Effective cloud cost management is crucial for organizations that want to get the most out of their cloud investments. Without a well-planned strategy in place, cloud expenses can easily spiral out of control. Research from Gartner finds that without an effective cloud cost optimization strategy, organizations can overspend by as much as 70%.
Overspending in the form of cloud waste can occur when companies rush into cloud investments without considering their actual business requirements, the variable cost models associated with the cloud, and any cost optimization efforts necessary in achieving the full value of purchased services. A lack of visibility into cloud usage and invoices, along with poorly managed shadow IT and an increasing number of providers, also make it difficult to have a comprehensive understanding of cloud spending. It’s essential to have a complete perspective of the costs associated with cloud services and to identify optimization opportunities.
Cloud cost management strategies solve these problems, offering a clearer view into cloud expenses. Moreover these programs can help identify cost-saving opportunities and streamline the management of cloud resources, invoices, and vendors. All of this makes cloud management processes easier and faster. Learn more about the need for cloud governance, the benefits of this approach, and how to get started.
Why Is There a Need for Cloud Cost Management?
Cloud computing has become an essential part of modern business operations, providing organizations with unparalleled scalability, flexibility and cost savings. However, without effective cost management in place, cloud expenses can quickly spiral out of control, leading to unnecessary spending and a lower ROI. Cloud cost management provides a solution for monitoring, optimizing, and controlling cloud expenses.
Here are a few reasons why companies need cloud governance.
Shadow IT Poses Security Risks and Financial Risks too
The increased accessibility of cloud services through mobile devices and app stores has made it easier for employees to adopt and interact with more applications without the approval or involvement of the corporate IT department. While users appreciate the convenience, that means your IT team isn’t aware of what your team is using. This is called shadow IT.
Shadow IT often crops up when companies fail to establish clear policies for accessing cloud services and requesting new services. Shadow IT is also more common when IT lacks control over device-level permissions, especially in workplaces where employees bring their own devices.
Uncontrolled applications can lead to higher security risks and increased spending when multiple tools are used for the same purpose.
The pandemic accelerated digital transformation, causing many companies to rapidly adopt cloud services and applications. Without proper SaaS governance and clear ownership, companies are challenged to understand what devices, apps and services are being used and how much they cost the organization.
Complexity Makes it Difficult to Track and Reduce Cloud Costs
Organizations need to navigate an increasingly distributed cloud environment that makes it difficult to track and optimize cloud costs.
Variable Pricing & Billing Challenges
Cloud service providers often use complex pricing models that can be difficult to understand. IaaS providers often charge for services in a granular way, such as by usage, data transfer or storage. These pricing models complicate efforts to accurately estimate the costs of using specific cloud resources.
Forecasting your costs can be challenging, especially if you’re paying by usage levels. Some providers change prices frequently or offer dynamic pricing, which further complicates budgeting. Billing complexities can also press resources to their limit. A single invoice, for example, may contain hundreds of pages of extensive data and billing information. Analyzing and managing these invoices can be time-consuming and resource-intensive.
Many businesses lack the resources or expertise to effectively manage their cloud expenses, which is another contributor to cloud expense management challenges. Sometimes this lack of resources is an oversight, but other times the cause is rapid innovation that outpaces organizational capabilities.
Tagging is Necessary but Difficult
The vast amount of data generated by cloud services further complicates cloud cost management. Companies that don’t have proper tagging and resource allocation practices will struggle to understand which resources are in use and how much they cost. The result is unused cloud resources (waste) or underutilized services that increase expenses without adding value to the organization.
Overprovisioning Calls for Right-Sizing Resources
Sometimes, the total cloud spend, or the total usage of cloud resources, isn’t the problem. Instead, some cloud services are over-provisioned and others are unused or under-used, leading to wasted spending and reduced performance.
Without visibility into the complete resource catalog and service usage data, organizations struggle to estimate near- and long-term costs, much less identify possible cost reductions. Over time, cloud services remain in place without anyone really knowing whether they’re still useful or whether the company is getting the best return on investment.
Why Should You Use Cloud Expense Management Software?
There are many benefits of using cloud cost management software and services. Cloud platforms, such as Tangoe One Cloud, improve visibility and lead to higher productivity, better resource allocation and numerous other gains.
Here are some of the common benefits of using cloud expense management software.
Stronger Security to Illuminate and Eliminate Shadow IT
Cloud cost management software can help your business comply with industry and security regulations by identifying and responding to shadow IT applications and cloud services. When employees sign up for cloud applications and services without going through the proper channels or getting approval from IT departments, expense management software steps in to shed light into both known and unknown applications, helping companies recognize the applications posing the highest security risk as well as the steps needed to mitigate risk with unified security approaches for every endpoint.
Shadow IT is a security threat, but it also contributes to overspending in the form of redundant cloud tools and expenses. This is where cost optimization recommendations come in handy, as SaaS expense management solutions can evaluate both security and financial risks.
Cost Savings: Reduce the Cost of the Cloud and Right-Size Resources
Cloud cost management solutions enable a comprehensive approach for governance across the IT environment, including IaaS, SaaS, and UCaaS. Because you have one source of truth for understanding your ROI on technology investments, you can quickly identify areas where costs can be reduced and value can be increased.
For example, cloud expense management software can reveal spending across applications, infrastructure instances, users, departments, or business units, helping you pinpoint the root cause of high costs and take corrective action.
For many companies, the first step in controlling cloud costs is getting an accurate picture of their total cloud services, especially when departments and business units use different vendors.
Cloud Observability: Understand Your Cloud Environment So You Can Control Costs
Many organizations struggle with silos when it comes to critical information in the cloud. Cloud cost management makes usage, expenses, and spending patterns visible so everyone can see and evaluate them for cost optimization purposes. Cloud expense management creates greater visibility into your organization’s cloud services, so there’s less mystery about where costs come from or what services are utilized. This also means Shadow IT can be monitored and managed appropriately.
Using cloud cost management software allows you to easily share information with financial, security, and compliance teams or even outside strategic IT advisors. By combatting uncertainty with cloud observability, organizations increase accountability among all parties. For example, your finance team can share spending information with project managers and IT department heads, allowing them to make more informed decisions about resource allocation.
Improved Efficiency: Use Cloud Resources More Effectively and Make Management Easy
Efficiency is one of the hallmarks of cloud expense management software, as it identifies where companies are underutilizing their cloud resources or letting them go unused – wasting them entirely. From improved visibility into the efficient use of cloud resources to automated invoice processing and instant, detailed reporting, organizations get more done and with sharper accuracy when they invest in cloud cost management tools.
Most importantly, cloud expense management platforms can modify your cloud services, helping you make changes to cloud infrastructure services and more quickly respond to the insights and cost-savings recommendations. This means less work for you and faster time-to-savings, as the platform is backed by process automation built into the cloud providers’ own service portals.
Expense management processes are also automated, improving accuracy and efficiency by reducing manual data entry, accelerating workflows, and consolidating information in one digital location. Such solutions can also scan and validate invoices, cross-comparing them against contracts and other documents.
Correct Cost Allocations
Look for software that helps you manage cloud expense report tagging, which validates expenses and assigns spending to the correct departments and lines of business. Correctly allocating cloud costs leads to more accurate record-keeping, which leads to more exact forecasts and budgets.
How Can You Get Started with Cloud Cost Management?
Creating a cloud cost management program might seem overwhelming, but doing this planning up front helps organizations achieve higher returns on their cloud innovation investments. Here are some best practices to get organizations started with cost optimization.
Understand Your Cloud Environment
To effectively manage your cloud investments, organizations need to understand the cloud environment. This means looking at historical reporting, including service usage, expenses and invoices, to identify where money is going and which services cost the most. You can apply artificial intelligence to analyze usage reports from cloud providers to gain insights into your spending patterns and underutilized or unused instances.
Software makes this process easy, providing a comprehensive view of the cloud environment, enabling a full inventory and analysis of the current usage and helps you know where to make necessary adjustments that can boost ROI.
Track and Manage IaaS, SaaS, and UCaaS Expenses
Having a clear understanding of the cloud environment allows organizations to manage vendors and billing with certainty and ease. While this can be done manually, such as with spreadsheets, organizations with any kind of scale should adopt cloud expense management software to automate these processes. Tangoe, for instance, has 65 patents and 300+ bots automating expense management. Effective cloud cost management platforms can quickly pull data from multiple sources (think IaaS, SaaS, and UCaaS), update information automatically and generate insights and reports that are easy to understand and act upon.
Optimize Your Cloud Spending
After getting a handle on cloud services and their associated expenses, it’s time to optimize spending. There are several ways to do this, such as negotiating with providers for lower rates, identifying and eliminating wasted resources and services, and optimizing cloud spend.
For example, look at your user base. Does everyone who has access to individual cloud applications and services need that access? This is especially important for services that involve any sort of per-user licenses or pricing. If your cloud service costs are based on usage, look at how efficiently you are using the resources you pay for. Target unused and underutilized resources that can be discontinued or renegotiated at a lower price ceiling.
Cloud cost management solutions are good at answering questions like:
- How much can I save by pausing my cloud services or consolidating my applications?
- Do I have any redundant applications that need to be consolidated?
- What is the going rate for cloud services, and how much could I save by moving to another provider?
- Which department or cost center is using the most cloud resources?
- How can I get a report of all third-party applications and vendors accessing our company information?
- How many of my app licenses really need to be upgraded?
Effective solutions help you take on cost optimization exercises. You can evaluate your IT environment over time, creating usage benchmarks that help analyze traffic charges and forecast storage needs. You can explore spikes in IaaS usage to better understand when retention plans are creating unnecessary backups and expenses. It’s also important to understand how and when to use pausing features to ensure you only pay for IaaS services when you need them. Additionally, knowing when to remove or downgrade infrastructure, similar to downgrading a phone plan, can help you save on costs.
Choose the Right Tool coupled with a Partner who can Accelerate Savings
When looking for the right cloud cost control tool for your business, there are several factors to consider. Look for cost-optimization tools that help you identify inefficient resource allocation — and provide recommendations for improvement in real time. You also want a solution that doesn’t just identify cost-savings opportunities, but also helps you act on the insights – whether through automation or via professional services backed by proven processes.
Make sure that the tool you choose is compatible with cloud applications, accounting software, IT service management and other relevant tools. This way, you can easily integrate data to capture and evaluate more cost information and also automate processes. Pricing matters, too: The solution you choose should fit within your budget and deliver a return commensurate with its cost.
Organizations don’t have to go through this alone. One of the most important factors in a cloud cost control tool is user-friendliness and ongoing support. Look for a solution that’s easy to use and comes with dedicated customer service and the support of a professional services team, especially if your organization lacks experience and resources to handle the work of cost optimization.
Finding the right cloud expense management partner helps you gain control of your costs while continuously finding opportunities to optimize and save. See how an oilfield services giant saved nearly $3 million in cloud costs by partnering with Tangoe.
Conclusion: Cloud Cost Management Starts with Visibility
Cloud cost management programs enable companies to catalog, analyze, centralize and automate their expense tracking and reporting for faster, more efficient optimization. This enables governance for the cloud, allowing visibility into assets and usage, costs and opportunities for reducing waste and reallocating resources more wisely.
This visibility is especially important in a world where many organizations use a vast variety of cloud applications and multiple infrastructure providers to meet their business needs. While a multitude of cloud services are required for innovation, cloud-based digital transformation multiples the opportunities for misused resources, cloud waste and miscategorized cost allocations. When you have deep visibility and management over your cloud environments, you can effectively identify unnecessary costs, glean more value from tech investments, and be certain you have the right departments paying for the cloud services they use.