How to Do Cloud Cost Management

As companies migrate to the cloud, cost management may not be the first thought on their minds. Typically IT is thinking about application agility and operational assurance when moving to the cloud. Or they might think that moving to the cloud will eliminate their need for capital expenditure and automatically save them money. But without doing cost management for hybrid cloud, you could be in in for a real shock once that first bill arrives. Recent surveys have identified cloud cost management as one of the top challenges among IT teams. Managing hybrid cloud cost means identifying wasted cloud spend and opportunities to optimize. Here are 3 ways to do cloud cost management.

1. Limit cloud waste with application optimization

A lot of the cost benefits associated with public cloud services rely on elastic applications. If the application is designed to scale out and allocate resources in line with changes in demand, there is great potential to save money by only paying for usage per time unit. Applications designed this way should be your primary candidates for running in the cloud.

But you likely have other applications that were not built with this dynamic behavior in mind. They could still be candidates for public cloud, but it takes a bit more consideration. Some questions to ask as you evaluate:

• What are the peak activities that you need to provision resources for?
• How frequently do the peaks appear?
• Are there dependencies to other applications and if so, where will they be running?
• What is the current cost of running the service?
• Would it make sense to refactor any part of the application to make it more elastic?

The answers to these questions will give an indication where the application should be deployed. Blindly moving applications as-is can actually increase the cost.

2. Identify dormant instances and right-size applications

Deploying an application in the cloud should always start with an assessment of requirements. This allows you to provision the optimal resources. But as time goes by, the conditions under which your applications are running may change in the following ways:

• Workload intensity will vary due to seasonality in the business
• Changes in business processes will impact the demand for services
• Time-limited initiatives end, and the resources assigned will no longer be needed
• Resources were allocated based on incorrect assumptions and will need to be fixed

Constantly evaluating and rightsizing the allocated resources or turning off dormant resources can have a major impact on your overall cloud spend. The process is quite straightforward and can be automated to be part of your ongoing management efforts.

3. Utilize reserved instances in public cloud

The third way to optimize overall cloud cost is trying to reduce the unit price. Public cloud service providers benefit from committed volumes and an improved ability to plan ahead (just like we do in our own data centers). Because of that, they are willing to give you a considerable discount for using reserved instances.

By committing to 1-3 years of usage of an instance, you can typically get a discount of 50% or even more. Agreeing to pay upfront will increase the discount even further. A reserved instance is not a physical instance, it’s a billing discount applied to the use of on-demand instances in your account and those must match certain attributes to qualify. You pay for the entire term, regardless of actual usage. This makes the cost saving closely tied to usage and your ability to forecast. Before committing you should calculate the break point for when a reservation will start to pay off.

Another option for lowering the unit cost is to negotiate an enterprise volume discount. A multi-year spend commitment can net you an annual discount of 10% and upwards. Although it’s tempting to enter into such agreements, it should be carefully evaluated against business plans and your cloud road map to make sure that the committed volumes are feasible.

These are a few significant ways to do cloud cost management in hybrid cloud environments. In order to identify peaks in your resource usage, actual resource allocation needs, and opportunities for refactoring, you need a cloud management solution. This ongoing optimization and analysis is crucial to having success and manageable cloud costs.