Cloud Cost Optimization is a framework that helps organizations in drastically reducing expenditure. Using a proactive approach of managing usage, expenses, and commitments, it uncovers opportunities to trim costs while maintaining top-notch service.
Cloud spending is on an inevitable upswing, projected to reach a staggering $700 billion by 2024 according to a Gartner forecast. Far too often, businesses find themselves facing unforeseen expenditures when their bills frequently exceed initial budget allocations.
The issue goes deeper than mere numbers; it lies in management. The cloud, like any other IT resource, demands meticulous oversight. Organizations, with teams scattered across multiple projects and time zones, have trouble tracking and efficiently using their cloud resources.
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Studies published in 2023 discovered that a staggering 35% of cloud expenditure can be attributed to inefficiencies and cloud waste. This alarming statistic highlights the requirement for a proactive stance towards managing cloud resources and being financially conscious.
A common example, most organizations leave out cost-efficient architecture when conducting cloud migration, or might be unaware of any underutilized instances (zombie instances) within their environment, which slowly accrue costs month over month resulting in billing spikes.
Cloud Cost Optimization is the process of reducing your overall cloud spend by identifying mismanaged resources, eliminating waste, reserving capacity for higher discounts, and right-sizing services to scale. It involves understanding detailed cost usage and governing these costs without sacrificing the scale, speed, and flexibility that cloud environments offer.
So how does an organization reduce their cloud costs? Where do they start? Is there a recurring process to follow for guaranteed results?
The answer to these questions lies in the FinOps Framework, established in 2019 by the Linux Foundation.
FinOps or Cloud Financial Management is a strategic approach and cultural practice that brings together teams from finance, IT, and business units.
It’s not just about the numbers, but shaping behaviors.
At its core, FinOps ensures that every dollar spent in the cloud results in business value. Rather than operating in silos, teams collaborate, ensuring every member is accountable for the cloud costs they generate.
Cloud expenditures should be perceived less as routine costs and more as strategic investments. High cloud expenditure isn’t necessarily bad- It can be a marker of growth, an enabler of faster product releases, or even a step towards shutting down an on-premises data center. FinOps encourages this perspective by promoting both efficiency and empowerment.
As aptly stated, sometimes businesses will tighten the belt; other times, they’ll decide to invest more. But with a FinOps outlook, teams comprehend the rationale behind these decisions.
The FinOps Foundation has introduced 6 core principles designed to guide organizations in effectively aligning their internal FinOps practices. These principles serve as a roadmap, ensuring your FinOps implementation is heading in the right direction.
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The core essence of FinOps lies in collaboration. Unlike traditional cost-saving measures which can often be siloed and department-centric, FinOps emphasizes gaining value from every dollar spent. This requires a harmonized effort across various units of the organization.
Individual departments often have their unique concerns and KPIs. However, when these are not aligned, the result can be a disjointed, ineffective strategy.
The solution? Cross-functional teams. These teams amalgamate, setting common FinOps goals, KPIs, and financial objectives for cloud usage. Such teams challenge the siloed mindset, focusing on unified objectives and ensuring every cloud expenditure drives value.
Traditional organizational setups often have teams optimizing cloud within their respective departments. While they might achieve incremental benefits in their domains, the overall organization-wide cloud expenditure might remain stagnant or even increase. This is due to the lack of a unified vision and strategy, causing efforts to offset each other.
Once a holistic view of the cloud expenditure is achieved, collaboration intensifies. Finance teams, IT professionals, and other stakeholders come together to decide on shared objectives for the FinOps initiative. Having everyone on the same page ensures the program moves in a synchronized direction, with every department’s efforts complementing the others.
FinOps not only encourages cost savings but pushes for cost as an efficiency metric. As departments collaborate, they establish clear governance policies and controls for cloud costs and usage. With better practices, they can amplify efficiency and innovation throughout the organization.
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Understanding and deriving value from cloud costs is paramount. This not only involves evaluating spending but analyzing the tangible and intangible returns from those investments.
To unlock the real value of the cloud, it’s crucial to proactively detect and analyze cost trends and anomalies. Reactive approaches, like merely reviewing invoices post-expenditure, offer limited insights. Engaging proactively offers a clear view of the cloud’s value, putting companies in the driver’s seat for cost control.
The Iron Triangle model, comprising quality, speed, and cost, underscores the balancing act businesses must perform. Aiming for quality may require higher expenses. A zeal for speed might compromise quality. An improper cost-focused approach can potentially mar both quality and speed, trapping teams in nitty-gritty details, making them lose sight of overarching objectives.
To harness the cloud’s true business value, measuring projects’ internal rate of return (IRR) is pivotal. Rather than getting bogged down by quality, speed, or cost in isolation, IRR encourages businesses to anticipate the profitability of their investments. This broadened perspective ensures that the focus remains on long-term returns and not just immediate metrics. Achieving this comprehensive view demands visibility across the entire cloud landscape, laying a robust foundation for a FinOps program.
To further operationalize this approach, setting FinOps Unit Costs is paramount.
In FinOps, accountability is more than just responsibility—it’s about understanding the repercussions of every cloud-based action taken within an organization.
Every individual wielding the power to influence costs should be acutely aware of their footprint. This goes beyond just knowing the costs; it’s about recognizing how individual decisions, like infrastructural choices, affect the financial health of the organization.
One effective way to clarify roles and responsibilities within the FinOps decision and accountability structure is by using a Responsibility Assignment Matrix, such as the RACI matrix.
The RACI matrix categorizes team members based on their involvement in a task or decision as Responsible, Accountable, Consulted, or Informed. To implement this model:
Here is a sample RACI model from the FinOps Foundation:
By granting engineers and other key decision-makers access to the company’s cost data, you’re not just sharing numbers. You’re empowering them with the insights needed to make informed choices.
In the spirit of FinOps, teams should be driven by clear KPIs. These KPIs may vary, given the team’s objectives and should ideally align with the Iron Triangle model. While one team might prioritize speed, another might focus on innovation. Yet, irrespective of their focus, the collective aim should be company-wide optimization.
Incorporating accountability into the core fabric of FinOps isn’t just a best practice—it’s an ethos. It fosters a culture where departments consider the broader organization when making decisions.
Tired of cloud costs that are sky-high? Economize to the rescue!
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In the FinOps world, data isn’t just a static snapshot of the past; it’s the dynamic fuel that drives proactive decisions. The faster you can access, understand, and act on this data, the more agile and cost-effective your cloud operations become.
While traditional financial reporting often provides a hindsight view, FinOps demands immediacy.
Insight: A sudden spike in network traffic at an unusual hour might be a telltale sign of an impending breach. Having access to real-time data ensures that anomalies are addressed instantly, preventing potential repercussions.
However, this desire for instantaneous data comes with challenges. For instance, while cloud providers aim to provide prompt data, there might be a lag. In such scenarios, having systems that can interpret and present data with minimal delay becomes paramount.
Democratized Access
Transparency is a cornerstone of FinOps.
The FinOps paradigm emphasizes the decentralization of accountability, allowing individual units within the organization to take charge of their cloud expenses. Yet, the backbone of this system lies in a centralized team that plays a pivotal role in orchestrating the broader FinOps narrative. Implementing FinOps culture is one of the highest priorities when aiming for cost optimization.
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FinOps teams are the linchpin in understanding and optimizing cloud expenditure across the organization. Here’s why they are indispensable:
The composition of a FinOps team is diverse, mirroring the multifaceted challenges of cloud finance:
The essence of a centralized FinOps team is not to override, but to collaborate:
The essence of cloud computing lies in its variable costing model. Contrary to traditional fixed IT costs, cloud computing offers flexibility and dynamism, allowing organizations to maximize value and drive efficiencies. FinOps, with its strategic framework, ensures organizations are well-equipped to leverage these nuances.
Cloud costs have introduced a flexibility that was previously unheard of in the IT realm:
Predicting and planning for future expenses is an integral aspect of FinOps:
The cloud’s variable cost model, while seemingly complex, provides a plethora of opportunities:
The FinOps framework integrates business, technology, and finance to master the unit economics of cloud spending. It emphasizes collaboration across departments, real-time decision-making based on data, and continuous optimization of cloud environments.
Now that we are familiar with how FinOps works, let’s take a look at other additional best practices, recommendations, and strategies for reducing cloud expenditure.
Tired of cloud costs that are sky-high? Economize to the rescue!
On average, users save 30% on their cloud bills and enjoy a reduction in engineering efforts. It's like finding money in your couch cushions, but better!
Below are a few more essential best practices that will ensure financial sustainability in the long run. Since each cloud provider has specific pricing and discount options, we have compiled their best practices accordingly.
Strategic purchasing of resource commitments can lead to considerable savings in the long run. Both AWS and GCP offer opportunities for discounts through their models of Reserved Instances and Committed Use Discounts.
AWS Reserved Instances (RI) provide you with a significant discount (up to 75%) compared to On-Demand instance pricing. In exchange, you commit to use a specific instance type, in a specific region, for a term from one to three years.
You have the flexibility to choose among different types of RIs based on your needs:
Similar to AWS RI, Google Cloud’s Committed Use Discounts (CUDs) offer a discounted price in return for committing to use specific machine types in a particular region for a period of one or three years. The discount can go up to 57% off the regular price.
The commitment is based on resources and not instance types, which provides you with the flexibility to change instance sizes within the committed machine type. This can be beneficial when you require scalability and flexibility in your operations.
Like AWS RIs, these contracts require a precise understanding of your long-term usage and are non-refundable. Therefore, before making any commitment, thorough analysis and planning of your workloads are advised.
Implementing a robust tagging strategy is a fundamental best practice for cloud cost optimization. It provides visibility into your cloud expenditure by facilitating precise tracking and allocation of cloud costs.
AWS supports tagging for most resource types. These tags are key-value pairs that can be allocated to your AWS resources. They can be particularly helpful when you need to organize resources by departments, projects, or any other logical group within your organization.
For instance, imagine you have multiple EC2 instances running across various projects. By tagging each instance with details like ‘ProjectName’, ‘Environment’, and ‘Owner’, you can get granular cost insights on a per-project or per-environment basis.
Moreover, AWS Cost Explorer can utilize these tags, allowing you to view and analyze your AWS costs at a granular level. This makes it easier to identify which resources are driving costs and where savings can be made.
How to Calculate AWS Costs?
On the Google Cloud Platform, you can tag resources. Similar to AWS, these tags are key-value pairs that can be attached to various GCP resources. GCP’s cost breakdown feature can then use these labels to provide a detailed view of your spending.
For example, if you have multiple Compute Engine instances across different projects, you could label each instance with ‘project_id’ and ‘department’. By doing so, you can track exactly how much each department is costing you in terms of Compute Engine usage.
As important as it is to set up effective cost optimization strategies, it’s equally crucial to revisit these strategies periodically to ensure their efficiency. Regular cost reviews and audits serve as a reality check, uncovering potential areas of wastage and opportunities for further savings.
Here’s how regular cost reviews and audits contribute to cloud cost optimization:
Expenditure Analysis
Conducting a regular analysis of your cloud expenditure can help reveal hidden costs or anomalies that may indicate resource inefficiency or wastage. For example, a sudden spike in your AWS EC2 or Google Compute Engine costs could signal an un-optimized autoscaling policy that needs immediate attention.
Resource Utilization Check
Regularly reviewing resource utilization metrics can help identify underused or idle resources that are adding unnecessary costs. For example, a consistently low CPU usage on an EC2 instance or a GCE instance could indicate that the instance is oversized for the workload it is handling. In such cases, right-sizing the instance could result in significant cost savings.
Cloud TCO
Conducting a Cloud TCO (Total Cost of Ownership) analysis is a great way to discover the direct and indirect costs associated with your cloud environment. Direct costs include charges for application code rewriting, cloud infrastructure setup, while indirect costs are long the lines of compliance and licensing fees, additional expertise, cost of new skilled employees.
Compliance Audits
Periodic audits can help ensure that your cloud operations remain compliant with relevant policies and regulations, preventing potential legal complications and penalties. Moreover, security audits can uncover vulnerabilities that, if left unaddressed, could lead to costly breaches. Tools like AWS Security Hub or Google Cloud Security Command Center can assist in automating these audits.
Automation of Reviews and Audits
Automating your cost reviews and audits not only saves time but also improves accuracy by eliminating the possibility of human error. Tools like AWS Health Dashboard can automate the tracking and analysis of your cloud spending, making the review process more efficient and reliable.
Cloud cost calculators are essential tools for organizations looking to estimate their potential cloud spending before actually committing to the services. These calculators help businesses plan their budgets more effectively, understand the cost implications of different configurations, and make informed decisions about cloud investments.
Our AWS Cost Calculator allows users to model and estimate their AWS deployments without needing to deploy any resources. This tool is incredibly useful for planning and budgeting purposes, as it provides detailed cost breakdowns based on the specific services and configuration options selected by the user.
Similarly, the GCP Pricing Calculator is designed to provide prospective and current customers with a convenient way to estimate the cost of using Google Cloud products. Like its AWS counterpart, it supports various GCP services, including but not limited to Compute Engine, Cloud SQL, and BigQuery. Users can specify their expected usage patterns, choose different service options, and get a detailed projection of monthly or annual costs.
Cloud providers and private organizations realized that an automated software that tracks cost expenditures, gives accurate recommendations, and maintains visibility along with analyzing billing data is the answer towards ballooning cloud expenditures.
Here are a few native cloud cost tracking and management tools from each cloud provider:
AWS Cost Explorer is a fully managed service designed to provide a comprehensive overview of your AWS usage and spending. With a user-friendly interface, it allows organizations to view and track their costs and usage patterns across different services and regions. Cost Explorer provides detailed reports that include historical data for up to the last 12 months and forecasts for the upcoming three months.
The GCP Billing Console is Google’s own management console, offering native visibility and control over your Google Cloud Platform resources. The platform integrates seamlessly with other Google Cloud services, providing real-time data and operational metrics that help users optimize their cloud expenses.
Azure Cost Management is a powerful service provided by Microsoft that enables users to monitor, allocate, and optimize cloud costs within Azure. It provides comprehensive cost analysis tools that help users understand where their money is going, identify and prevent wasteful spending, and implement cost-effective resource usage strategies.
Open source cloud cost optimization tools provide a budget-friendly and flexible alternative for organizations looking to manage their cloud expenditures without committing to proprietary software. These tools often come with the advantage of community support and the ability to customize features to suit specific needs.
Here is a brief guide to keep in mind when selecting your Cloud Cost Management tools. Each of these parameters listed below are crucial features that your solution must have.
Effective tools should offer features such as detailed analytics, budgeting forecasts, real-time alerts, and comprehensive reporting capabilities. They should also integrate well with existing cloud environments to offer seamless cost management.
1. FinOps Vendor Reputation and Reliability
Let’s start with the basics. You need a Vendor with a track record for consistency and innovation. Browse through customer reviews and seek testimonials that emphasize reliability, consistent updates, and long-term support. A vendor’s financial stability is equally crucial; you want to partner with someone committed to evolving with your needs.
2. Tool Functionality and Ease of Use
When it comes to tools, “more” doesn’t always mean “better.” The tools should offer a robust set of features like cost allocation, budgeting, and forecasting, but should also be user-friendly. Check for customizable dashboards, intuitive interfaces, and data-drill-down capabilities.
3. Scalability Matters
As your business grows, so will your cloud operations. Ensure that the tool you choose can scale with you. Will the tool continue to operate seamlessly as your cloud complexity expands? A scalable solution will save you the headache of future migrations and financial recalibrations.
4. Compliance and Security
In today’s environment, data protection is non-negotiable. Ensure that the tools and vendors you opt for adhere to industry-standard compliance requirements. Are they GDPR compliant? Do they support two-factor authentication? Your vendor should treat security as a priority.
5. Pricing and Value for Money
In FinOps, the phrase “you get what you pay for” is especially relevant. While pricing should be competitive, what really counts is the ROI. Look for tools that offer not just cost-cutting recommendations but also ways to improve resource utilization and enhance performance.
6. Customer Support and Training
Ongoing support can make or break your FinOps experience. How quickly does the vendor respond to issues? Do they offer training sessions, documentation, or tutorials to help you get the most out of the tool? Good customer support is a strong indicator of a vendor’s overall reliability.
7. Reviews and Testimonials
Lastly, don’t underestimate the power of community feedback. Detailed reviews can provide insights into how the tool performs in real-world scenarios. These reviews often discuss the challenges faced and how the tool helped overcome them, offering a more nuanced understanding of its capabilities.
Economize stands out in the cloud cost management space by offering a dynamic and effective solution for organizations struggling with high cloud costs across AWS, GCP, and Azure environments. Here are a few ways it can help cut down your costs:
Gain a holistic view of your cloud costs by bringing together all spend data from different cloud environments into one place, making it easier to track and manage your costs. With our aggregated view, you can get a complete picture of your cloud financial health and make informed decisions. Always stay on top of your cloud costs and pilot it like a pro.
Flexibility for you to focus on the area that matters the most to you — whether that be at the organization, project, billing account, or even tag level. Export the reports and share them with your team and stakeholders. Obtain a bird’s-eye view of your entire organization’s costs and drill down to an organization, or a project, a billing account, or as granular as a tag. Promote transparency and accountability and align everyone on a shared FinOps goal.
Empower your developers with cloud cost visibility allows them to understand the financial impact of their decisions and take ownership of their costs. Foster a culture of cost awareness and accountability to achieve long-term financial stability. Analyze cost patterns and consumption trends and predict future costs to perform budgeting and financial planning.
Since GCP offers a large number of services, pricing models, and discount options, we have compiled a few resources to help you learn more about the cost optimization journey. Stay informed, and choose the best tools and services to help you manage your cloud.
Pricing Catalog
View the pricing details of the most commonly used GCP Services.
Pricing Calculator
Get accurate estimates and pricing predictions based on instances, utilization, and time period.
Blog
Learn about cost optimization, and the latest developments in the world of cloud.
Guides
Get an overview of the most used GCP services, their features, pricing, & helpful ways to reduce costs.
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