Cloud cost management - the complete guide

Cloud cost management is fundamental to controlling expenditure in a cloud environment. This multi-faceted approach combines Cloud FinOps philosophies with emphasis on raw data analysis and real-time decision-making to optimize spending on cloud platforms like Amazon Web Services (AWS). 

Cloud usage generates various cost areas. Here are the prominent cost allocation categories to consider when devising savings plans and other initiatives: 

• Virtual Machines (VMs) – Organizations must consistently maintain optimal VM storage and CPU power. This is a key cloud cost management area, especially for workloads with fluctuating resource demands. Cloud cost management software with real-time granular monitoring and autoscaling can help you continuously optimize VM configurations  
• Data Center Storage – Unused data storage is a huge drain on cloud budgets, but many organizations don’t adequately appreciate the hidden costs associated with data sprawl. Cloud cost management solutions help protect not only from basic storage charges, but also the ongoing costs of managing, protecting, and potentially replicating unnecessary data.  
• Orchestration – Modern cloud environments are often complex, relying heavily on containerization to manage and optimize SaaS software and integrations. Orchestration solutions like Kubernetes are essential cloud cost management tools here, helping IT staff optimize resource allocation and generate cost savings. 
• Automation – Leveraging automation is a crucial foundation to cloud cost management, simplifying basic tasks like provisioning, scaling, and patching cloud resources. Reducing human effort and potential for error improves cloud financial management in the short and long-term, slashing costs while allowing users to work on more innovative ways to save on cloud computing costs. 
• Cloud Architecture – Developing a cost-effective cloud architecture is only one part of the puzzle. Organizations must also ensure maximum scalability to avoid spiraling spend during busy periods. Following cloud-native principles and leveraging FinOps best practices helps optimize cloud infrastructure for maximum cost-effectiveness. 
• Procurement – Cloud investments are always made as part of a procurement cycle, a key cloud cost management area for savings. Negotiating favorable pricing terms with cloud providers like AWS, Microsoft Azure, and Google Cloud for general cloud usage and other pricing variables is key. 
• Inefficient Workloads – Poorly designed applications or inefficient workflows due to sub-par cloud connections and integrations often leads to overspending. DevOps principles and cloud cost management tools can help identify and address areas where clunky software or overly complex software arrangements inhibit users’ ability to work effectively. 
• Migration – Migrating from on-premise infrastructure is a necessary hurdle for many organizations, forming another vital cloud management area. Careful planning is essential to avoid unnecessary costs when moving workloads and data to a hybrid cloud environment. 
• Security – Keeping top-spec security posture over a cloud environment can require ample resources for security teams. Cloud cost management solutions track this key cost area, ensuring transparency in spending on compute power for cloud security tools like encryption services and continuous threat monitoring.  
• Employee Training – Preparing employees for cloud-based workflows using various SaaS applications can be challenging. This is a cloud cost area that can fly under the radar, as businesses often underestimate how many resources they require to adequately train new and existing staff. 
• Software Licenses – Overseeing software licenses is another cloud cost management area that can be overlooked. Deploying SaaS applications on cloud infrastructure can lead to poor contract renewal management or unused software licenses, draining overall cloud spend.  

The importance of cloud cost management to modern businesses 

Cloud computing unlocks a whole new world of business, offering unprecedented scalability, agility and elasticity while also generating the conditions for software innovation. But all this comes at a cost.  

Without cloud cost management strategies, spending can quickly spiral. Unlike traditional IT infrastructure with predictable costs, cloud services are billed based on usage. Throw in the growing number of multi-cloud ecosystems — that is, ecosystems involving more than one provider — into the mix, and tracking costs gets even harder. 

Organizations must be able to spot instances where redundant software licenses needlessly add to the cloud bill. Poor cloud visibility hinders this and also damages full-stack observability for the SaaS applications deployed. Not only does this lead to overspending, it also damages value creation – a cost in itself. 

Gathering granular cost data across cloud services, analyzing usage metrics and patterns, leveraging automation to streamline simple financial processes, and using AI-powered insights are all ways to optimize cloud cost management.

Achieving cost savings with targeted management strategies builds a more resilient technological and financial foundation. With cloud computing set to dominate the business landscape, managing ecosystems and SaaS deployments is imperative for weathering potential economic shocks, protecting workforces, and creating long-term value.  

The challenges of cloud cost management

Cloud cost management tactics must deal with various challenges:  

• Overprovisioning – Allocating more resources (like VMs or storage) than actually required creates wasted spend. Cloud cost optimization techniques like rightsizing and autoscaling help here.  
• Unclear pricing – Cloud providers offer various pricing models with complex structures. Although this helps organizations procure the exact resources they require, it can also be confusing. Choosing the most cost-effective option requires careful cost analysis. 
• Optimal procurement – Analyzing cloud provider pricing is the first stage in a successful procurement cycle. Negotiating cost-effective contracts can be challenging, and is a vital cloud cost management area to consider. 
• Stack observability – Maintaining a close eye on cost reporting is difficult with complex cloud environments, especially if SaaS applications run on different public cloud platforms. 
• Forecasting – Accurately predicting future cloud spend is difficult, especially for organizations in fast-changing industries. 
• Load balancing – Improper load balancing leads to overloaded or underpowered resources, impacting performance and overall cost. The challenge from a cloud cost management perspective is striking the right balance between resources and costs. 
• Maintaining cloud infrastructure – Maintaining cloud infrastructure can be expensive with managed services, but technical expertise required for successful implementation of a self-managed public cloud or private cloud environment can be challenging to find, particularly for SMBs. 
• Managing multi-cloud environments – Juggling multiple cloud providers makes cost management significantly harder due to differing pricing structures and the need for consolidated cost reporting across platforms.

Best practices for cloud cost management 

Here are some of the best ways to overcome the cloud cost management challenges listed above: 

1. Engage stakeholders – Build a cloud savings culture by involving all key stakeholders in cloud cost management discussions and encouraging cost-effective best practices.  
2. Invest in multi-cloud visibility – Break down data silos and gain a unified view of cloud spend across multiple providers to identify cost anomalies and optimize cloud cost management across more complex environments.  
3. Use real-time dashboards – Monitor data using cloud cost management software that provides real-time and intuitive dashboards to help with proactive spend management. 
4. Rightsize instance types – Select the most cost-effective instance types like storage or CPU for virtualization by analyzing those dashboards to find usage patterns and optimization opportunities. 
5. Set cost thresholds – Establish spending limits with automated alerts cautioning stakeholders before costs start to spiral. Cloud cost management solutions offer this as standard, helping organizations tackle overspending as a last barrier of defense. 
6. Leverage automaton – Utilize autoscaling and other automaton tasks like provisioning and resource allocation to quickly prevent wasted expenditure. 
7. Enhance cloud workflows with APIs – Use APIs to optimize workflows and software communication across your cloud environment.  
8. Explore machine learning and AI – Leverage AI-powered cloud cost management solutions. These tools analyze historical usage patterns and predict future cloud spend, enabling proactive cost optimization strategies. 
9. Implement chargeback or showback protocols – Allocate cloud costs to specific departments or projects to foster accountability with a chargeback model. Alternatively, implement showback to provide cost transparency for stakeholders.   
10. Purchase reserved instances – Consider purchasing reserved instances for predictable workloads, taking advantage of discounted upfront costs compared to on-demand pricing. 
11. Develop long-term savings plans – Cloud cost management is a continuously iterative process, much like the wider Cloud FinOps philosophy. Consistently develop long-term savings plans for maximum cost-effectiveness and value creation.  

How Vertice supports AWS customers by effectively managing cloud costs 

The Vertice Cloud Cost Optimization platform can tackle various cloud cost management challenges, helping organizations slash costs by up to 25%. Customer stories confirm the solution’s power, with Encompass uncovering $140,000 in cloud savings.  

Our platform packages the cost data Amazon Web Services supplies with intuitive dashboards, granular reporting, and zero-hassle implementation. Vertice also leverages automation and advanced AI-insights to further optimize your cloud cost management approach. 

With over $3.4 billion managed spend across our customers, we’re constantly learning new ways to eliminate inefficiencies and improve your bottom line. Get in touch to get started.