Closing the cloud spend gap

Cloud adoption is growing, and enterprises quickly find out that costs are unpredictable and controlling them is not an easy task.

More than 70% of enterprises have migrated at least some of their workloads to the cloud and are seeing business benefits. However, controlling the cost of cloud computing is an ongoing headache for infrastructure and operations (I&O) leaders. Gartner goes as far as forecasting that through 2024, 60% will encounter public cloud cost overruns that negatively impact their on-premises budgets.

It is not just a case of monthly bill shock and paying for unused or underutilized services, known as cloud waste. Cloud is dynamic and on-demand, so it may mean that you are consuming more to support new digital products. Cloud-pricing fluctuations, complex discounting structures and a stream of new services compound the issue.

Taking control of spiraling cloud costs

Most enterprises have adopted a multicloud strategy to provide them with more choices but managing them is even more complex and challenging. It is little surprise that cloud costs and waste remain high. Respondents to a recent report said their public cloud spend was, on average, 13% over budget and forecast their cloud spend to increase by 29% in the next year. This indicates it is more important than ever for enterprises to get to grips with cloud spend forecasting and cost optimization.

Cloud waste stems from over-provisioned resources that end up being under-used. The result is increasing operations costs without adding business value. As cloud usage rises, it becomes an increasingly critical issue. It is estimated that enterprises waste at least 32% of their cloud spend right now.

Managing costs in the age of cloud-native

Cloud-native revolves around creating and running applications in the cloud that take full advantage of a distributed delivery model. This enhances speed, agility and scalability, essential components in building applications and services designed for the digital economy.

By 2025, Gartner estimates that 95% of new digital workloads will be deployed on cloud-native platforms, up from just 30% last year.

“Adopting cloud-native platforms means that digital or product teams will use architectural principles and capabilities to take advantage of the inherent capabilities within the cloud environment,” explains Milind Govekar, Distinguished VP Analyst for Gartner. “New workloads deployed in a cloud-native environment will be pervasive, not just popular, and anything non-cloud will be considered legacy.”

Cloud-native is a continuously evolving and dynamic vista with new tools and practices constantly being developed and, as such, requires ongoing commitment in both financial and skills resources.

As a result, it is important to note that cloud-native requires a different viewpoint on costs. If enterprises start to examine the costs before the business outcomes, they will be disappointed in their payback. While centralized mechanisms need to be in place to monitor spending, clamping down on spending too soon will cramp development times.

Enter FinOps, designed to bring financial accountability to the fluidity of cloud and cloud-native. The FinOps Foundation Technical Advisory Council defines FinOps as “an evolving cloud financial management discipline and cultural practice that enables organizations to get maximum business value by helping engineering, finance, technology and business teams to collaborate on data-driven spending decisions.”

IDC forecasts that by 2023, 80% of organizations using cloud services will establish a dedicated FinOps function to automate policy-driven observability and optimize cloud resources to get maximum business value.

The key steps to FinOps

The FinOps Foundation maintains that the cloud-spend management challenges are surprisingly similar for those spending $5 million a year and those spending $500 million a year. This, it says, supports the concept that developing and standardizing best practices early “builds habits to help teams navigate cloud cost management as spending increases.”

Spend allocation is pivotal to charging back accurately and identifying areas for optimization. On average, 75% of cloud spending is now allocatable, but the aspiration is to allocate 90%, according to the FinOps Foundation’s February Summit 2022.

Common plans among enterprises to improve their allocation percentages include improved tagging, better reporting, enhanced automation, updated governance policies and adoption of new, increasingly granular monitoring tools.

The FinOps Foundation recommends an iterative approach to managing cloud estates, using three foundation blocks: inform, optimize and operate.

First on the to-do list is enhancing visibility and benchmarking to better control budgets, considering the on-demand capabilities of the cloud. The next step is to right-size capacity, where appropriate, and take advantage of cloud-provider discounts. Finally, it is paramount that enterprises continuously assess cloud usage aligned to business values and goals.

A guide on the FinOps journey

FinOps is a complex and ongoing program to design more cost-efficient cloud operations. This is done by adopting a holistic and proactive approach to planning and managing cloud costs through a cross-functional team of technical, business and financial leaders.

The FinOps Foundation refers to three phases in FinOps maturity: The “beginners” who are just getting started; the “crawlers” with newly formed FinOps teams; and the “runners” who are up and running with their FinOps programs. Due to the complexity of FinOps, the foundation estimates that 40% of organizations are at the crawl stage in their development.

Orange Business can accelerate the process and help enterprises rapidly increase the cloud's business value and improve operational excellence. It begins with a complete audit of the cloud estate together with a short and long-term roadmap of objectives. Coupled with this is the integration of processes, including design, build and run phases, so that the enterprise only consumes and pays for the cloud resources it needs. This includes automaton, central to the success of FinOps, to ensure that policies are consistently being followed, for example.

This approach considers that every enterprise is different, producing a FinOps solution that delivers on business outcomes.

Remember, it is a whole different world from on-premises

On-premises budgeting is black and white. IT is given an amount to spend on hardware and software, and if they need more, it is negotiated. Cloud is a whole new world, on-demand – often with no visibility of how it is being used.

As such, cloud requires a change in mindset regarding cloud spend. It is not about spending less. The focus is on ensuring that resources are being used in the right places to benefit the business and its growth. FinOps is paramount to ensuring that the cloud will deliver on its expected value.

FinOps makes sure you get optimum value from your cloud spend by providing financial transparency to the dynamic cloud model. Learn more about how FinOps can optimize your business cloud usage costs.

Jan Howells

Jan has been writing about technology for over 22 years for magazines and web sites, including ComputerActive, IQ magazine and Signum. She has been a business correspondent on ComputerWorld in Sydney and covered the channel for Ziff-Davis in New York.