Managing financial uncertainty is a significant challenge, even during the best of times. Today, two major factors drive the need for continuous cloud cost optimization — the evolving global financial conditions in response to the COVID-19 pandemic and the accelerating adoption of cloud usage.
As identified in the Flexera 2020 State of the Cloud Report, organizations expect cloud spend to increase 47% in the coming year. This rapidly growing spend leads to challenges in forecasting, with respondents reporting they exceeded their cloud budget by an average of 23%.
As cloud spend is growing, respondents are finding it difficult to ensure that cloud costs are optimized. Respondents estimated that nearly a third (30%) of cloud spend is wasted. As a result, 73% of respondents identified the need to optimize their existing use of cloud as a top cloud initiative for 2020.
Due to COVID-19, cloud use is accelerating, with more than half of organizations expecting cloud usage to exceed prior plans. Other organizations will see their cloud use decrease as their businesses are impacted by the pandemic. In either scenario, it becomes imperative for organizations to optimize cloud costs.
On-demand cloud spend — unlike many other IT costs that are set in long-term contracts — can provide nearly instantaneous savings once idle resources are eliminated or overprovisioned resources are downsized. A focused plan for cloud cost optimization can yield significant benefits — often 20% to 25% savings in just a few months — and prepare your organization to manage cloud costs efficiently as cloud usage speeds up or slows down.
What can you do to achieve ongoing reductions in cloud costs? You can start by implementing the four best practices outlined below.
1. Before signing up for discounts, do an assessment
Discounts are appealing, but evaluate the goals of those involved. Cloud providers aim to lock in your cloud usage. Your priority is to save money.
Cloud providers offer a variety of discount options (e.g., reserved instances, enterprise agreements, and savings plans) that require you to make contractual commitments to use certain types and levels of cloud use over one to three years. However, you don’t want to sign up for commitments that lock you into unoptimized or wasted cloud spend. Instead, start with a thorough assessment that evaluates all areas where you could save on cloud spend.
Understanding potential adjustments you can make in advance of accepting discounts enables you to pinpoint where to optimize your cloud usage and determine what levels of commitment to make in order to receive discounts.
2. Reach for the low-hanging fruit first
The assessment should include a wide variety of optimizations such as getting rid of idle (“zombie”) resources; rightsizing overall resources and eliminating wasted PaaS services; deprovisioning unused storage; shutting down instances after hours; or identifying newer, lower-cost instances.
The results will help identify the low-hanging fruit, such as idle resources and unused storage you can easily eliminate; other optimizations, such as scheduling instances, may require more time. Going for easy wins is the first part of a comprehensive optimization plan that should clearly identify the appropriate levels of usage and spend once the optimizations are complete.
3. Understand how software licenses contribute to overall cloud costs
Traditional software license costs may contribute significantly to the costs of applications running in the cloud. Optimizing license use is an important part of cloud cost optimization.
In some cases, bringing your own license (BYOL) to the cloud can provide significant savings. For example, the Azure Hybrid Benefit can provide 45% savings on virtual machines running Microsoft Windows or SQL Server in the Azure cloud. In other cases, software licenses may end up being more expensive when running in the cloud. For example, license restrictions on Oracle Database may make it more costly to run in certain clouds.
Fully understanding what licenses are being used in the cloud, the relevant use rights or entitlements, and the cost implications are a critical part of any cloud cost optimization initiative.
4. Select discounts wisely
Once you’ve completed an assessment and identified the optimizations you plan to tackle, you are ready to implement a strategy for leveraging cloud discounts. First consider how your cloud usage may vary in the future including changes in cloud providers, regions, instance types, or a shift from raw VMs to PaaS services. The level of cloud usage you commit to should allow for unexpected changes as well. In industries that are seeing decreases in demand due to COVID-19, having a high level of committed cloud spend can prevent their ability to scale down cloud costs.
Avoid making commitments that cover 100% of your cloud spend, because that locks you in in the event your cloud use changes. Instead, identify a “coverage level” aligned with your strategic initiatives, your plans to decrease or increase cloud usage with a provider, and an allowance for unexpected changes. Once you commit to discounts, closely track and manage your actual usage to ensure you are fully leveraging what you are paying for.
Cloud cost optimization is a continuous process, not a one-and-done event. Automation, which can constantly scan cloud environments to flag waste or do automatic optimizations, can improve the overall efficacy. Cloud usage and costs are growing. You can help ensure that your savings are, as well.
For more information, please download the Flexera 2020 State of the Cloud Report.
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