The Complexities of Managing Cloud Spend
COVID-19 shows no signs of letting up in the United States. For IT, finance and procurement professionals supporting remote staff, this continues to present expense management challenges. In recent blogs and webinars, Amalgam Insights showcases ways to maneuver these issues as they relate to telecom and networking, mobility, SaaS; we’ve also provided in-depth recommendations for understanding the six stages of COVID IT.
Now we go into detail about a particularly difficult, yet critical, area to assess: cloud IaaS. Even if you have decades of experience evaluating telecommunications and IT invoices, cloud is a whole different animal. And I say “critical” because of all IT categories, cloud IaaS stands out as the one that will experience spending growth in 2020, given that it best meets the needs of a distributed workforce. Both of these realities add pressure to the expense management team’s responsibility to uncover and control costs tied to the organization’s technology environment.
Managing IaaS: 3 Core Challenges and Their Solutions
The influx of cloud services during the COVID-19 pandemic is highlighting issues that already existed but that expense managers may not have yet tackled. Takeaway? In a recessionary climate, you can’t put off addressing these challenges.
1. Huge Growth
Again, cloud spending will soar this year. Amalgam Insights expects public cloud spend to increase by an average of 30% across all enterprises. This may cause problems, if it hasn’t already, with budgets. But operating according to the IT Rule of 30 should help. That’s our calculation that any unmanaged category of IT contains about 30% waste.
So even though you’ll see about 30% growth in cloud, you may be able to reduce spending by the same amount with mature oversight.
2. Extremely Detailed Billing
Compared to telecom, cloud features even more granular invoicing. This applies to every cloud service or component the organization uses. Expense managers have to scour and inspect cloud invoices line by line to avoid missing anything, ideally with programmatic tools or algorithms to help manage the Brobdingnagian challenges of cloud bills.
3. Lack of Standardization
Cloud is no Ma Bell. The various vendors have never worked together and do not plan to work together. This means there is no standardization for billing terminology or structure. Your enterprise may benefit by creating or obtaining a glossary and ontology that brings together, correlates and defines the providers’ different references.
Spotting Opportunities for Cloud Cost Management
Organizations must get a handle on their 2020 cloud expenses now. COVID-19 has upended budgets, forecasts and consumption. Following these near-term suggestions will help IT, finance, and procurement regain control.
Identify the Cloud Boss(es). When it comes to the business side of cloud computing, most environments don’t have someone in charge. Now is the time to designate a person or team – executive and managerial stakeholders in charge of planning and budgeting – to oversee the business of cloud. Amalgam Insights has noticed cloud expense and planning tends to be a hybrid role. The ideal candidates usually have expertise in IT, finance/accounting, and procurement. Knowing that, some titles to consider are: Chief Information Officer; Controller; Chief Digital Officer; Vice President of Cloud; Chief Architect. By identifying an executive responsible for cloud and gaining the attention of this champion, cloud accountability becomes a bigger deal.
Analyze Service Usage. Cloud features myriad buckets and use cases. Therefore, IT has to pinpoint what goes where, why, and whether to tweak any ancillary resources (networking, as the primary example). As an example of the latter statement, consider Zoom’s recent partnership with Oracle Cloud. Since the beginning of COVID-19, demand for Zoom has rocketed into the hundreds of millions of users. Service degradation was inevitable. Zoom needed help and turning to Oracle helped it save what we estimate to be over 80% on its cloud networking costs, while achieving necessary failover and business continuity requirements. But speaking to our assertion that IT has to figure out how cloud resources are allocated, the answer isn’t always “off premises.” If you’re archiving core applications on-site, and even with legacy tools, you can probably keep operating that way. Financially and otherwise, this may still be the wisest choice.
Optimize Cloud Services. Businesses adopted a lot of cloud services between March and June of this year, often without realizing it as staff scrambled to work from home (shadow IT, anyone?). That created a situation ripe for optimization. Here are our top recommendations for saving money on cloud spend:
- Check bills for duplicate resources and eliminate any that are doing the same job (if doing so won’t impact workflows).
- Rationalize, and potentially turn off, idle services.
- Right-size resources. In other words, understand how the cloud environment will change as the organization grows or shrinks. Pro Tip: Have a contingency plan and a backup vendor in case usage doubles or triples. The goal isn’t to wholesale migrate all your services to a new vendor, but to be able to add overflow or additional computing and services that may be more cost-efficient or agile onto another vendor.
- Review discounts to make sure they are actually showing up on the bill. Cloud pricing is almost always accurate but providers do seem to have issues getting the agreed-upon discounts right.
- Look at workload times. Turn off workloads when employees aren’t using them or at least turn them down during non-peak times.
- Assess expiration dates. Which cloud resources have an expiration date and which don’t? Find out whether any cloud platforms are used for testing or development. Wherever it makes sense, ask cloud providers to remove expiration dates.
Ensure Project Governance. Don’t just bring in more cloud resources on a whim. This will create more mess. Instead, take a step back. You want to do right by the organization, avoiding waste rather than adding to it. The goal is to “measure twice, cut once.” Start by tagging and categorizing all existing cloud services, tracking both technical details as well as relevant business categories based on the general ledger and project management solutions. Tagging will enable essential tracking capabilities, and we explore this idea in greater depth below. Then assign expiration dates and vendor commitments – this is also where having a cloud boss comes in handy. After that, conduct a thorough review before launching any new cloud service into production mode. Turn off all test platforms so the organization does not keep paying for them.
Tag Categories. This practice is vital to cloud expense management best practices. How well the organization tags and categorizes cloud services plays directly into the efficacy and clarity of IT spending. IT needs to know why things happen in the cloud environment, and that won’t be apparent without tagging.
Here are the areas Amalgam Insights has identified as the most useful for tagging and categorizing:
- Cross-charging: Link all cloud spending to the general ledger.
- Project ownership: Every project and resource should have an owner and be assigned to that person. This works out most optimally if that person holds some level of IT responsibility with the business. Be sure to link this information to the human resources system, too.
- Service priority: Make sure all cloud platforms used for testing and production are identified and have the appropriate service prioritization in place.
- Region: Follow all cloud governance risk management best practices for every geography in which the organization operates. You don’t want to breach any compliance requirements.
Study Contractual Commitments. There are six main buckets to review for opportunities to save money on cloud expenses:
- Time commitments: Cloud vendors often extend more discounts or more flexible terms to organizations that agree to use their services for multiple years.
- Payment terms: Will paying upfront or over time serve the best interests of the business? It may be time to negotiate some flexibility depending upon the answer.
- Potential growth or reduction: Build a number of scenarios based on different expectations; for example, operational usage may stay the same but software development or research teams may need to add machine learning workloads. That will affect pricing. Make contractual agreements based on those changes.
- Potential investment in apps: What cloud usage is projected for the new apps being created? What data will they create and what services will they need to access? Although developers cannot fully predict usage patterns, the business needs to have a basic idea of potential cloud cost impacts and how app demand will change cloud costs.
- Regional concerns: Figure out which regions need most access to the cloud, as regional pricing for services can vary significantly, leading to potential arbitrage opportunities.
- Discounts: As discussed already, cloud vendors often get the pricing right yet omit the discounts or tiering changes. Make sure the organization gets the agreed-upon concessions.
Conclusion: Recommendations for the Future
Think about managing cloud expenses, especially during COVID-19, as doing your part to act as a steward of the business. As we’ve said before, every $100,000-$200,000 in IT expenses saved equates to a job saved or reinstated. When it comes to the cloud side of the house, introducing automation and reducing total cost of ownership are two additional ways to achieve that goal. Remember, cloud itself doesn’t just represent a cost-cutting measure compared to on-premises data centers, it’s also a tool that saves labor and provides for ongoing business agility and access to services that are more resilient to technical debt. The current economic climate is tough. People have a lot less time (and patience) for activities such as setup, administration, business continuity/disaster recovery, upgrades and performance tuning. Automate as many of these tasks as possible. Sure, that might mean opting for a more expensive cloud that comes with better Key Performance Indicators and Service Level Agreements. Incrementally, though, this will provide more value than a cheaper counterpart.
Alongside automation and the Total Cost of Ownership, don’t overlook the benefits of data and application development. As cloud vendors show their reluctance to hedge on discounts or payment terms, companies with skills in writing more optimized code and supporting better data management will have advantages in optimizing and cleaning up the cloud environment.
Above all, you don’t have to do all this alone. There are a number of vendors Amalgam Insights recommends that specialize in cloud expense management. Here they are, in alphabetical order:
- Apptio Cloudability
- CloudHealth by VMware
- Snow Software
- Upland Software
Keep in mind, each vendor takes different approaches and has different areas of strength. We recommend investigating each one to see how it fits your environment and needs. If you need unbiased help assessing the options, call on Amalgam Insights.
If you are seeking outside guidance and a deeper dive on your IT environment, Amalgam Insights is here to help. Click here to schedule a consultation.
Join us at TEM Expo, currently available on-demand until August 13 at no cost, to learn more about how to prepare for COVID IT and take immediate action to cut costs. In particular, check out sessions by Robert Lee Harris and Corey Quinn on managing cloud costs and avoiding the biggest mistakes that cloud vendors won’t tell you about.
And if you’d like to learn more about this topic now, please watch our webinar.