8 Ways to Optimize Cloud Costs in 2024 and Beyond
It’s budgeting and planning season! And as many companies dive into budget preparation for 2024, we also see a lot of spending reports designed to help us understand trends and priorities. One of these reports caught my attention because of its focus on cloud spend. “The CFO’s guide to managing cloud costs for 2024” from Vertice One really summarizes the conversations I constantly have with the CFOs, CTOs, and other IT-related executives among VEscape Labs’ clients.
The Impact of Rising Cloud Costs
The pandemic years forced many companies to rethink the way they did business on a daily basis. Given the healthcare guidelines, most companies broke the paradigm of having to be physically present in an office to operate their business effectively and efficiently. Home offices were widely adopted.
However, this new philosophy challenged the technology infrastructure, as the previous mesh of infrastructure and technology solution was designed to cater to concentrations of employees working in specific locations, not a group of dispersed employees working from their homes. To respond to these new needs, IT executives were forced to adopt new approaches by using public cloud and SaaS versions of their most-used applications so employees could access the data and tools to perform their duties remotely.
According to statista.com, there was tremendous growth for public cloud between 2020 and 2023. Almost every year, the figures have been over 20% YOY growth - 2020 was the highest at 29.3% while 2022 was at 18.8%, and the projected figure for 2023 is 21.7%.
During 2021 and 2022, most of the increase in these expenses was offset by the reduction in office space expenditure as many organizations adopted a WFH (work from home) policy. Unfortunately, throughout 2023 many companies started adopting a leaner mentality and thousands of companies reduced their workforces.
As we get ready for 2024, finance leaders are now looking to cloud costs and SaaS fees as the next items on the chopping block. According to the Vertice One study, as many as “71% of the finance leaders are targeting SaaS spending as one of their top three measures to save money in 2024.”
This doesn’t come as a surprise when more than half (53%) of the surveyed companies are overspending on their cloud infrastructure. The definition of overspending in this case is a cost 20% over what was originally forecasted. Another interesting fact is that “32% of cloud spend goes to waste, due to idle, under-used or poorly optimized cloud resources.”
Use a FinOps (Financial Operations) Strategy to Reduce Cloud Costs without Sacrificing Efficiency and Convenience
I support all the CFOs embracing a more conservative approach when it comes to their cloud and SaaS expenses. However, I would advise them to perform these efforts by adopting a FinOps strategy.
Implementing a Financial Operations strategy will allow CFOs to reduce cloud costs without sacrificing efficiency and effectiveness, which is crucial for organizations looking to optimize their cloud spending.
Here are some steps you can take to achieve this balance:
Establish a Cloud Cost Management Team: Create a dedicated team responsible for managing cloud costs. This team should include members from finance, IT, and other relevant departments.
Define Clear Cost Ownership: Assign ownership of cloud resources to specific teams or individuals. This accountability encourages better cost control.
Set Budgets and Policies: Define clear budgets for cloud spending and establish policies for resource provisioning, usage, and cost allocation.
Implement Cost Monitoring and Reporting: Use cloud cost management tools to monitor spending in real time and generate reports. These tools help you identify cost anomalies and trends.
Implement Resource Right Sizing: Analyze the resource utilization data and adjust instance sizes to match actual requirements.
Monitor Data Transfer Costs: Keep an eye on data transfer costs between different services and regions. Optimize data transfer and cache frequently accessed data.
Automate Cost Optimization: Use automation and scripts to perform cost optimization tasks, such as resource scheduling, based on usage patterns.
Benchmark Costs: Compare your cloud costs with industry benchmarks to identify areas for further improvement.
Companies that have successfully implemented a FinOps strategy use a mix of internal resources, cost optimization firms, and 3rd party tools to drive this analysis. Using external firms or 3rd party tools will ensure a non-biased perspective on the areas of opportunity that the organization needs to tackle.
In addition, given the rapid evolution of the cloud and SaaS industry, it’s better to leverage the expertise of those external resources rather than ask their internal resources to become experts in another element of their work.
An effective FinOps strategy allows companies to perform a detailed analysis through visibility of their technology needs, actual resource utilization, and big-ticket items. These insights will help CFOs make informed decisions on how to optimize their cloud and SaaS costs without sacrificing the efficiency and effectiveness of their products or services. At the same time, they can reduce the potential waste and overspend on cloud infrastructure.
We recommend getting started with a cloud cost assessment for CFOs to gain visibility.
The Bottom Line of Cloud Cost Optimization
A conservative approach to cloud spend is fine, but CFOs seeking to reduce cloud costs should use a strategic approach to weighing the benefits of cost-cutting with the efficiency benefits that a well-optimized cloud strategy can provide.
