Cloud doesn’t just open the door to enabling advanced technologies like AI, hyper-automation, and big data analytics – it unlocks a complex realm of costs and expense management problems that can threaten innovation and its financial sustainability.
A recent study of IT decision makers peels back these trends:
- Cloud visibility is all but missing: 86% of decision makers said they can’t get a global view of their cloud costs quickly, and 65% are unsure if they’re delivering the service levels their business needs
- Silos are killing cloud cost management: 72% are fed up with piecing together different monitoring and management tools for driving cloud cost governance particularly when 68% of stakeholder teams operate in silos and 70% agree that limited collaboration prevents cost management.
- Companies are overbuying and underutilizing: Workloads are bursting above agreed capacity in some areas of the business while others have more computing resources than necessary.
- The rising issue of cloud inflation: Industry giants like Salesforce, SAP, and IBM are steadily increasing the cost of their cloud applications and infrastructure to offset the challenges of an unsteady economy.
As CIOs and CFOs try to find ways to confront the consequences, here are three key strategies to avoid cloud sticker shock:
1. Brush up on tactics to counteract inflation and the twisted economics of the cloud
Cloud adoption brings scalability benefits but also twisted economics spawning unpredictable costs without an intentional approach to cost optimization. “Pay-as-you-go” models are touted as cost-efficient but strain budgets without financial oversight diving deep into service usage vs. actual business needs. Variable pricing models create leeway for runaway expenses considering the highly scalable nature of cloud technologies. Meanwhile, Shadow IT and unauthorized app purchases tend to crack hidden spending leaks.
The bottom line: CFOs and CIOs need fixed costs for easier budgeting and forecasting. Digital innovation can’t survive in a tumultuous environment of uncontrolled spending dictated by inflation.
Governance neutralizes instability
Cloud-enabled businesses need to closely track all cloud costs, delineating their existing inventory of services and their associated costs, users, and usage data. This is the first and most essential step for mastering today’s cloud economics.
Cost tracking is crucial for highlighting service utilization (including exposing Shadow IT), identifying departments responsible for payments, and pinpointing areas of spending overgrowth. These are all vital points of insight for establishing long-term financial sustainability in the cloud and seeing clear ROI. However, doing so manually is nothing short of exhausting for those responsible for leading the charge.
This is why so many companies are turning to FinOps, a strategic framework that brings together cross-functional leaders to tackle cloud costs from all angles. Companies have reported saving up to 56% of their cloud costs by applying the cloud financial management practices associated with FinOps.
2. Dodge costs by driving to the lowest price possible
The only way to truly combat cloud-flation is to pay less for contracted services. There are a few ways to do so:
How to pay less for cloud services
- Take advantage of today’s shifting market competition and reevaluate your current providers’ offerings – existing players are losing their dominance while others are rising in prominence.
- Use data normalization tactics to define unit prices and leverage AI to run different scenarios seeing how services, pricing models, and discounting structures compare. Figure out which cloud infrastructure configurations curtail charges, as well as the most beneficial discounts based on your consumption patterns.
- Strategically use discounts (volume discounts, commitment discounts) to reach the lowest price possible. Commitment discounts can offer savings of 40-70% in exchange for making up-front purchases or committing to a set level of monthly spending. Holistic views of software spending also provide procurement teams with more negotiating power when they have an accurate list of licenses and expenses.
3. Don’t just react to cloud-flation…be proactive
Instead of trying to simmer cloud costs, CFOs and CIOs should work proactively to prevent them from reaching a boiling point. When cloud-flation is inevitable, you need to get ahead by establishing a robust system to monitor and control expenses. This includes detection capabilities and alerts that notify stakeholders of impending cost thresholds, but also AI-based automation enabling timely adjustments and automated service changes. Prediction, prevention, and thorough investigation of cost spikes are vital for proactively mitigating the impact of rising prices.
Building your case for FinOps and cloud expense management
Unfortunately, companies aren’t always good at making the case for proactive cloud cost optimization. Here are three tips.
- Explore the synergies between Shadow IT and SaaS management. Integrating software cost optimization with cloud security initiatives can help push your project to the top of the priority list. While security teams leverage Shadow IT discovery insights for threat mitigation, IT financial analysts can address redundant applications, overspending, and waste. It’s a win-win.
- Consider the overlap between network modernization projects and cloud expense management. SD-WAN projects are typically driven by the opportunity to reduce IT costs. Trading fixed wireline network services for more cost-effective internet or broadband services can generate savings of 20-30% or double your bandwidth for the same price. Coupling these initiatives can ensure companies maximize these results while jumpstarting a FinOps program. See how one manufacturer did this and saved $1.4M.
- Combine AI and FinOps tools for continuous monitoring and scenario analysis. FinOps and AI are the ultimate pairing, with research showing an AI-enabled FinOps strategy is 53% more likely to achieve cost savings of 20%+ compared to those without one. AI gives you the upper hand in identifying cost-optimized providers and infrastructure configurations in real-time, proactively identifying cost savings opportunities, and turning potential savings into real dollars saved.
IT and finance leaders are under pressure to innovate while creating leaner, more efficient operations and sidestepping escalating expenses. Despite the challenges of today’s cloud economy, business leaders have the ability to take charge and emerge strong. The key is having knowledge of effective strategies and the AI agility to implement them quickly to yield significant returns.
