Don't get a massive cloud spending bill after the fact.

Is on-demand cloud spending worrying you?

By Louis Koen, Managing member Crimson Line

Make no mistake, utilizing the cloud is the best decision you can make as it holds many advantages. For instance: ensure:

1.      With the cloud, your company’s software is always up to date giving you better security.

2.      It increases employee efficiency and manageability through greater collaboration tools.

3.      It definitely decreases your managed services bill (read our case study on Warwick Estate).

4.      There’s no doubt that the cloud gives you big corporate functionality at a monthly fee that any size business can afford.

But renting cloud services does create new problems, including managing bills populated with thousands of line items generated by instances running across the globe. 80% of 300 UK and US financial and IT leaders surveyed by 451 Research said that poor cloud financial management had a negative impact on their business. No wonder it gives many South African CIOs and CFOs cold sweats when they consider moving away from on-premises fixed cost servers to consumption-based spending in the cloud.

More than a technology phenomenon for the 21st century, cloud is an economics model driven by digital transformation, says Bernard Golden, Capital One’s director of cloud strategy. The cloud’s capacity to automate functions and enable companies to operate more efficiently is analogous to Henry Ford’s revolutionization of the automotive industry via factory production, which automated several processes to enable faster production of cars, Golden says. Just as Ford had to curtail the costs its machines incur in building its cars, enterprises must manage how they spend on cloud.

What complicates this matter is that finance is used to giving IT a budget after IT submitted projected costs for the year. 73% and 81% of companies in the US and UK respectively still treat cloud as a fixed (CapEx) cost rather than a variable (OpEx) expense. Combine this with 451 Research’s finding that 72% of respondents acknowledged that they have no formal reporting capacity between departments and it’s no wonder the cloud is causing friction between departments. Spend on on-premises servers is managed like every other department’s while the cloud requires a new way of working.

To avoid a hefty bill for which you are liable because someone left a pile of virtual machines running, FinOps Foundation says there are four key strategies for managing cloud spending:

1.      Determine who is spending on what. To do this, you need to “tag” your resources, or figure out what resources an application is accessing. The bigger the organization, the more important it is to know who’s working on what.

2.      Don’t use a lawnmower when a hedge trimmer will do. Only use and pay for what you need. Make everyone aware that their action has an immediate financial implication.

3.      Rationalize spend. Consider using reserved instances, a reservation of resources and capacity for a particular availability zone within a region. This enables you to buy computing horsepower you know you’ll need at a lower cost than on-demand procurement.

4.      Build apps suited for the cloud. If you’re a high-volume transaction business, that means designing your apps to scale horizontally, enabling you to add or subtract resources as needed.

You could employ a cloud strategist or director to help analyze and manage cloud resources, but that’s a very specialized field, comes with a hefty salary bill and you’re not going to find anyone with 10 years’ experience. Crimson Line has an alternative solution that will see a retainer budget set and alerts being sent out as soon as pre-set targets have been met. To find out more, send me an email.