere cost considerations. While cost savings certainly play a role, some broader drivers make cloud adoption an attractive proposition. Businesses are increasingly drawn to the cloud not only for financial reasons but also for its capacity to facilitate agility in development and promote a decentralized operational model.
The cloud empowers companies to embrace a more agile approach to software development, enabling them to swiftly respond to changing market conditions and evolving customer demands. It provides organizations with a flexible framework that grants business units greater autonomy, thereby fostering innovation and adaptability throughout the entire enterprise. Cloud technology can do this by streamlining the delivery of new software functionality, the ability to create pipelines of automation that can merge, compile, test and release new code into production can help increase the frequency of releases from once a quarter, to as frequently as several times a day, helping organizations get new features to market much more quickly.
In the past, many organizations viewed cloud adoption primarily as a cost-saving measure, with the expectation of replicating their on-premises architectures in the cloud. However, this mindset has evolved over the years. Today, organizations are more adapted to cloud-ready architectures within their on-premises environment, with usage of technologies like Docker or Kubernetes being more commonplace, organizations are also more comfortable making architectural changes towards cloud native as the benefits of this have been proven over time.
Cloud-ready architectures offer the advantage of scalability on demand, enabling organizations to adjust resource allocation according to their specific needs. This adaptability can result in substantial cost savings when compared to fixed on-premises infrastructures. On the other hand, cloud-native architectures leverage cloud-specific services designed for inherent scalability, resilience and efficiency, making them more cost-effective in the long run.
Furthermore, transitioning to the cloud is not merely about making architectural changes; it also involves adapting processes and the workforce to align with the cloud environment. Cloud adoption streamlines procurement processes, allowing organizations to provision compute resources swiftly, a significant departure from the lengthy hardware procurement cycles associated with traditional on-premises setups.
Ultimately, the decision to transition to the cloud should consider not only the evolving cost dynamics but also the potential for increased agility, scalability, and efficiency in both architectural design and operational processes. Cloud adoption offers a comprehensive approach to transforming an organization’s operations and driving business value that transcends mere cost reduction. It represents a strategic move that can positively impact an organization’s ability to thrive in today’s dynamic business landscape.
The decision to embark on a cloud migration is undoubtedly a strategic one, promising a wealth of benefits while also presenting distinct challenges. Among these challenges, a pressing concern revolves around extracting value from the substantial investments required for such a transition. This dilemma sparks a crucial discussion about reconciling significant infrastructure spending with the expected business value.
A common pitfall that organizations encounter during the migration process is the tendency to overprovision resources. This arises from the misconception that transitioning to the cloud should mirror the existing on-premises setup. Often, organizations aim to replicate their current infrastructure in the cloud, without recognizing the disparities in hardware between the two environments. On-premises hardware may have been in operation for several years, while cloud services provide access to cutting-edge hardware with superior performance and efficiency.
This brings us to a vital concept: rebaselining. In the cloud, the performance of virtual CPUs (vCPUs) differs from that of on-premises virtual machines, necessitating adjustments in CPU and RAM allocations to align with the capabilities of the new cloud instances. This is a nuanced process that requires a deep understanding of workload requirements.
Another critical aspect to consider is the timing of resource reservations. Rather than immediately committing to reserved compute capacity post-migration, it is advisable to run workloads for a period while closely monitoring resource utilization. This approach allows organizations to fine-tune resource allocations, ensuring that they pay only for what is genuinely needed.
Managing expectations regarding the benefits of cloud adoption post-migration is also essential. It is a common misconception that significant benefits will materialize instantly. However, the reality is that these advantages may take time to accrue. This underscores the importance of factoring in indirect costs, including the learning curve associated with operating in the cloud.
Organizations should adopt a longer-term perspective, as cloud adoption offers benefits beyond immediate cost savings. These include enhanced agility, faster time-to-market, and improved feature development. These advantages contribute to an organization’s overall business value and bottom line, but they may not manifest as immediate and direct cost optimization.
In summary, while the benefits of cloud adoption are abundant, they may not manifest immediately in terms of cost savings. Therefore, organizations should maintain a holistic outlook and focus on the broader implications of cloud adoption, considering its indirect impacts on business value and the longer-term return on investment.
Managing cloud costs while maximizing value to the business is a critical challenge that requires a strategic approach. Organizations embarking on their cloud journey should focus on optimizing expenditures while harnessing the full potential of cloud services to benefit the overall business.
One effective strategy is making commitments to specific cloud resources, particularly when dealing with virtual machines or instance-based infrastructure. These commitments act as guarantees, ensuring a consistent supply of resources to the organization without causing disruptions to IT operations.
Another crucial aspect is the practice of tagging infrastructure with key attributes like lifecycle stage, production status, and cost allocation. These tags serve as valuable decision-making tools, enabling organizations to make informed choices about resource usage. This includes setting shutdown schedules, transitioning resources to test and development environments to reduce licensing costs, and terminating non-essential resources during off-peak hours. The implementation of cost centers also plays a pivotal role, facilitating efficient chargeback mechanisms that hold business units accountable for their resource consumption.
Optimizing applications for cloud readiness is equally important. Modernizing applications to align with cloud-native principles unlocks a broader range of levers for cost efficiency. To strike the right balance, organizations should conduct a comprehensive evaluation, considering factors such as initial development costs and the long-term benefits of having adaptable, self-optimizing applications. This evaluation helps determine the optimal investment in application modernization efforts while adjusting resource consumption patterns during peak demand.
Achieving cost optimization in the cloud requires a multifaceted approach. By combining strategies like resource commitments, effective tagging practices, and application modernization, organizations can effectively manage costs while maximizing the value of cloud services for the benefit of their overall business operations.
Efficiently managing cloud costs involves a significant focus on data analytics. This process does come with its share of challenges, particularly when dealing with a multitude of key performance indicators (KPIs) and the substantial volume of data inherent in cloud cost management and optimization.
The starting point is establishing a shared understanding of the data used for cost management. This involves reaching a consensus on foundational, standardized processes for reporting on the current state of cloud usage. Native cloud tools provided by various cloud vendors offer valuable resources for gaining insights into consumption patterns, allowing users to analyze data based on tags, cost centers, and various other criteria.
The importance of dedicated roles, such as FinOps, responsible for monitoring key performance indicators related to cost optimization cannot be overstated. These roles play a pivotal part in optimizing cloud expenditures, not only by cost reduction but also by extracting more value from the same expenses, ultimately benefiting the organization.
A crucial aspect to consider is the timeframe over which data is collected and analyzed. Limited historical data, such as only six months, may necessitate capturing projections for the following six months. For instance, having historical data over extended periods is vital for predicting resource needs during events or seasonal peaks. This requires close collaboration between IT and the business to provide insights and input regarding anticipated events that could impact cloud resource usage.
Emphasizing the importance of enriching data with business context and involving stakeholders from various departments underscores the significance of a holistic approach to cost management. This approach encompasses both short-term commitments and long-term strategies for optimizing costs and maximizing value in the cloud.
Data analytics is a cornerstone of effective cloud cost management. It involves aligning data, establishing common practices, and utilizing native cloud tools to make informed decisions. Dedicated roles and a keen understanding of the data’s timeframe are essential, and a holistic approach ensures that cost optimization efforts deliver long-term value to the organization.
The journey of cost optimization in the cloud should be tailored to an organization’s maturity level in cloud adoption. It’s important to note that cost optimization doesn’t solely mean reducing expenses; it also encompasses optimizing the value derived from existing cloud investments. Achieving this objective often involves migrating and modernizing applications to make them more cloud-native or cloud-ready.
From an organizational standpoint, governance, especially cost governance, should be established from the outset. Clear governance models, even for individual applications, are essential to ensure acceptable behavior and transparency regarding costs.
One potential pitfall to avoid is committing to long-term spending without considering the need for flexibility to adapt to changing business requirements and application modifications. A recommended starting point is to target low-hanging fruit, such as optimizing virtual machines while prioritizing flexibility when implementing cost optimization strategies. Utilizing savings plans or avoiding extended commitments provides room for adjustments as an organization’s cloud journey evolves.
Balancing cost control with flexibility and value optimization from cloud investments is paramount. Blindly accepting recommendations without a deep understanding of the organization’s needs and plans should be avoided. It’s essential to involve various stakeholders, including workload owners, development teams, and business decision-makers, in the decision-making process related to cloud cost commitments. Financial decisions alone should not drive cloud optimization, and long-term commitments should align with the organization’s business plans.
Additionally, conducting collaborative discussions with infrastructure and application owners to assess their plans for the next 12 to 36 months is a simple yet effective approach. This helps organizations gain clarity on their future infrastructure needs without overcomplicating the process.
Moreover, considering strategies like divestment, business unit restructuring, or joint ventures when making cloud cost commitments is crucial. These strategies can significantly impact the reserved capacity, and organizations should plan accordingly.
Informed decision-making is the cornerstone of successful cloud cost optimization. It’s imperative to align commitments with business plans, involve various stakeholders, and regularly review and adjust strategies to ensure cost-effectiveness and value maximization.
We recently partnered with an international insurance company, and our journey began by identifying ‘low-hanging fruit.’ We focused on the immediate opportunities for cost reduction, which often involve applying reservations judiciously. In this case, our team quickly noticed irregular cost spikes in one of their accounts, particularly in compute expenses. These spikes were substantial, sometimes soaring by as much as 800% from one month to the next.
Upon deeper investigation, we discovered that these spikes were occurring because of ad-hoc model training within the machine learning team. They had no defined processes for scheduling or managing these resource-intensive tasks. To tackle this, we proposed a simple yet effective solution – scheduling all model training sessions within a 14-day window.
To further optimize costs, we leveraged spot pricing for the underlying infrastructure used in model training. Spot instances, which offer significant discounts for unused capacity, were an ideal fit. The result? An impressive 70% reduction in compute costs, translating to savings of approximately $200,000 annually for the client.
Our second case involves a multinational corporation with a sprawling cloud infrastructure. They had a significant opportunity to optimize costs by capitalizing on Azure Hybrid Use Benefits (AHUB) for Windows Server Data Center. However, the challenge was that they lacked visibility into how AHUB benefits were distributed across their architecture.
Upon closer examination, we discovered that with proper visibility, they could potentially save £70,000 per month by ensuring the dual use rights of their license portfolio was efficiently utilized and ensuring compliance. By making instant adjustments and harnessing the available benefits, they achieved substantial monthly savings.
These real-world examples demonstrate the tangible impact of our cloud cost optimization approach. In one year alone, we collectively helped our clients realize an impressive $23.6 million in cost savings. These results underscore the significance of our holistic strategy, which combines architectural enhancements, process streamlining, and close collaboration with business units to drive remarkable value for our clients.
Each cloud provider has its own set of cost optimization levers and strategies, often with their terminology and nuances:
It’s important to note that while these cloud providers may use similar terminology, the specifics of each offering can vary significantly. Additionally, AWS’s regional focus, Azure’s global approach, and GCP’s unique sustained use discount all contribute to the diversity of cost optimization strategies available. Understanding these distinctions is crucial for organizations seeking to maximize their cloud cost savings efficiently.
When considering a strategic move to the cloud, it's essential to address ROI concerns and aim to accelerate the return on investment. Here are some tactics to help expedite the ROI:
Incorporating these tactics into your cloud migration strategy can help your organization realize a faster return on investment and make your strategic move to the cloud more financially viable.
Our cloud team has answers. Tell us about your business challenge, and we’ll get right back to you.
Our cloud team has answers. Tell us about your business challenge, and we’ll get right back to you.
