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How To Identify and Reduce Cloud Waste

Originally Published October, 2024

By:

Juliana Costa Yereb

How To Identify and Prevent Cloud Waste

Cloud waste is anything you’re paying for but not fully utilizing in the cloud — and there’s a lot of it. Executives estimate that approximately 30% of cloud compute spending is wasted. As revealed in the 2024 State of FinOps Report, “reducing waste” became the highest priority for FinOps practitioners this year.

Let’s explore two major sources of cloud waste, the largest contributors to cloud waste, as well as best practices to implement today to prevent and mitigate cloud waste. 

What is Cloud Waste?

Cloud waste refers to the unused or underutilized cloud resources that organizations continue to pay for without gaining any benefit. This occurs when businesses provision more resources than needed or fail to optimize their cloud usage effectively. Common examples include idle virtual machines, overprovisioned storage, unused reserved instances, or forgotten services that remain active without being fully utilized.

Cloud waste is often the result of poor visibility into resource usage, lack of automation, or misaligned cloud infrastructure with business needs. Addressing cloud waste is crucial for cost optimization, as it allows organizations to reduce unnecessary expenditures and maximize the value of their cloud investments​.

Two Primary Types of Cloud Waste: Usage and Rate

There are many different types of cloud waste, but two in particular rise to the top as the biggest contributors of wasted cloud spend: usage waste and commitment waste. 

Usage waste

Usage waste includes all cloud activities and resources that are not being fully utilized, and it can lead to major financial losses for organizations. This could be storage waste, underutilized/idle resources, non-contributing data transfer costs, etc.

A few major examples of usage waste include idle instances, outdated storage, orphaned resources, and overprovisioning. 

  • Idle instances: Instances you run but don’t actively use. 
  • Unknown Usage: Storage you don’t need anymore but continue to pay for, e.g., unaccessed data you’re still paying for at the highest accessibility price, or older storage solutions that are more expensive than their newer, optimized counterparts.
  • Orphaned resources: Cloud resources that have been associated or are no longer actively in use, but continue to incur costs because they weren’t properly decommissioned or deleted.
  • Overprovisioning: Allocating more cloud resources (such as CPU, memory, storage, or networking capacity) than a workload or application actually needs.

Rate waste

Like usage waste, non-optimized rates lead to significant waste and have a huge impact on an organization’s financial efficiency.

Historically, customers have been conservative about making long-term commitments. When an organization fails to commit to discount instruments like Reserved Instances, Savings Plans, or committed use discounts, they may end up relying on more expensive On-Demand rates later. This approach often leads to higher costs over time due to hesitation around locking in commitments.

But now there’s more awareness about cloud waste and its financial impacts. Organizations have started to utilize these discount instruments which can offer up to 70% off compared to on-demand rates. However, due to the uncertainties in predicting cloud spend and demand changes, organizations grapple with the other side of cloud waste: overcommitting. 

This occurs when an organization commits to a certain level of resources, such as Reserved Instances or Savings Plans, but then usage significantly drops. These long-term commitments then become a blocker to cost reduction because you’re obligated to pay for the full commitment term — regardless of actual utilization or the impact on Effective Service Rate (ESR)

What Are the Biggest Contributors to Cloud Waste?

Many factors contribute to an organization’s cloud waste, but these four in particular cause the most problems: 

Lack of visibility in usage and cost

One of the biggest contributors to cloud waste is a lack of cloud cost visibility. For a cloud environment to be truly cost-efficient, organizations must have a clear understanding of the “what,” “why,” “where,” and “who” behind their cloud spend. 

When this clarity is missing, it’s easy to end up paying for idle or underutilized resources, with no accountability in place. As the saying goes, “What gets measured gets managed.” Without accurate insights into usage patterns, it’s nearly impossible to identify waste, understand its causes, or implement corrective measures.

Visibility forms the foundation of all FinOps stages and domains — without it, efforts to optimize cloud costs become directionless. It doesn’t just impact usage waste; it also hampers your ability to forecast costs, define budgets and eventually commit to discount plans.

Lack of understanding of how cloud billing works

It’s critical to understand how cloud platforms bill your organization for services. If not, you’re left in the dark about available pricing options, making you more vulnerable to cloud waste. 

For instance, many organizations overlook the savings opportunities of Reserved Instances, Savings Plans, or volume discounts simply because they aren’t familiar with how billing structures work.

Even if you set aside commitment plans, there are still numerous ways billing complexities can lead to unnecessary expenses. For example, understanding how data transfer costs work is often overlooked, but they can add up quickly if not managed properly. 

Similarly, failing to recognize the difference between storage classes — such as standard, infrequent access, or archival storage — can result in paying premium rates for data that could be stored more cost-effectively. Misunderstanding how services are charged, like per-second versus per-hour billing, or neglecting to shut down idle instances and unused resources, also contributes to cloud waste. 

This is why it’s crucial to stay up to date with the latest resource types and modernization options. Newer, more efficient services could deliver the same or better functionality at a reduced cost, providing another avenue for savings. If you’re not aware of these options, you could end up paying more than necessary. This gap in billing knowledge makes it challenging to track, optimize, or forecast your cloud costs effectively. 

Inaccurate forecasting

Often, FinOps teams struggle to predict the demand and expected cloud usage, making them hesitant to make full commitments today due to potential reductions in future demand. And even if there’s an expected increase in demand, teams fail to determine the types of resources that will be needed. 

While investing in a discount plan, you must define configurations like size, region, availability zone, memory, storage, etc. Any shift in these can lead to wasted commitment (depending on the plan’s flexibility). Thus, the uncertainty of demand and the type of resources is a major reason for cloud waste, especially for rate optimization efforts. 

Unclear usage, purpose, and ownership of resources

Even if you have visibility into cloud usage and cost, that doesn’t mean it’s easy to avoid cloud waste. Often, usage, purpose, and ownership of resources is opaque, making it difficult for teams to determine who initiated resource usage, how resources are being used, why, and whether or not they’re necessary. This issue only becomes more challenging as companies grow, especially if teams neglect to use proper tagging and metrics.

Without knowing who’s responsible for running specific resources, particularly in large organizations with numerous active systems, taking corrective action to mitigate cloud waste is a significant challenge.

Steps Organizations Should Take To Minimize or Prevent Cloud Waste

These seven steps can position your organization for maximum cloud cost optimization:

1. Increasing cloud visibility

Good cloud visibility means being able to view and track your organization’s cloud usage to identify what cloud resources are being used, how, by whom, and what their costs are. This information helps you identify which areas are contributing to cloud waste and where you can realize new cost-saving opportunities.

You can’t mitigate cloud waste if you can’t first identify and track it. Increased cloud visibility is an important step in identifying new savings opportunities. But to keep up with cloud services’ constant revisions and modernizations, teams must also follow the trail by generating regular cost reports. These reports should track and analyze trends, pinpoint inefficiencies, and provide insights to help teams adjust resource usage and control cloud spending.

2. Understanding your Cloud Bills

Cloud service pricing and discount plans can have a significant impact on your cloud costs, but it isn’t always easy to understand how it all works. Start by ensuring that your teams are well-versed in the various pricing models, discount options, and billing structures offered by your cloud provider. Regular training sessions, webinars, and certifications can help them stay updated. 

Encourage teams to review billing statements regularly and set up alerts for unusual spending patterns. By fostering a culture of cost awareness and building expertise in billing practices, your organization can significantly reduce cloud waste and make more informed, cost-effective decisions.

Before deciding on your cloud cost optimization strategies, it’s crucial to fully understand the range of AWS offerings, how they function, and the impact they can have on both your cloud infrastructure and overall costs.

3. Allocating cloud costs: Tagging, showback, and chargeback

Cloud cost allocation plays a key role in managing your cloud usage. Tags, especially owner tags, help you understand how you use resources so you can then improve budgeting, forecasting, reporting, and other cost allocation tasks. To get the full benefits, tagging policies can be enforced which can help in standardizing the tags and in consistent application. 

Showback and chargeback methods further help you manage and allocate cloud costs effectively by helping teams better understand the impact of usage on budgets. Together, tagging, showback, and chargeback activities help teams identify who’s responsible for each resource and its cost — both critical for reducing cloud waste.

4. Establishing financial accountability

When teams and departments are held accountable for their cloud spending, there’s a stronger incentive to monitor, optimize, and manage resources more effectively. 

Financial accountability means assigning clear ownership of cloud costs so every team understands its share of expenses and is responsible for staying within budget. When everyone is aware of their financial impact on cloud spend, they’re more likely to take proactive steps to reduce waste, leading to a more cost-efficient cloud environment overall.

Motivate teams by introducing healthy competition through leaderboards and recognizing cost-saving achievements. Reward top performers with bonuses or incentives to keep cloud optimization a shared, engaging goal.

5. Continued education and training

Building processes to continuously mitigate cloud waste over time requires ongoing training and education across your organization. You must equip teams with both the knowledge and the skills to manage cloud resources and costs effectively. For examples, teams should have a strong understanding of:

  • Different types of cloud wastes
  • Main contributors to cloud waste
  • Diverse FinOps solutions
  • How cloud billing and discounts work
  • FinOps basics and strategies for reducing waste

Plus, as cloud services continue to undergo revisions and modernizations, keep your in-house training materials up to date, so teams are always primed on industry trends and best practices to mitigate cloud waste. 

6. Establishing the FinOps culture

Perhaps the best way to minimize cloud waste is by elevating it to everyone’s top of mind. To that end, you must establish an organization-wide FinOps culture. Establishing a FinOps culture is about creating a mindset where cost efficiency is everyone’s responsibility — not just an afterthought. 

Start by educating team members on what FinOps is, why it’s a priority, what steps they need to take (as a team and as individuals), and how FinOps can help in better cost efficiency. 

The goal isn’t to enforce strategies but to educate the stakeholders and make them accountable and self-aware. This shared accountability, combined with regular training and transparent cost reporting, helps you identify inefficiencies faster and reduce cloud waste. When everyone’s on the same page, it’s much easier to spot savings opportunities and optimize spending together.

7. Enabling automation

Engineers are usually focused on driving business growth through new developments, often sidelining cost management and leading to unchecked cloud spending and more cloud waste. However, according to the 2024 State of FinOps Report, “enabling automation” has increased in priority for FinOps teams, now ranking ahead of “empowering engineers to take action.” 

This is where FinOps automation proves valuable, taking over repetitive tasks and ensuring cost optimization stays on track, allowing engineers to focus on innovation without neglecting financial efficiency. Make sure you evaluate your needs to seek a suitable FinOps solution. 

FinOps automation isn’t about waiting until you reach a certain size or stage — the sooner you implement it, the sooner you can enjoy benefits like greater financial efficiency and waste reduction!

Reduce Cloud Waste With ProsperOps

The culture in FinOps is shifting to put the spotlight on cloud waste — and rightly so. Both usage waste and commitment waste run up an organization’s expenses. 

While there are steps you can take to mitigate and prevent cloud waste, it can be time-consuming and tedious when your efforts would be better focused elsewhere. Finding the right FinOps solution to help can make all the difference. 

ProsperOps, the leading automated FinOps platform, provides cloud savings-as-a-service. Its FinOps rate optimization platform helps you manage your discount instruments — with zero manual oversight required from your team and no friction with your existing FinOps operations.

ProsperOps automatically blends discount instruments to maximize your savings while minimizing commitment risk. Our platform runs silently in the background to help maximize the hyperscaler’s native discount rates and place you in the 98th percentile of FinOps teams.

Learn how ProsperOps can both mitigate waste and risk for your organization by scheduling a free demo.

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