Cloud Cost Management: Objectives, Challenges, and Best Practices

A staggering 50% of businesses spend more than $1.2 million on cloud services annually. Poorly planned cloud investments leave organizations guessing, resulting in mounting bills for metered services that are overallocated or underutilized. Failure to optimize cloud costs gives way to expensive overheads and a loss of competitive edge. 

Efficient cloud cost management helps businesses get the most out of their cloud for each dollar spent. It goes without saying that a growing business will have to understand and apply sensible cloud cost management to maximize usage while staying within budget.  

What is cloud cost management?

Cloud cost management (or cloud cost optimization) is the process of monitoring, measuring and controlling costs associated with cloud technology. It involves identifying mismanaged resources, eliminating waste, reserving capacity for higher discounts, rightsizing computing services to scale, etc. The objective of cloud cost management is to help businesses find the most effective ways to maximize cloud usage at the lowest price possible.   

Why is cloud cost management important?

A good cloud cost management strategy ensures investments in cloud services pay off almost immediately and serve the business well in the long run. Robust cloud cost management can help you: 

Avoid cloud billing surprises

Cloud cost management boosts visibility into the usage of cloud services, ensuring you’re a step ahead of any unnecessary charges that could creep into future bills.  

Make sound financial decisions

Cloud cost management shows the cost to value based on cloud usage and pricing. It helps in making the right calls on future cloud utilization best practices.  

Cut dead weight features

Cloud optimization identifies the bare minimum cloud services you need to get things done affordably, quickly and without too much fuss.    

Improve IT productivity

Managing cloud costs efficiently helps IT pros focus on core duties, ensuring workloads run smoothly in the cloud. 

What are the different types of cloud services?

The different types of cloud services are:  

Infrastructure as a Service (IaaS)

In this service, the cloud provider manages the data centers, servers and other physical infrastructure while providing access to virtual servers, cloud data storage and networking for the organization.  

Platform as a Service (PaaS) 

Platform as a Service offers developers a framework to build, collaborate, test and deploy custom applications without the hassle of data storage and management.   

Software as a Service (SaaS)

SaaS is a software distribution model that delivers application programs over the internet. End users can access SaaS cloud apps with a web browser. 

Functions as a Service (FaaS)

Functions as a Service is serverless computing wherein the client organization can deploy a compiled function to a server maintained by the cloud provider. 

What are the different cloud cost models?

There are various cloud cost models that have a direct impact on your cloud cost management strategy.  

• Advertising-based pricing model – Under this model, the cloud provider’s entire income is generated from advertising money. Users get a discount or “no charge” for using the cloud service in return for displayed advertisements.   
• Auction and online-based cost model – An auction is a market instrument, working under explicit standards, that decides what cloud service will be granted and at what cost. 
• Consumption-based pricing model – Here, you pay for what you utilize. This model generally applies to IaaS and includes network traffic, CPU processing and disk space.  
• Customer value-based cost model – Under this model, the cost is determined from an emotional context by focusing on the customer’s value delivery.   
• Expenditure-based cost model – Expenses incurred against application utilization for a central component as a unit of charge. 
• Free-upfront-and-pay-later cost model – Cloud providers offer services where customers can use the services with no upfront cost and pay later at a given time.
• Market-based evaluating model – Under this model, the market cost for the cloud service is dependent on demand and supply and is determined over the long run.  
• Performance-based cost model – Here, the cost is determined by the customer’s business results stemming from the real execution of the cloud service.  
• Resource-based cost model – As the name suggests, the cost is determined according to the utilization of cloud resources. 
• Service-based cost model – As per this model, the cost is estimated by utilizing the unit of priority, user, per device, tier and cloud service level.   
• Subscription-based pricing model – This model requires you to pay a membership cost to utilize the cloud service. 
• Utility-based cost model – Under this model, the cloud cost changes as users request revisions in agreements according to the rising utility for SaaS, PaaS and IaaS. 

Depending on your needs, you can combine the above cloud models into the following:

Pay-as-you-go

Here, cloud providers bill organizations on actual usage of computing power, storage, networking or other resources. This means organizations pay for what you use, allowing them to scale cloud usage as per business needs. However, if cloud usage is not kept in check or managed centrally, decentralized organizations end up adding unwanted resources to their cloud infrastructure, leading to enormous bills. 

Fixed subscriptions

Here, cloud providers charge customers for services upfront in the form of subscription prices. The providers offer predetermined service packages for a specified time. This model is common for cloud services that combine multiple hardware and software elements such as PaaS and SaaS platforms. They encourage commitments by offering bigger discounts for a longer subscription timeframe or licensing a larger volume of users. This approach is useful for organizations that operate at or near the maximum cloud usage capacity. However, if an organization consistently fails to meet usage capacity, it will still have to pay the entire subscription amount. 

Spot instances

Here, cloud providers sell off spare capacity at high discounts, aka spot instances. The catch is that spot instances can be stopped at short notice by the cloud provider. Ideally, spot instances are used for single-day batch processes or very long-running processes that can easily be stopped and restarted. 

Reserved instances

Reserved instances enable commitment from organizations to cloud resources for a long period (generally three years). The more the organization is prepared to pre-pay at the beginning of the period, the greater the discount. Reserved instances work well for steady-state loads for core systems with a long-term run. However, do not fall into the trap of using reserved instances for peak loads since it will lead to wastage of cloud resources. 

What are the common challenges to controlling cloud costs? 

Here are some common challenges that make it difficult for IT pros to curb cloud costs: 

Billing

The cloud has enabled smooth business operations by providing flexibility and scalability in running applications as compared to traditional processes. However, accurately scoping these instances is paramount to controlling costs.  

The following areas are the billing pitfalls that puts your cloud costs out of control:

• Sizing: IT pros often make the mistake of buying over-allocated capacity (traditional resources sizing method) in advance. They tend to forget that the cloud offers the ability to scale dynamically, and it should be used as such.   
• Number of instances: Running too many instances leads to unnecessary redundancy and underutilization.  
• Scheduling: Current instances should be reviewed to determine whether they need to be running and when. Otherwise, they just consume CPU and storage with no real results. For example, virtual machine (VM) instances will cost your organization money if they are provisioned but unused, used too much, or are not the correct size for your needs.    
• Types of instances: Choosing a cloud service, region or instance that does not fit your needs is a recipe for financial disaster. 

Autoscalability

The ability to rapidly scale VM instances is a major selling point for cloud computing. However, scalability does come with challenges.  

Manage cloud costs with Unitrends

Regardless of instance type, size or other specs, public cloud providers operate under a Shared Responsibility Model, which means you (not the cloud provider) are responsible for the protection of your data that lives in the cloud environment.   

Unitrends virtual appliance protects your data that lives in a public cloud like AWS and Azure. In addition, Unitrends offers its own purpose-built cloud service, the Unitrends Cloud.   

The Unitrends Cloud is licensed based on the raw data footprint (local backup volume before any deduplication and compression) and retention required (90 days, 1-7 years, infinite). This means you can easily forecast cloud storage consumption. With no charges for data ingress or egress, there are no surprises or hidden fees, making the total cost of ownership predictable over the lifecycle of the data.

Click here to learn more about Unitrends Cloud offerings.