Cloud Financial Management: Why is it still a challenge?

Optimising cloud spend is the top cloud initiative for 2021 – yet again for the fifth year running (Flexera State of Cloud 2021). It remains a top cloud challenge which is all too evident based on 24% of organisations using cloud being over budget, wasting approximately 30% of cloud spend (some up to 35%) and most recent cloud industry-wide spend wastage estimations of $26.6 Billion in 2021 (ParkMyCloud).

There are too many reasons why cloud financial management is still a challenge, however key reasons from experience are listed below.

‘Bill-shock’ Triggered Optimisation

The days of infrequent and ad hoc spend and optimisation reviews and actioning when cloud spend spikes should be resigned to history, particularly with the plethora of cloud-native and third party financial management offerings in the market. Managed Service Providers can also offload this responsibility from organisations where there is lack of in-house expertise or resources.

Cloud spend optimisation, governance and monitoring should be a continuous process of understanding and analysing cloud spend, identifying measures to optimise, developing and updating governance guardrails and continuously monitoring changes in cost.   

Lack of ‘FinOps’ Culture, Processes and Governance

Who doesn’t want a cost-efficient cloud estate? Well most do, however those who work day-in-day-out with cloud infrastructure may not know or do not know the importance or value of financial optimisation (FinOps). More often than not, cost reduction is an initiative that starts with senior management agreement but rarely trickles down through budget holders (if even defined) to technical managers, developers and engineers.  

Establishing FinOps know-how across an organisation is critical if continued cost optimisation is to succeed. Whilst infrastructure optimisations (e.g. rightsizing) and purchasing/commitment optimisations (e.g. reservations) can be continually reviewed and implemented, simply having a mindset of FinOps when designing and developing on the cloud will greatly reduce the reactive effort required to manage spend. 

Organisational processes must be in place to apply tagging policies for accountability, cost allocation and budgeting purposes. It can’t be stressed enough to ensure everyone is accountable for their cloud usage and accountability is logged and tracked (e.g. via tag). Unfortunately, it is surprising the number of organisations who do not treat establishing accountability as a first-class principle and hence do not know why certain resources exist and the justification of their costs.

Developing and communicating these governance guardrails internally as well as cross-collaboration, particularly when anomalous spend or poor budget performance is detected, will help others understand and improve their impact on cloud spend.

Understanding of Cloud Economics and Optimisation Measures

It is no secret that cloud economics can be complex with hundreds of SKUs and line items to analyse on top of an ever-changing and growing set of cloud products – and not to mention new and updated methods to optimise spend. This is assuming an organisation even has detailed visibility of their cloud spend. These alone will likely contribute massively to the amount of cloud spend wastage globally.   

At a high-level, optimisation measures vary from those that are foundational and are core to any successful cost optimisation strategy, to more advanced measures that take cost-efficiency to the next level.

Foundational

  • Rightsizing: resizing underutilised resources.
  • Resource removal: of orphaned and unused resources.
  • Scheduling: auto start and stop of resources.
  • Storage re-classification: taking advantage of storage tiers based on object access and usage.
  • Purchasing and commitments: reservations, savings plans, committed use discounts, enterprise discounts, volume discounts, etc.
  • Auto-scaling: resource elasticity vs demand.

 

Advanced

  • Spot instances: utilising spare capacity for significant discounts. While the concept of spot has been around for some time, its time is still to come!
  • Networking optimisation: modelling, data reduction, CDNs, etc.
  • Container services optimisation : auto-scaling, down-scaling, rightsizing, spot.
  • Serverless optimisation: configuration, networking, architecture.
  • Multi-cloud optimal workload placement
  • Application re-architect and modernisation

Hearing first hand the horror stories of cloud spend increases due to attempted optimisations – the classic example being reserving all instances first then rightsizing – will still be all too common today if cloud cost models are not fully understood. Fortunately, in recent years we have seen improvements in the automated recommendations and actioning of optimisation measures, however a single unified automated cost optimisation solution is still to bear fruit. 

Unoptimised Applications by Design

Whether migrating to the cloud or developing on existing cloud infrastructure, the effect on cloud spend can often be an afterthought, until attempted to be addressed retrospectively when cloud spend soars. 

Cloud applications should be optimised by design. For example, this may be re-architecting applications to use Spot instances or replacing components with more efficient cloud-native services. Not to forget that other design principles and their implementation can affect overall organisational cost, whether it be the cost of security breaches, unreliable applications or lack of automation increasing maintenance and release efforts, to name a few.

Applications that also start their cloud journey via traditional ‘lift and shift’ migrations strategies are typically not optimised for cloud, resulting in in-efficient cloud usage and spend. The age-old argument of whether cloud is cheaper than on-premise IT still persists today, however cloud can be cheaper when applications are modernised and optimised by design when migrating to cloud. Frameworks such as the Well-Architected Framework assist with developing efficient and optimised cloud applications that should then be reviewed and modernised regularly. 

Conclusions

Despite continued improvements in cloud-native and third-party financial management tooling over recent years, understanding, managing and optimising cloud spend still remains a challenge and top priority for cloud customers. 

Here at Stellar Omada, we are launching our Cloud Financial Management product in June 2021 to help overcome many of these challenges to provide a solid foundation to operate a more cost-efficient cloud estate.

Contact Us if you are interested in finding out more.

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