There are impressive cost benefits from moving to the cloud for most organisations. However, experience teaches that, in technology, nothing is straightforward. Research suggests that as much as 70% of cloud costs are wasted(1). To gain the expected benefits of cloud, cost optimisation becomes an essential technique. This paper explores the financial, technical and organizational culture requirements when implementing a successful cost optimisation strategy.

Growth of Cloud, growth of costs?

The COVID-19 pandemic has seen an acceleration in Cloud adoption in businesses across the world(2). In fact, over 80% of companies say that their Cloud computing plans have speeded up(3) as they embrace new remote working and digital business practices that have evolved rapidly from the pandemic.  The Cloud offers the scalability, agility and flexibility that on-premise IT estate simply can’t match. Today and going forward, the bulk of business will be based around Cloud-first strategies, and native Cloud applications and infrastructure.

Where previously cost had been perhaps the major driver of Cloud adoption, the immediacy of the pandemic crisis put a focus on the value of Cloud to achieve quickly evolving business outcomes. Cost management, however, remains essential in an environment of unpredictable demand and trading conditions. Cost optimisation is the strategy to best and most cost-effectively align Cloud usage to business requirements. But, the Cloud introduces a very different world to managing the traditional data centre. Indeed, it can turn many of the established operational and cost management principles on their head.

This white paper sets out what cost optimisaton means in the Cloud and outlines some best practices to help you achieve optimal cost and performance returns from your Cloud environment.

What is cost optimisation?

The cloud offers organizations unlimited scalability, elasticity and lower IT costs by only charging for the resources you use.  But the truth is that many organisations are paying for Cloud resources that they are not using. In fact, Gartner estimates that organizations without appropriate cost optimization processes are overspending by about 40% in the Cloud(4).

Cloud cost optimisation is the process of reducing your overall Cloud spend by identifying mismanaged resources, eliminating waste, reserving capacity for higher discounts, and right sizing computing services to scale. It begins with a granular understanding of the breakdown of utilisation and spend, involves modeling and forecasting future capacity and spend requirements and setting in place the ability to closely align usage to business outcomes.

There are four key areas to address for achieve cost optimization of your Cloud capabilities:

  • Effective resource purchase and allocation
  • The ability to continually match supply with demand
  • Insight and awareness of all Cloud expenditure
  • Continual improvement and optimization over time

Whatever public or private Cloud route an organisation selects, cost optimization is an essential discipline to deliver the correct utilization of resource and remove costly and inefficient practices such as over-provisioning and poor discount or license management.

Cloud vs on-premise

Because cloud services are purchased, deployed, and managed in fundamentally different ways from traditional IT, adopting them successfully requires a change of approach and processes. Traditionally, the IT department took care of the software and infrastructure while the finance department did the approvals and purchasing. Computing costs were closely tied to quarterly or yearly IT investment cycles.

While there is great benefit for non-IT stakeholders to understand the cost of what they consume, the flip side is that it very easy for engineers, business users, etc to spin up extra capacity without it being properly managed making planning, budgeting and spend processes inefficient and difficult to manage,

Consequently, cost optimization in the Cloud involves more that technical and pricing considerations, it requires a shift in organizational culture where everyone is engaged and responsible for managing the cost of resource consumption.

Cloud computing introduce a new model. With cloud technology, you now have the flexibility to initialize resources and services at any time—you pay only for what you use. This flexible model in addition to changing demand patterns means that Cloud procurement is transitioning from the finance department to multiple stakeholders across the business.

The benefits of Cloud cost optimisation

Implementing an effective cost optimization strategy delivers a number of significant benefits across the organisation:

Eliminate data center expenditure

Cloud allows you to transition away from on premise data centre infrastructure to a Cloud platform. As well as replacing capital with operational expenditure it allows you to reduce many of your existing management and maintenance costs as well as simplifying licensing and upgrade processes.

Adopt a consumption model

Using the Cloud allows you t only pay for the computing resources you consume while dynamically scaling the resource to meet growing or receding demand. For example, AWS suggests that an organisation can save up to 75% by switching off test and development servers when the office is closed(5). The Cloud allows you to closely monitor your actual resource utilisation in real-time and deploy automated tools to take advantage of the Cloud’s elasticity cost-effectively.

Measure enterprise-wide computing efficiency

A key advantage of the Cloud is the breadth and depth of data available instantly on your Cloud usage. Usage data is far more granular than with the data center so that capacity and resource requirements are better planned and implemented and costs better understood and allocated.

Analyse, attribute and control expenditure

The Cloud makes it easier to accurately identify the usage and cost of systems, which then allows transparent attribution of IT costs to revenue streams and individual business owners. By making costs transparent and visible to the individual stakeholder, you can achieve a much greater control of costs as users are aware of the price they pay for the resource they consume and can begin to make informed decisions about what resources they use and how they use them.

Increase business agility

As organisations seek to increase the agility of their business, modern agile techniques, such as DevOps, are increasingly deployed. This is introducing continuous cycles of development and deployment. New resources, services and projects are being added all the time – on a daily or even hourly basis. While the Cloud is ideal for this flexibility and speed of business, Cost optimisation is vital to ensure Cloud cost don’t spiral unseen out of control and that good governance is maintained on how Cloud capacity and resources are allocated within a DevOps environment.

Improve asset management

The distributed nature of Cloud allocation makes it all too easy for test developers to spin up an new environment and forget to spin it down when completed or business developers create new instance for a marketing campaign and maintain the instance after the campaign lands. This is costly and also dangerous from the wiewpoint of data security. According to According to Forrester, anywhere between 10% and 30% of these ‘ghost assets’ are still on balance sheets in the average organization(6). An effective cost optimization strategy will quickly identify unused or under-utilised resources and allow you to either retire or consolidate them.

Matching supply with demand

Historically, IT departments have had to provision for peak demand. This has led to costly over-provisioning of capacity and resource. However, cloud environments minimize costs because capacity is provisioned based on average usage rather than peak usage. In effect, you pay only for what you need. 

Cost optimization is primarily the process of closely matching supply with demand. It deploys real time usage data to find the optimal means to take advantage of the performance, scalability and elasticity of the Cloud. Most public Cloud providers take broadly similar approaches to achieving this goal so this paper will use AWS as an example. AWS matches supply to demand in three ways(7):

Demand-based

Resource and capacity demands are closely and continually monitored to gain visibility of Cloud usage patterns to plan for effective resource allocation while tools such as auto-scaling allows your environment to react quickly to peaks and spikes in demand – spinning service up and down as well as increasing or shrinking capacity as required. This can be done to a granular level so that the needs of individual departments or user groups can be addressed.

Buffer-based

 A buffer-based approach uses a queue to manage any speed or capacity differences between the resource producer – an application serve, for example, and the resource consumer, such as a end-user of big data analytics platform. By using a buffer-based approach, you can decouple the throughput rate of producers from that of consumers. The buffer smooths out the system so it continues to operate without freezing or crashing.

Time-based 

While the Cloud allows for the dynamic operating of resources, many systems and applications are highly predictable. A time-based approach allocates the correct resource at the time that the particular system or environment needs them. In fact, entire environments can be spun up and decommissioned only as they are required. This predictable approach to resource allocation enables the Cloud provider to offer attractive discounting for these operations.

The first step, of course, to matching supply to demand is to monitor and analyze your current use of services to gain insight into performance and usage patterns. To gather sufficient data, performance should be monitored over at least a two-week period, although its highly recommend to perform the analysis over a month to fully capture workload and system peaks.

A note of caution: It is very easy to focus on the business agility and innovation aspects of Cloud deployment and se the ‘just-in-time’ or ‘on-demand’ supply capabilities as something that can drive your business forward quickly. Indeed, a large Cloud bill may not be an indication of wasted resource or over-provisioning but of business growth and operational success.  

However, your strategies to optimize cost and increase business flexibility must be balanced with some disciplines from the traditional data centre such as business continuity and availability, disaster recovery and provision time. As soon as any Cloud resource goes online, there is an immediate cost attached. You need to know not only the demand expected for the resource but also it range of operating conditions that you need to factor into the cost.

The key components of Cloud cost optimisation

When creating you cost optimisation strategy for the Cloud, there are a number of key components to consider, including:

Flexible deployment

Once you have a clear understanding of your capacity requirements, you can look at the provisioning options available to create the ideal mix to meet your needs cost-effectively. Most of the public Cloud providers offer broadly similar options so, again this paper will use AWS to illustrate. AWS has three provisioning options: On-Demand, Reserved instances and Spot Instances. In this case, Reserved and Spot Instances aren’t physical entities but discounted services from the On-Demand pricing model.

On-Demand Reserved Spot
Description With On-Demand, you pay a flat hourly rate, and you have no long-term commitments. You can increase or decrease the capacity of your resources or services quickly based on the demands of your application. With Reserved Instances, you commit to a period of usage (one or three years) to gain large discounts based on upfront payment and time commitment. Reserved instances ensure capacity is available to systems at the time it’s needed. Since you can purchase these instances for one or three years, it is important to analyze your past usage and properly prepare for the future. Spot Instances allow you to use spare compute capacity at a significantly lower cost. You can also launch Spot Instances with a required duration (Spot blocks, from 1 to 6 hours), which are not interrupted due to changes in the Spot price. With Spot Instances, you never pay more than the maximum price you specify.
Potential saving Up to 75% of On-Demand rate(8) Up to 90% of On-Demand rate(9)
Ideal usage Short term, spikey and unpredictable workloads Regular and predictable workloads, such as development and test servers, batch processing and archiving. Non-critical, fault-tolerant and flexible applications, such as web servers, API back-ends, continuous development, and big data processing.

Cloud providers will allow options that let you consolidate and aggregate instances to get the most value from provisioning. However, when provisioning systems and resources you must understand the requirements, continuously monitor and have the flexibility to adjust system capacity over time. There are many tools available to help achieve this goal. For example, AWS offers APIs and SDKs that automate the adjust process to make the amount of effort needed to align capacity to requirements to virtually zero. The use of dashboard can allow both your central team and stakeholders to view usage and adjust accordingly.

Right sizing

Right sizing ensures you receive the capacity you need when its needed and you pay the lowest cost for the resource you use. The key to right sizing is to understand precisely your organization’s usage needs and patterns and the ability to take advantage of the elasticity of the Cloud to respond to those needs.

Right sizing activities take into account all of the resources of a system and all of the attributes of each individual resource. For example, memory utilization, network bandwidth, and system connections can be monitored and analyzed, and resource allocated to meet the demand. Resource is then applied to each computing requirements. The technique also allows you to examine deployed instances and identifying opportunities to eliminate or downsize without compromising capacity or other requirements – resulting in lower costs.

This is an iterative process and your right sizing arrangement should be re-assessed and adjusted on a monthly or even weekly basis. In many organisations, this process is automated so adjusts are triggered by changes in usage patterns and external factors such as changing pricing models, instance options or resource types.

Tagging

You can think of tagging as another form of meta-date. Tags allow you to overlay business and organizational information onto your billing and usage data. This helps you categorize and track your costs to a very granular level. You can apply tags that represent business categories – such as cost centers, application names, projects, or owners – to organize your costs across multiple services and teams. It allows you to attribute costs to individuals, user groups or business units.

Assigning tags to resources allows higher levels of automation and ease of management. When resources are accurately tagged, automation tools can identify key characteristics of those resources needed to take advantage of Cloud elasticity.. The best tool for accomplishing this task is Auto Scaling, which you can use to optimize performance by automatically increasing the number of instances during demand spikes and decreasing capacity as demand diminishes.

Cloud storage

According to research, a massive $3.4 billion of Cloud spend is wasted each year on unused storage volumes and snapshots(10). In many instances, organisations don’t attempt to optimize storage in the same way they would with system performance and capacity. However, Cloud storage is a key focus for cost optimisation.

To optimize storage, the first step is to understand the performance profile for each of your workloads. You should conduct a performance analysis to measure input/output operations per second (IOPS), throughput, and other variables. There then follows a process of right sizing similar to capacity provisioning. And, just like right sizing in other areas, this is continuous and iterative. To maintain a storage architecture that is both right-sized and right-priced, you should optimize storage on at least a monthly basis.

Licensing/pricing models

It’s clear that when you have insight into your capacity needs – who uses the services, how they use them and how much capacity they consume – you can begin to take advantage of the impressive discounts available by exploiting models such as reserved or spot instances. 

In addition, some public Cloud providers offer more complex solution to help maximize your spend. For example, AWS provides EC2 Fleet that lets you define a target compute capacity and then creates and automatically launches the best mix of On-Demand, Reserved and Spot instances to meet your specific requirements.

Simply keeping on top of the changing pricing structures and promotional/discount opportunities can be difficult, which often leads to organisation missing cost benefits available to them.

This is also true when it comes to licensing. Even within the traditional data centre, software license management is complex. This complexity increases tenfold in the Cloud environment. Cloud vendors are continually innovating, which is great for their customers. But, it also means new pricing metrics, licensing bundles, connectivity charges, etc. that must be factored into your spend planning.

The complexity of this pricing and licensing environment is leading some companies to consider managed services as a means to access a single service that can remove licensing issues.

Continuous improvement requires continuous measurement

To fully benefit from the Cloud, it is important to map business goals to specific metrics so that you can evaluate where changes need to be made. There is a huge amount of data generated by Cloud systems that means an organisation can gain much clearer visibility into performance and cost. 

When you measure and monitor users and applications, and combine the data you collect with data from the Cloud platform, you can quickly identify any gaps between your requirements and current system utilization. It’s important to establish the metrics that most closely align with your desired business outcomes and continuously monitor and re-assess real time performance against those metrics.

Cost-related metrics – such as user, subscriber, API calls, page visits, etc. – allow an organisation to take a data-driven approach to cost optimization. But this must form part of a continuous improvement strategy as the Cloud is a highly dynamic environment. Even if you accurately right size services and workloads at the outset, performance and capacity requirements will change over time leading to either under over over-provisioned resources.

A focus on organisational culture

Because cloud services are purchased, deployed, and managed in fundamentally different ways from traditional IT, adopting them successfully requires a cultural shift inside organizations.

Organizations can improve cost optimization by promoting a culture where employees view change as normal and welcome responsibility in the interest of following best practices and adapting to new technology. You can closely track the costs incurred by specific individuals, groups, projects, or functions. 

Manage costs is now everyone’s responsibility Encourage everyone to track their own cost optimization daily so they can establish a habit of efficiency and see the daily impact of their cost savings over time. Provide them with tools and dashboards sothey can quickly and easily manage their own requirements. This will help create a shared sense of ownership over Cloud costs as well as simplifying the process of overall control and management.

The leading adopters of Cloud computing establish a Cloud Centre of Excellence (CCoE) take responsibility for cost optimization. Effective CCoE teams handle not only the technical and architectural aspects but also act as a hub that supports cost optimization activities within different business units and user groups.

Achieving cost optimization with the AWS Well-Architected Framework

Cost optimisation is a key pillar of the AWS Well-Architected Framework(11). The Framework helps organizations build secure, high performing, resilient, and efficient infrastructure for their applications and workloads. Using this template, your teams are empowered to architect for cost can iterate quickly and learn over time so that best practices become embedded in day-to-day operations.

By applying the AWS Well-Architected Framework to your AWS instances, you are able to achieve cost optimization through key capabilities, including:

  • Practical Cloud financial management
  • Cloud expenditure and usage awareness
  • Cost-effective resource allocation and management
  • Matching demand and supply of resources
  • Optimize Cloud environments over time

While the AWS Framework is very comprehensive so many organisations look to engage with accredited AWS partners to ensure they gain maximum value from deploying the approach to drive their cost optimisation activities.

When to get started?

The business challenges posed by the Covid-19 pandemic highlighted the issue of when to begin your cost optimization activities. Many organisations had to foregone a more measured transition to take full advantage of a Cloud platform that could deliver speed to market around areas such as ecommerce, digital services delivery and remote working. Often ‘lift and shift’ has been the only option with the hope to be able to optimize systems and cost afterwards.

Where possible, however, it is better to begin cost optimization early in your Cloud journey. The organizations that are the most successful in moving from on-premises environments to the cloud are those that establish a well-defined strategy for approaching cost and resource allocation from the outset.

Investing in a cost optimization strategy upfront allows you to realize the economic benefits of the cloud more readily by ensuring a consistent adherence to best practices and avoiding unnecessary over provisioning. More importantly, taking as much time as possible to understand your current provision and the possible outcomes of demand fluctuation prior to migration to the Cloud will mean that you have scalable and elastic capabilities that can mold to your business goals.

Why work with Runibex?

The elasticity of cloud services is a powerful way to optimize costs. By combining tagging, monitoring, and automation, your organization can match its spend to its needs and put resources where they provide the most value. 

Runibex Technology has been helping organisations across Europe successfully migrate to and implement Cloud environments Through close partnership with AWS, we’re highly skilled in deploying the AWS Well-Architected Framework to help you identify and optimize costs the skills and expertise throughout the design, development, operations and management phases of your Cloud journey.

In addition, Runibex is a leading Cloud Managed Services provider. We have built close working relationships with the major Public Cloud service providers – including AWS, Google and Microsoft to deliver a flexible resource of technical and operational experts to plan and execute Cloud migration and optimisation programs in a matter of days rather than months or years.

By adopting managed services from Runibex, you can reduce or remove much of your administrative and operational overhead, freeing you to work on value-adding activities. In addition, our services are designed from the outset to optimise costs so we can continually deliver a lower cost per transaction or service as well as offering the capability to reduce or remove licensing costs.

About Runibex Technology

Runibex Technology Limited is a wholly owned subsidiary of the Runibex Technology Group (RTG). Founded in Turkey in 1988, RTG is active in four core businesses: Cloud-based Managed Services, e-commerce, SAP consulting, cloud-based business analytics and intelligence.

To find out more about Understanding cost optimisation for the Cloud from Runibex, contact us today.