If you’ve ever received a post-vacation credit card bill that made you wish you’d stayed home and cleaned out the garage, then you know how some CTOs and IT managers felt recently when they realised an AWS had overcharged them for their companies’ cloud usage.
This was, of course, an honest mistake that was immediately corrected, but it brought to light a separate issue: Many businesses weren’t even aware of the overcharge until people began tweeting about it, indicating not every enterprise is paying as much attention to their cloud spending as they should be — which can lead them to spend more than they desire or realise.
Overspending on cloud happens when there isn’t enough visibility into capacity, services, applications, assets and usage and/or when there are too many separate systems to manage IT expenses, contracts, licenses and usage effectively. Even a contract itself can lead to overspending: Lines of business provision cloud applications and infrastructure, but are often not equipped with the data or knowledge to negotiate competitive rates or contracts. As a result, an organisation ends up with cost-suckers like duplicate services, unfavourable terms, unfavourable rates and missed opportunities for volume discounts — and it can take a while for these issues to surface.
With cloud spend expected to double over the next three years and triple over the next five years, according to IDC, the gap between what an enterprise should be spending and what they actually shell out will only grow wider. This gives organisations an immediate opportunity to optimise their enterprise cloud spending to get costs under control and understand where their funds are going.
These four tips will help enterprises avoid overspending on cloud capacity and assets.
1. Understand how much cloud capacity your enterprise needs.
As businesses consider purchasing or expanding cloud capacity, they are sometimes overly ambitious in the capacity and assets they select. Going for broke isn’t always the right option — because many enterprises end up allocating more budget than necessary. In fact, many businesses over-allocate budgets by 50 per cent or more when it comes to cloud spending, because of a disconnect between how much capacity is actually needed and how much capacity is being stored and utilised.
About two years into its launch, my startup, Triberr, was paying $5,000 each month in cloud costs due to exactly this kind of overly ambitious spending. It took a couple of months to reduce it to $3,000 a month. A few months after that, we were able to shut down enough sandboxes, forgotten services and servers used to test and experiment to reduce the bill to $2,000 per month, where it more or less remained for years thereafter. I wish I had caught this overspend a lot earlier; I’m still traumatised by the opportunity cost numbers.
To ensure they aren’t overspending on unnecessary space, enterprises should enlist the support of IT leaders early in the cloud decision process to help determine capacity and asset needs, now and down the road. This will ensure cloud capacity needs align with the bottom line.
2. Continuously audit capacity.
Selecting a cloud provider doesn’t mean you’re done figuring out how much capacity your organisation needs. An organisation must continuously audit cloud usage to understand its cloud inventory and where capacity is being allocated. Every business is made up of one intangible and two tangible forces. The intangible is the brand, while the two tangibles are the cashflow, both coming and going. Nail those three parts of equation and you’ve got yourself a viable business.
An enterprise should be able to view the total cost of an employee, or the total charges for a department or cost centre; create specific policies designating which employees are entitled to which services; and specify the steps necessary for an internal approval process. This will rein in capacity usage and reduce bloat, allowing costs to be allocated across the business based on actual consumption metrics.
3. Create visibility into all services, applications and assets to manage usage and avoid waste.
Related to the second point is the need for a deep dive into how capacity is allocated.
To optimise overall technology use, enterprises should use the cloud where it makes sense. To do this, an organisation needs an understanding of all of their services, applications and assets, which can be challenging.
Have a way to break down asset costs and usage into varied levels of detail that track each service, usage and number of users; for example, a SaaS license is considered an asset and can be assigned to an employee and/or cost centre. Put an infrastructure in place that dictates how this information is categorised and prioritised, providing visibility into cloud expenses by organising them as your organisation defines them.
Having a method of bringing all of this information into one consolidated view will identify which applications or platforms are being used and — more importantly — which are being under-used. Then, use this information to save money by eliminating waste and analysing future application/asset purchases based on demand and actual usage.
4. Track contracts.
Tracking licensing and subscription services is complicated, but it’s necessary to optimise costs. Aim to negotiate contracts with transferability, so subscriptions not being fully utilised can be repurposed to another end-user. If there is not full utilisation of the subscription, look to negotiate less built-out editions of the software. If this sounds like a hell you’d rather not visit, it might be worth while looking into a consulting firm that will renegotiate your subscriptions for you. The savings could be substantial for large organisations.
Cloud providers continue to have pricing power and control over negotiations, while enterprises desire better terms and stronger SLAs. An enterprise’s industry partners can act as representatives to these vendors, pooling volume to negotiate better terms. And with the direction the AI is going these days, the possibilities for doing something clever that “could save you 15 per cent on car insurance,” so to speak, could be the reduction of expense you need to make your cashflow equation go from red to black.
Ensuring a solid return on investment
Gartner estimates by 2020, organisations that lack cost-optimisation processes will average 40 per cent overspend in public cloud — a significant amount of money for any enterprise. Investing in new technology is a major endeavour and organisations owe it to themselves to optimise their enterprise cloud spend for the greatest benefit to employees, customers and other stakeholders.
Enterprises that are succeeding with cloud do so by keeping a close watch on how their organisation is consuming cloud resources. When leaders have a greater grasp and understanding of the expenses being allocated toward cloud usage, they not only avoid overspending, but they also maximise their investment. For enterprises that don’t have the time or resources to do this alone, look to a trusted partner that can manage and analyse daily cloud costs and capacity allocation — and avoid any unwelcome surprises in the future. But you didn’t hear that from me.
Dino Dogan, VP of Product, Tangoe