How to reduce cloud spend without damaging the enterprise

Fear of a recession is rising, and just as businesses started getting into a rhythm for post-pandemic recovery, they are now back to the drawing board, looking for new ways to manage budgets as operating costs surge.

There is particular scrutiny over cloud computing bills, which typically run into the millions for large organisations. With the level of uncertainty faced by all industries, this response makes sense. After all, priorities are shifting from growth and expansion to more conservative savings, and bosses — whether they are CEOs, CIOs, or otherwise — need certainty that every dollar spent is going to bring noticeable benefits and outcomes tied directly to business objectives.

In that regard, managing cloud consumption — including the hundreds and even thousands of software-as-a-service (SaaS) applications that helped companies throughout the height of the pandemic — is crucial to avoid unnecessarily wasting funds. In context of today’s economic headwinds, it’s imperative to understand how their cloud investment is being used, which parts of the business stand to benefit, and how soon.

For a long time, industries have been accustomed to seeing staggering rises in spending on cloud services. However, new analysis on leading public cloud providers points to a year-over-year decline. But while wallets are tightened, it’s impractical for companies to switch off cloud-based applications overnight. Even those that aren’t business-critical play a significant role in day-to-day operations. Reducing how much budget is dedicated to cloud computing without compromising business performance demands a sustainable and data-driven framework geared to efficiency; it’s the recipe for “doing more with less”.

IT leaders have long advocated the benefits of cloud services, whether it’s dodging upfront costs, flexibility, or rate of deployment — so much so that Gartner estimates 51% of IT spending across application software, infrastructure software, business process services, and system infrastructure markets will have gone from on-premises options to the public cloud by 2025.

Unfortunately, understanding the costs of cloud hasn’t quite matched up to the appetite for cloud-focused investments and the mass adoption we have seen in recent years. In fact, what started as a “cheaper” way to do tech — moving workloads to the cloud — is now regarded as costly and time-consuming by 80% of IT decision makers, as per Nutanix’s Enterprise Cloud Index.

For example, using multiple cloud service providers complicates costs because there are various billing files and contracts to contend with, and it’s challenging for IT departments to stay on top of usage levels as dozens of new SaaS solutions make their way into the organisation. The consequence is an inability to maintain a complete view of what has been spent, and importantly, whether there’s qualitative or quantitative return on investment.

Crunching cloud costs

Compared with traditional data centres, public cloud is billed based on variable usage. In theory, this is beneficial as it allows costs to be reduced when cloud instances aren’t in use. In reality, costs get out of hand as companies struggle to juggle the sheer volume of services, including unused or underused resources.

IT departments are consequently left to drown under the weight of complex cost reports — and often spreadsheets — that traditional financial management tools were never designed to handle. It takes extensive resources to collate, analyse, and distil actionable insights in order to gain any cost-benefit from the flexibility of cloud.

The rise in popularity of industry frameworks like FinOps is no surprise. FinOps is a practice that encourages collaboration to manage cloud through a common framework. It’s built on the principles of focusing on the business value of cloud and taking advantage of cloud’s variable cost model.

It also promotes extensive visibility into spending, segmented by the full spectrum of influences: vendor, initiatives and projects; run versus change costs; and consumption by business unit. It also analyses trade-offs across different planning scenarios, allowing decisions to be made much faster, and enabling rapid responses to changing and turbulent market conditions.

For example, through FinOps, an ASX-listed financial institution operating across Asia-Pacific recently recognised it no longer needed a series of service numbers, and subsequently cancelled 1,200 of them within 30 days. As a result, it experienced a 50% reduction in time to answer ad-hoc questions about costs, 2% annual public cloud cost savings, and reduced invoice validation times.

In a broader view, FinOps capabilities can help reduce cloud costs by 25% within days, reduce vendor and SaaS spend by 10%, and alter overall consumption by between 3% and 5%.

As multi-cloud approaches proliferate, organisations must lean on technology cost transparency to avoid throwing away millions in funds that can be spent on high-value initiatives like talent retention, plugging skills shortages, and generally strengthening their operations. With IT investments not only stretching across multitudes of services but also various departments, it’s essential to evolve how costs are managed.