This article was originally published in Information Week.
We’ve seen industry titans like SAP, Salesforce, and IBM increase the price of their cloud applications and infrastructure services due to inflation. This has CIOs and CFOs thinking about ways to offset cloud-flation, avoid sticker shock, and prevent invoices from spiraling out of control. Here are the three ways to keep your cloud budget performing and steer clear of unwanted billing surprises.
1. Understand the economics of innovation and the impact of cloud-flation
Without a concerted effort to optimize costs, the cloud can quickly become financially unsustainable. Cloud-flation adds fuel to a situation in which bills are already being set on fire. When highly scalable cloud technologies come with variable pricing models, it can be a recipe for runaway invoices. Large cloud providers are aware their cloud bills spin out of control, and pricing structures have become the focus of a new investigation in the UK by watchdog organizations monitoring telecom services, market competition, and customer protections. “Pay-as-you-go” services can blow out a budget, while shadow IT and unsanctioned application purchases can crack unrecognized spending leaks.
The volatile nature of cloud expenditures is in stark contrast to the needs of CFOs and CIOs, who need fixed costs for easier budgeting and forecasting. Companies can’t digitally innovate at the cost of uncontrolled spending that then also rises with inflation.
What to do about it? Mastering cloud economics entails embracing how new cloud cost management strategies can tame expenses to achieve cloud ROI faster. The FinOps framework is gaining popularity because of its straightforward approach with six domains and capabilities bringing together cross-functional leaders to tackle cloud costs from all angles. One study shows companies saved 56% of their cloud costs as a result of applying cloud financial management practices. Similarly, technology business management strategies widen the scope of cost management across all IT domains.
Start first with cloud tracking, defining your current inventory of services, associated costs, users, and usage data. Shed light on how efficiently services are used, which departments pay for them, where you’re spending the most, and where the spending growth is. These are the primary steps in establishing long-term cloud financial sustainability — ensuring returns cover expenses without increasingly eating more of your budget.
2. Combat cloud-flation with cost avoidance
A second set of levers is key in counterbalancing cloud-flation: paying less for contracted services. Discounts help you avoid costs by driving to the lowest price possible. But companies aren’t always good at exploiting all the deals available in the cloud. And it’s easy to see why. Again, the problem comes down to transparency.
With cloud software, the challenge is exposing shadow IT and revealing which tools employees are using. This way, companies can standardize usage around a lean list of tools, consolidating duplicate applications and using volume discounts to reach the lowest price available.
Cloud infrastructure hurdles can be equally daunting, as companies need to know which configurations will trigger the fewest charges and which discounts are the most valuable given their consumption habits. Consider that there are over 1 million ways to configure and price just one server from one of the leading cloud service providers. And with new options and discounts released all the time, ongoing monitoring underpins workload optimization.
Here are few tips:
- Pair SaaS optimization with cloud security initiatives to help build your business case. There are many synergies in exploring shadow IT and SaaS management together. As security teams use insights to mitigate security threats, IT financial analysts can take action to mitigate costs. Learn more about tackling Shadow IT and security together.
- Leverage AI and FinOps tools together for real-time monitoring and to play out what-if scenarios capable of pinpointing cost-optimized service providers and IaaS configurations. New Foundry research shows companies that activate a FinOps model using AI are 53% more likely to report cost savings of greater than 20% versus less than 10% without it. AI engines can stay on top of newly released savings opportunities and match discounts against business needs but also quantify the savings. This way you know how to prioritize and where optimization efforts should go next.
3. Get ahead of cloud-flation — don’t just react to it
CFOs and CIOs are trying to figure out why their cloud bills are so high. Instead, they should proactively govern costs before they hit. When cloud-flation is inescapable, the best way to offset higher prices is to develop a system to keep costs in check, which means detection capabilities and alerts that notify stakeholders of approaching thresholds in time to make necessary adjustments. Prediction, prevention, and the ability to deeply investigate the cause of cost spikes are essential in controlling what you can to preemptively cushion the blow of higher prices.
In the current wave of price hikes and market corrections, CFOs and CIOs are under pressure to use digital technologies to help their companies do more with less, so they can emerge strong amidst escalating expenses. Business leaders aren’t powerless in the fight against inflation; however, they must be versed in knowing which strategies work best and how to quickly gain the biggest payouts.