As businesses rely more than ever on cloud services to stay competitive, they must make sure they’re getting maximum value from their investment. Cloud solutions are a powerful way to improve your operations, but you need effective cloud expense management to realize your cost and productivity savings potential.
Research indicates that businesses continue to invest in cloud computing. Total spending across private and public clouds is expected to surpass $1 trillion in 2024 on compound annual growth of 16%. This estimate includes spending on hardware, software and support services. As you increase your company’s investment, effective cloud cost optimization is needed to track where that money goes to minimize wasted spend.
Cloud expense management (CEM) is the process of effectively controlling your costs, assets and usage of cloud computing environments through a centralized platform.
CEM offers essential tools, reporting and analytics so you can identify cost savings and get the most value from your cloud investment. Adopting CEM software is necessary if you want a comprehensive view of your cloud assets and associated spending, including in key categories such as infrastructure as a service (IaaS), unified communications as a service (UCaaS) and software as a service (SaaS).
IaaS
Cloud IaaS is a fully outsourced IT service with managed hosting and development environments. It’s typically used by network and infrastructure architects. IaaS includes web-hosting offerings such as Microsoft Azure, Amazon Web Services (AWS), Google Cloud and Oracle.
SaaS
SaaS describes web-based, on-demand applications that are often subscription-based. SaaS applications can be consumer-facing or business-to-business.
This is often the biggest spend category for IT professionals. Many enterprises outsource their SaaS expense and asset management. SaaS applications are an area where IT departments need to be vigilant about shadow IT activity by employees.
UCaaS
UCaaS is a cloud-delivered unified communications model. It supports six functions: enterprise telephony, online meetings (A/V and web conferencing), communication-enabled business processes, instant messaging, unified messaging and mobility.
UCaaS typically includes self-service web portals for provisioning, management and performance and usage reporting.
Well-known examples of UCaaS include Webex by Cisco, Microsoft Teams and Zoom.
Cost Savings and Optimization
CEM software helps companies understand and improve their usage of cloud resources and services. Having a greater understanding of current usage informs important decisions about where to allocate resources and how to reduce unnecessary spending.
CEM solutions not only help with internal cost optimization, but they also inform your negotiations with cloud service providers. By understanding usage patterns, you can secure better rates and pay only for the features your employees really need.
Improved Transparency and Analytics
An effective CEM solution allows you to track and analyze cloud spending in real time for a clear picture of cloud costs and usage patterns. When you understand how your organization uses cloud services, you can find optimization opportunities and improve your budget and forecasting.
Stronger Security
Cloud-based expense management software can include shadow IT discovery tools and security features such as access controls and encryption, which protect sensitive data. CEM software also helps with regulatory or industry compliance. For example, a financial institution may have strict regulatory requirements, such as encryption or access restrictions. Automated cloud resource inventories help with compliance by providing a comprehensive list of third-party vendors accessing company information.
Fewer Errors
Automation features included in CEM platforms help you avoid much of the risk associated with human errors. These tools often have built-in invoice processing systems and alerting features that can flag suspicious or unexpected charges, making it easier to identify and correct errors that do occur.
Seamless Collaboration
Managing expenses is often a collaborative process involving multiple departments. But people are busy, and tracking expenses is more difficult when you have many work sites, some employees working remotely and high levels of shadow IT. The resulting outcome looks less like teamwork and more like frustration and miscommunication.
Cloud-based expense management systems can help you streamline communication, making it more efficient and effective. For example, automated cloud invoice processing streamlines work and gets approvals quickly with centralized invoice data. There’s no need to be slowed down by inefficient spreadsheets, inaccurate expense reports or redundant approval layers.
Perform Continuous Performance Analysis
Your cloud infrastructure and processes should be regularly monitored and analyzed from a single platform. Understanding your usage helps you identify opportunities for improvement. When you’re optimizing your cloud environment, you’ll improve efficiency and reduce costs simultaneously.
Continuous performance analysis also covers monitoring of resource utilization, which helps you reduce waste and ensure that you’re only paying for what you need. Regular monitoring also flags potential performance problems before they become larger issues.
Use Reserved and Spot Instances
Using reserved instances (RI) or spot instances is a common CEM cost-saving tactic. RIs are a type of cloud computing instance that can offer significant discounts over on-demand instances. They’re based on long-term commitments for a certain amount of computing capacity. – Approved
Spot instances, meanwhile, are unused computing resources that are available at greatly reduced rates. These instances can also be terminated with little notice if resources are needed elsewhere. You can consider spot instances as a cost-effective option if your workload is flexible.
CEM helps you take advantage of these instances through cost and usage optimization processes such as resource monitoring.
Manage Data Transfer Costs
Data transfer fees are an important aspect of cloud computing that can generate significant costs if not managed properly. You need to understand your ongoing data transfer costs and where the major costs originate. When you can spot patterns in spending, you can optimize how data is transferred between cloud resources.
One optimization technique of many is reducing data transfer costs by compressing data before transfer. You can also look for cloud services that can offer cost-effective features, such as data transfer discounts or optimization features.
Optimize Storage
Storage costs soar when organizations provision and allocate more storage than they need, especially if you’re not keeping an eye on storage capacity and allocation. To avoid this, regularly optimize your storage by releasing unused resources, such as orphaned volumes or snapshots. Additionally, adjust overprovisioned volumes to their optimal size.
You can also reduce the overall amount of in-use storage by optimizing data utilization and training staff on cost-effective data management processes.
Eliminate Cloud Sprawl
Cloud sprawl refers to the uncontrolled growth of cloud resources in an organization, including instances, services and providers. Sprawl occurs when organizations use multiple cloud services. Another example is when different departments within an organization use the same cloud services independently. Sprawl isn’t the same as shadow IT, because the spend is authorized, but it does illustrate the same problem of insufficient communication and collaboration.
Reducing cloud sprawl saves on costs, reduces waste and redundancy, and improves security. Because you’re regularly monitoring cloud usage with full visibility, you gain control over your resources. Follow up by implementing governance policies and further consolidating cloud services where possible.
Optimize Software Licensing Spend
Another area to regularly monitor is software licenses. Licenses should only be used by the people who need them (and who still work in your organization). One way to check for compliance is by adopting license management tools. You can also use cloud-based software alternatives that offer cost-effective pricing models, such as pay-per-use or subscription-based.
As you better understand licensing needs, look to negotiate pricing and terms with vendors, especially when volume discounts or long-term contracts are available. All these steps can lower costs in the short term and in the long run.
Invest in Automation
Automation streamlines your cloud environment, reducing manual effort and the risk of human error. This can lead to significant cost savings, increased efficiency and higher productivity.
By automating repetitive tasks, such as resource provisioning virtual resources, you reduce the time and effort required to manage your cloud environment. Automation frees up valuable time and resources while improving visibility into cloud usage and costs.
Automation can also help with governance and security tasks, reducing the risk of costly mistakes, breaches and data loss.
Manage Shadow IT
Shadow IT is the use of IT software or devices by departments or individuals without the approval of corporate IT and security. This activity results in higher costs, increased security risks and decreased visibility into cloud usage and expenses.
Managing shadow IT requires regularly monitoring and inventory-taking, strong governance policies, and training employees about the risks. Employees often resort to shadow IT when they can’t get access to the tools they need to do their jobs. Deter that by communicating when cloud services and software applications are approved and licensed.
Embrace Power Scheduling or Pausing Features
Power scheduling is a cost-saving technique that involves scheduling cloud resources, such as virtual machines and databases, to match your actual usage patterns. For example, you may have resources that are only needed during business hours. By pausing services or scheduling these resources to shut down in the off hours, you reduce the cost of running them.
Implement Cost Allocation and Tracking
Cost allocation and tracking involves assigning costs for cloud resources to specific departments, projects or business units — and tracking those costs over time. This process helps you understand where your cloud computing costs are going.
You can do this by using cloud management tools or automation services. Another option is finding a cloud services partner that offers cost allocation and tracking features, such as cost allocation tags.
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