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Navigating Cloud Cost Management: What Is It, and How Does It Work?

Originally Published November, 2023
Navigating Cloud Cost Management

When we think about a case of successful cloud cost management, we can’t help but think about Drift, a conversational marketing platform. Using ProsperOps, Drift maximized the efficiency of their AWS cloud environment’s Reserved Instances (RIs) and Savings Plans to achieve a lifetime savings of more than $3.2M to date.

Cloud cost management refers to the process of monitoring, analyzing, and optimizing cloud expenses to align with business objectives and budget constraints.

As businesses migrate to the cloud, managing costs becomes essential to ensure they’re using cloud resources efficiently and getting the best value for their investment. 

In this guide to cloud cost management solutions for AWS teams, we’ll share everything you need to know to create a more efficient and streamlined cloud environment focused on reducing expenses and improving returns.

What is cloud cost management?

Cloud cost management, often referred to as cloud cost optimization or cloud financial management, is the process of managing and optimizing the costs associated with cloud computing.

As organizations migrate to the cloud, they often find that while the cloud can offer scalability and flexibility, it can also lead to unexpected and escalating costs if not managed properly, or if legacy architecture is not re-factored for the cloud. 

Cloud cost management helps mitigate these issues through:

  • Visibility and monitoring: Cloud cost management requires complete visibility into your cloud infrastructure. This involves monitoring and tracking all the resources used (from virtual machines to storage) and understanding their associated costs.
  • Analysis and reporting: With a cloud cost visibility solution in place, you can better analyze your data, look for trends, identify underutilized resources, and detect anomalies that might indicate wasted or runaway spend.
  • Optimization: After analyzing data, you can start making changes to optimize your cloud usage. This might involve shutting down and rightsizing unused resources, resizing overprovisioned instances, moving data to appropriate storage tiers, or taking advantage of Reserved Instances or Savings Plans.
  • Budgeting and forecasting: Setting budgets and forecasting future spend can help prevent unexpected costs and ensure you allocate resources efficiently.  In on-premise environments you may have had annual budgets. However, in the cloud, quarterly or monthly budget and forecast alignment is often required due to the dynamic nature of cloud environments.  
  • Governance and policies: Implementing governance structures and policies can help ensure everyone in the organization uses the cloud responsibly. This might involve setting up request and approval workflows for new resources, using services or policy to implement ‘guardrails’ defining approved resources and config, leveraging CI/CD pipelines or infrastructure as code, or defining naming conventions and tagging standards.
  • Automation: Many cloud cost management tools, like ProsperOps, also offer automation features that can streamline the optimization process. For example, these tools might automatically shut down unused resources, detect anomalous usage and spend thresholds, or send alerts when spend exceeds a predefined budget.

Why should you focus on cloud cost management?

Cost management is essential because the cloud environment is dynamic and complex. 

Without proper management, organizations can easily find themselves overspending on cloud services they don’t need or don’t use efficiently. This overspending directly impacts the bottom line, diverting funds you could use elsewhere in your business.

Efficient cloud cost management allows for more predictable spending. When your organization has a clear understanding of their cloud costs, it can forecast expenses more accurately, leading to better budgeting. This ensures you have funds available for critical business operations and that you allocate resources based on actual needs.

Cloud cost management isn’t just about cutting costs; it’s a strategic approach that ensures you use your resources effectively, leading to better financial planning and decision-making. It also helps maximize your returns from the resources you do utilize, ensuring you get the best possible usage out of your cloud environment and digital stack.

Is cloud spend becoming a problem for some businesses?

For a business to optimize its cloud costs, it’s crucial to understand which products, services, or teams drive specific cloud usage and by how much. Without this clarity, businesses might end up paying for redundant services or resources that don’t deliver value.

But forecasting cloud spend is something a lot of teams find tricky. Predicting cloud costs is much like trying to estimate an electric bill. Just as external factors like weather can influence electricity consumption, various unpredictable factors can cause cloud usage to fluctuate, making precise predictions challenging.

Many organizations recognize these challenges and are transitioning towards a more centralized approach to cloud cost management. This centralized model aims to bring all cloud expenditures under one umbrella, ensuring there’s a unified strategy for monitoring and optimization.

Benefits of cloud cost management

Effective cloud cost management can significantly impact a company’s financial health and operational efficiency. 

Let’s dive into the many benefits of cloud cost management and how it can transform a business’s cloud journey.

Lower cloud costs

At its core, cloud cost management is about optimizing resource usage to ensure businesses only pay for what they need. By identifying and eliminating unnecessary expenses, companies can significantly reduce their cloud bills. 

Better forecasting and predictability

Financial forecasting and budgeting are crucial for any business. Cloud cost management tools provide insights into spending patterns, making it easier for businesses to predict future expenses. This predictability allows companies to make more informed decisions.

The beauty of solutions like ProsperOps is allowing businesses to focus on optimizing for performance while we take care of rate optimization.

Improved cloud infrastructure and usage visibility

Visibility is key to effective cloud management. Cloud cost management tools offer a clear view of how you’re using resources and their associated costs. This transparency ensures businesses can better allocate resources, leading to better cost optimization and improved performance.

Better performance

Optimizing cloud costs doesn’t just save money; it also enhances the performance of cloud-based applications and services. By ensuring they’re allocating resources efficiently, businesses can ensure their applications run smoothly, offering a better user experience.

Easier to calculate and track effectiveness

Understanding the ROI of cloud investments is crucial. Cloud cost management simplifies this process, making it easier for businesses to track the effectiveness of their cloud investments, be it in products, partners, or services.

Less environmental impact

Beyond the financial implications, there’s an environmental aspect to cloud usage. Wasteful spending and resource allocation can lead to a higher carbon footprint.

By optimizing cloud usage, businesses can reduce their environmental impact, contributing to a more sustainable future. This is an emerging topic of interest within the industry, highlighting the broader implications of cloud management.

Examples of cloud cost management strategies

Cloud expenses can quickly spiral out of control without the right management strategies. By aligning strategies with business needs and usage patterns, companies can avoid unnecessary costs, allocate budgets more accurately, and achieve a better return on their cloud investments. 

With all that in mind, here’s a look at some common cost management strategies for cloud environments:

Dynamic cost optimization

Dynamic cost optimization focuses on real-time adjustments to cloud resources based on current demands. By utilizing machine learning algorithms, this strategy continuously monitors and analyzes cloud usage patterns, making automatic adjustments to resource allocation.

How it works: The algorithms actively predict the optimal resource allocation for any given situation. For example, if an application experiences an unexpected surge in user traffic, the algorithms can automatically scale up to handle the increased load. Once the demand decreases, they will also scale resources back down, ensuring efficient utilization.

Benefits: This approach ensures businesses are not overprovisioning or underutilizing resources, leading to cost savings. Moreover, it guarantees services maintain optimal performance levels, as resources are always in sync with real-time demands.

Commitment-based discounts

Commitment-Based discounts are about making a spend commitment to cloud providers. In exchange for committing to a set period and amount of usage, businesses can achieve substantial cost reductions.

How it works: Companies make an informed estimate of their future cloud resource needs and reserve them ahead of time. This commitment results in receiving these resources at a much lower rate than standard on-demand pricing.

Benefits: The primary advantage is the significant cost savings for workloads with predictable usage patterns. However, it’s crucial for businesses to accurately forecast their needs to avoid inefficiencies stemming from overcommitment or underutilization.

Cost allocation and tagging

Cost allocation and tagging provide a detailed view of cloud expenses, ensuring every resource is appropriately labeled and tracked.

How it works: Businesses tag resources in the cloud with specific identifiers, such as project names, departments, environment, or any relevant label. This systemized labeling allows for a granular breakdown of costs per tag value.

Benefits: This strategy offers businesses a clear picture of where they’re spending their cloud budget. It promotes accountability, precise budgeting, and can quickly pinpoint areas of inefficiency or wastage.

Cloud waste identification

Identifying and addressing cloud waste is pivotal for cost efficiency. Cloud waste typically encompasses unused or over-allocated resources.

How it works: Tools and monitoring solutions regularly scan for resources that are idle, underutilized, or overprovisioned. Once detected, businesses can downscale, terminate, or reallocate these resources.

Benefits: Directly addressing cloud waste leads to immediate cost reductions. It ensures AWS only bills businesses for resources that are actively contributing to their operations.

Spot Instance management

Spot Instances represent an opportunity to utilize cloud resources at a fraction of the usual cost, albeit with some conditions.

How it works: Cloud providers offer Spot Instances when they have excess capacity. Businesses can place bids on these resources, and if their bid is competitive, they can use the resources at a significantly reduced rate. However, providers can also reclaim these resources on short notice.

Benefits: While Spot Instances are highly cost-effective, they’re best suited for tasks that can tolerate interruptions. Effective management of Spot Instances can lead to substantial savings without compromising performance.

Savings Plans for flexibility

Savings Plans introduce a more flexible approach to committing to cloud resource usage compared to Reserved Instances.

How it works: Businesses agree to a specific level of cloud resource usage over a set period. In return, they benefit from reduced rates. The flexibility here lies in the ability to use different resource types and shift usage across regions without being tied to specific instance types.

Benefits: Savings Plans offer a balanced blend of cost savings and flexibility. They allow businesses to adapt to changing needs while still benefiting from discounted rates. However, as with any commitment, it’s essential to ensure the agreed-upon usage aligns with actual business needs.

Improve your cloud cost management with ProsperOps

ProsperOps is an AI-powered cloud cost optimization platform that automatically maximizes cloud savings and simplifies cloud financial management. It automates the process of purchasing and managing Reserved Instances (RIs) and Savings Plans, ensuring businesses pay the lowest rate and extract the most value from their AWS resources.

By leveraging our dedicated FinOps solution for AWS environments, companies can reduce the complexity of cloud financial management, and achieve optimal savings while minimizing commitment risk. 

ProsperOps’ automation capabilities enable businesses to continuously optimize their AWS environment, reducing costs without compromising performance.

Learn more about how ProsperOps can help optimize your AWS setup. Sign up for a free demo with our sales team today!

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