IT budgets are approaching a key tipping point, where more than 50% of spending will soon go to the cloud. Gartner estimates that point will come in the next two years. But as cloud computing dominates IT budgets as the leading strategy for innovation, cloud spend management has also grown increasingly important.
That’s because the cloud has become known as a costly place where the benefits of IT agility and on-demand scalability are accompanied by unpredictable expenses and eye-popping surprises. In this article, I’ll explain today’s best tools, best practices, and capabilities helping companies of all sizes wrangle sprawling cloud assets and out-of-control costs.
Cloud Spending Must Be Controlled
A CIO.com 2023 Cloud Report shows 80% of IT leaders see cost savings as a primary challenge with their cloud investments. Amid rising costs and frequent data utilization fees, the problems of Shadow IT also exacerbate cloud spending, consuming as much as 30-40% of IT budgets, according to Everest Group. The culmination of these dynamics has forced IT and finance leaders to take a closer look at cloud spend management strategies to govern cloud computing expenses.
Introduction to Cloud Spend Management
The goal of cloud spend management is to lower costs while maximizing the efficiency of cloud consumption or service use. A spend management program may include strategies, technologies, and capabilities applied across multiple Software-as-a-Service (SaaS) applications and multiple clouds including public, private, and hybrid Infrastructure-as-a-service (IaaS). Managing cloud spend commonly requires tools, technologies, and artificial intelligence enabling companies to:
- Capture service usage data,
- Track cloud service costs,
- Monitor and evaluate service use for waste,
- Arrive at cost savings insights and recommendations
- Enforce cost governance parameters, and
- Right-size cloud resources.
The benefits of cloud spend management include:
- Reduced spending via cost savings and higher IT budget performance
- Reduced waste via more efficient use of cloud services
- Improved productivity, allowing for faster, more effective cloud financial management
Cloud Spend Management: The Best Tools and Best Practices
Building a cloud spend management program begins with information gathering, starting with understanding which cloud infrastructure and applications are in use, how they’re being used, by whom, and how much they cost.
But quickly collecting and analyzing that data can be difficult – even if you already have a cloud management tool in place!
Here’s a little-known truth: IT leaders think they can optimize costs because they have already invested in a “cloud optimization solution” or “cloud management platform.” But these tools are point solutions that typically fall short of comprehensive expense management and cost savings for the cloud. In fact, Tangoe runs into this all the time, helping IT and finance leaders overcome these limitations.
Whether you have made this purchase or not, companies are often missing the key reports and dashboards they need to aggregate information, so they can actually reduce their expenses. They also commonly lack the AI advanced analytics to quickly make sense of the cloud’s expansive data sets.
What’s even harder? Carving out the time to act on good data insights, once you have them.
This is where cloud spend management technologies make all the difference. Here are three of the most critical tools and best practices.
Integration: Solving Cloud Visibility and Collaboration Issues
Integration clears the haze off cloud utilization data. When it’s not apparent how many cloud applications employees are using to do their work, integration allows for the discovery of Shadow IT, illuminating SaaS usage and users across hundreds of apps. Other ways to pull SaaS applications out of the shadows include integration with Single Sign On tools, identity providers, virtual desktop agents, and browser plug-ins. SaaS management is the first critical step in cloud spend management.
Integration with all major IaaS providers is also key in exposing infrastructure usage at a very granular level — showing IaaS tags, projects, and instances. These details empower companies to establish alerts and boundaries around spending. Connections to IaaS platforms are also essential in tracking dynamic pricing and ingesting usage data in near real time, so companies can right-size their assets and resources on a daily basis with pointed accuracy. Rightsizing — getting the optimal mix of cloud resources to minimize waste and cost — is impossible when the details are incorrect, plagued by manual processes and human errors.
Finally, solution platforms should also be integrated with your financial management systems and have the ability to generate accounts payable and General Ledger files. This way your cloud spend management program works in sync with your corporate financial requirements. General Ledger files serve as an important “bridge” between IT and finance teams, allowing the optimization work of IT and network engineers to transfer into the formats and management structures necessary for fiscal compliance. I’ll expand more on this later.
Cloud Optimization + Expense Management: Taking a Comprehensive Approach
Cloud optimization technologies and the reports they generate are very good at revealing where companies are wasting their infrastructure resources across Amazon Web Services, Microsoft Azure, Google Cloud Platform, and others. However, the benefit will stop there if you don’t pair these tools with expense management systems. Industry analyst Zeus Kerravala, of ZK Research, calls pairing these technologies a best practice and the essential “machine behind the FinOps curtain.” Don’t miss his Buyer’s Guide to Cloud Expense Management.
Why are these tools better together? Because cloud cost optimization is about more than just finding potential savings. The next step is to act, making service modifications and handling those expenses. In uniting the two tools, IT and financial teams can collaborate, managing more in one centralized place with a single-pane view over the broader optimization lifecycle — from pinpointing cloud waste to tracking service contracts, invoices, expenses, anomalies, billing disputes, and the chargebacks necessary to allocate cloud costs to any associated departments, projects and users.
Expense management tools pick up where cloud optimization tools leave off, adding features such as:
- Notifications for new service accounts needing to be monitored and financially managed
- Automated IaaS cost allocations
- Reports showing misallocated expenses charged to departments that have been closed
- Allocations for Savings Plan discounts and fees, charging fees only to the departments that benefit from the Savings Plan discounts
AI and Automation: Achieving Savings at Speed and at Scale
The most critical cloud spend management tools are artificial intelligence and robotic process automation or bots. To manage spending with speed and efficiency, teams need more than just basic service inventories with database reporting features. Advanced analytics and streamlined workflows achieve cloud financial management at scale. When building a cloud spend management program, consider the following AI tools and automation capabilities:
AI’s Advanced Analytics Handle Cloud Big Data
Machine learning, behavioral analytics, and predictive analytics use algorithms to ingest and evaluate cloud usage data, making savings recommendations based on comparisons at mass scale, using real-time data. Key capabilities include:
- Ingesting IaaS and SaaS service usage data multiple times a day from multiple sources
- Normalizing data across multiple providers for clear apples-to-apples comparisons
- Tracking dynamic pricing changing hourly and daily
- Processing invoice information (including hundreds of line items) in just seconds
- Comparing existing cloud infrastructure configurations to millions of pricing schemas to instantly find savings
Bots Accelerate Financial Management
Robotic process automation and streamlined workflows take the manual work out of cloud financial management and should be customized to your business processes and financial management standards. Bots help companies:
- Streamline processes for capturing and approving service orders and invoices
- Automate invoice reconciliation, comparing costs to contract terms to find discrepancies in rates versus contract stipulations
- Search for any inactive services that still generate expenses
- Alert users of waste and cost-saving recommendations based on data analysis
- Automatically make modifications to services in response to recommendations
In today’s cloud-first world, much of the preliminary work of cloud spending analysis and insight generation is no longer fit for humans. Entering data into spreadsheets and manually examining numbers will no longer suffice. IT and financial leaders need advanced tools and AI-powered technologies to manage cloud spending properly. When executives must address the increasing number of places and ways in which companies can overspend or misspend in the cloud, integration, bots, and AI are the only way to go.