One-third of the global economy is expected to be in a recession in 2023, according to the head of the International Monetary Fund. (1) With that in mind, many organizations are looking for ways to stretch their budgets further. Cloud constitutes the largest portion of IT spend in organizations, (2) with growth increasing by 20 to 30 percent each year; (3) however, these budgets may see more scrutiny this year as organizations look to control spending.
A lack of cloud automation standards, governance, and FinOps practices can lead to organizations overspending on cloud. Cloud cost optimization is an important step to take to right-size your cloud estate and identify the cloud resources needed to power innovation without excess. A recent article from McKinsey offers five steps to lower cloud costs as much as 25 percent without diminishing the value cloud provides.
1. Stop unhealthy growth
The challenge for many organizations is determining what’s healthy versus unhealthy when it comes to growth. McKinsey says this is a particular problem when customer spending habits change, as is likely in a recession. Simple examples include:
Healthy: more users, increased adoption of cloud services
Unhealthy: over-provisioning due to lack of governance, forgetting to deprecate unused resources
To combat unhealthy growth, McKinsey recommends financial controls and automated reporting to better track spending. At Taos, we believe a FinOps practice is another important factor to control cloud spend. It bridges finance, technology, engineering, and business teams to collaborate on how to best balance the speed, cost, and quality of cloud operations. A cross-functional FinOps team can establish visibility and accountability to identify healthy versus unhealthy growth.
2. Focus on simple fixes
Cloud cost optimization is an ongoing process. It’s best to start small, and McKinsey states “the most common no-regret actions include releasing unused capacity, introducing scheduling and auto-scaling features, and aligning service levels to specific application requirements.” This is a great first step to match cloud spend to your actual cloud needs. The FinOps team should start with small changes like this, assess their progress, and continue to make additional recommendations in a “crawl, walk, run” process.
3. Unlock cloud elasticity to stop paying for unused cloud capacity
This recommendation is about harnessing cloud’s ability to easily scale up and down. The challenge comes from internal policies that result in capacity that isn’t being used. Per McKinsey, “many companies have multiple practices in place that keep them from using cloud’s elasticity effectively, such as rigid and often manual provisioning practices, technical debt that makes it impossible to build in elasticity features, and excessive use of reserved instances.”
This requires a culture change to embrace elasticity. The organization must be analyzed to identify the processes that need to be changed and make recommendations for improvement, such as automation. Many organizations also need help to overcome their technical debt, as issues such as legacy software can become overwhelming if they are delayed too long, and organizations may lack the technical resources required to refactor or containerize workloads.
4. Take another look at vendor agreements
“Many organizations fail to initiate renegotiation until 12 to 18 months before their contract expires, by which point it’s often too late to negotiate effectively,” states McKinsey. This failure to negotiate in a timely fashion leaves organizations stuck with more than they really need. While the most straightforward solution is to review contracts, keep track of renewals, and ask for changes, flexibility can also be negotiated into contracts with agreed “trigger events.”
Another option would be to let someone else manage vendor agreements. An experienced managed service provider can focus on consolidating costs and contracts to provide better visibility and recommendations for optimization.
5. Don’t stop cloud migrations; just be smarter about them
If you’re thinking about cutting back on cloud migration to cut costs, you might end up with higher costs in the end. On-premises data centers are expensive, requiring labor, power, and equipment to operate—costs that are generally less with cloud. McKinsey recommends prioritizing migrating workloads to the cloud that generate value, have hardware in need of upgrades, or have considerable operations overhead. This targeted approach reduces the risk of unhealthy cloud growth while taking advantage of cloud performance and cost efficiencies.
If you’re looking to reduce your cloud spending this year, Taos can help you take these steps and more to balance cost and innovation. Taos’ Cloud Cost Optimization Advisory is a six-week strategic service engagement to help you control ongoing costs and identify areas of improvement. Taos’ Cloud Cost Optimization Managed Service provides clients visibility, control, consistency, predictability, and continuously optimized cloud spend.
Taos advisors can help accelerate your cloud business while lowering risk and costs. Visit taos.com to learn more.
Sources:
- CNN Business, One third of world economy expected to be in recession in 2023, says IMF chief, January 2023
- Gartner Forecasts Worldwide Public Cloud End-User Spending to Reach Nearly $600 Billion in 2023, October 2022
- McKinsey, More for less: Five ways to lower cloud costs without destroying value, November 2022