A Practical Guide to Optimizing the Value of Cloud | Deloitte US has been saved
A blog post by Nikhil Roychowdhury, principal, Deloitte Consulting LLP; Nik Jethi, senior manager, Deloitte Consulting LLP; Farhan Akram, manager, Deloitte Consulting LLP; Rishabh Kochhar, senior consultant, Deloitte Consulting LLP.
This post is the first in a series of three posts that highlight how businesses can get started with optimizing their cloud costs. While in the first post we look at why cloud cost optimization is a vital business need, and describe a practical framework that businesses can adopt, the subsequent posts will dive deeper into each lever of the framework and describe how businesses can derive value from them.
Growing need of cloud cost optimization
The increasing adoption of cloud computing has helped transform and streamline the way businesses operate, but enterprises find themselves facing a new challenge that has a direct impact on their bottom line—inefficient cloud spend. With Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), businesses incur operating expenses (OpEx) as they are billed based on ongoing consumption, instead of capital expenses (CapEx) associated with capacity in a data center. Consequently, businesses often find themselves trying to create complex cost estimates of their consumption on cloud, which affects their financial management—ultimately having an impact on businesses’ bottom line.
There are six key factors that drive complexity of cloud cost optimization:
- Complex and multifaceted pricing: Cloud billing models and pricing structures have options and combinations that are hard to understand, and selecting the best options can be challenging.
- Granularity of cloud bills: Cloud bills often run into thousands of line items despite low consumption, making it difficult to attribute costs and consequently charge back.
- Click provisioning of cloud services: Easy access to cloud services through web consoles and APIs can lead to an increase in the number of cloud services being used, driving up expenses.
- Availability of multiple architectures: Applications can be built using multiple architectures and services, making it hard for businesses to identify the most cost-effective development strategy.
- Constant check in cloud offerings: Cloud services, features, instance types, and pricing models undergo frequent updates, and businesses can find it hard to understand their financial impact.
- Lack of standardization: Most cloud platforms do not provide any standardization of billing models, billing formats, APIs, or services.
Preparing for cloud cost optimization
Given the complexities involved with optimizing cloud costs, businesses should begin with examining their current spend and existing practices across the FinOps capabilities. This can help identify existing gaps, thereby helping define a strategy and road map for optimization execution.
Our experience has shown that the following five steps can help businesses get started with reviewing their existing processes and strategy:
A framework for optimizing cloud costs
A thorough assessment of an enterprise’s current-state capabilities and governance models will help organizations identify cloud costs optimization opportunities. These opportunities can be systematically evaluated leveraging a framework that is built upon four crucial levers: waste management, consumption management, purchasing best practices, and cost-aware architecture. Each of these levers is supported by two enablers: alerting and monitoring, and automated tagging.
While all cost optimization levers work in tandem with each other, there are clear benefits that can be achieved with each of these levers. The levers, mapped to their benefits, are:
- Waste management
- Shut down unused instances: Reduce cost of unused instances; shutting down instances enables run features for different environments.
- Unattached disks cleanup: Promote reduction of waste and enable IT teams to focus holistically on core capabilities, improving time to market.
- Snapshots cleanup: Identify areas to delete snapshots that are old or unused; decide retention for snapshots.
- Account restructuring: Reduce costs by deleting unused accounts along with services running, if applicable.
- Network IP cleanup: Delete unattached network IPs to reduce unused resources.
- Consumption management
- Expensive storage replacement: Reduce costs by evaluating the storage requirements on parameters such as storage type required (SSD vs. HDD).
- Instance rightsizing: Remove resource consumption of your VMs, determine correct instance size for optimum cost and performance and to reduce overprovisioning.
- Automating optimization: Autoscale systems to utilize resources effectively, which results in continuous optimization.
- Tagging analysis: Improve asset costing, which helps manage expenses and derive better cost insights.
- Instance discounting: Provide spin transparency across the enterprise and in understanding the performance of assets.
- Purchasing best practices
- Migration to lower-cost instance types or regions: Reduce technical debt and improve asset planning driven through efficient budgeting and forecasting.
- Leveraging reserved and spot instance strategy: Promote efficient budget planning and tighter spend control through improvements in FinOps.
- Enterprise agreement: Create opportunities to obtain better deals and discounts on cloud cost, depending on how accounts are set up.
- Cost-aware architecture
- Modernize workflow: Create opportunities to identify business process resulting in application architecture changes at the application logic level.
- Modernize tech stack: Identify modernization opportunities for the technology stack to be cloud native.
- Refactor architecture: Revisit cloud deployment models converting services to adopt containers and managed PaaS.
Wrapping it up
Optimizing cloud costs is important for every business. In today’s hypercompetitive environment, it is very easy to lose track of cloud services and resources being used, as businesses scale and develop new products to meet market needs and maintain a competitive edge. This tends to have a direct impact on an enterprise’s bottom line. Without a well-thought-out strategy to optimize cloud costs, the cloud becomes yet another cost center like traditional IT.
Cloud cost optimization involves a combination of improving visibility and accountability of cloud spend; continuous efforts to reduce known and unattributed costs; and enhancing planning and forecasting. For effective cloud cost optimization, businesses should start with assessing their current-state maturity levels, cloud costs, governance mechanisms, FinOps capabilities, and operating models. Depending on their maturity levels, businesses should identify gaps compared to the target state they want to achieve.
To learn more:
Read the second blog in this series, Optimizing the value of cloud: Four crucial levers to optimize cloud costs.
Read the third blog in this series, Optimizing the value of cloud: The impact of optimization.
Get in touch
Nikhil Roychowdhury
Principal | Deloitte Consulting LLP
Nikhil is a principal with Deloitte Consulting’s Financial Services practice. With more than 20 years of experience as a trusted technology advisor to large global banks and insurance providers, Nikhil has designed and executed multiple large-scale, global transformation programs to enable new business capabilities and drive innovation. Nikhil specializes in Cloud Strategy, guiding his clients through all phases of their technology modernization journeys, from defining an overall vision and strategy to designing and implementing new operating models aligned to modern technology delivery practices. An engineer at heart, Nikhil leads platform and application teams to deliver scalable cloud platforms and enable new use cases made possible by Cloud. Nikhil leads Deloitte’s Cloud FinOps offering for the US market, driving go-to-market strategy, establishing partnerships with leading ecosystem partners, and delivering engagements to help his clients measure the value from their cloud investments.
