The complexity of cloud-based services presents a novel challenge to engineering, finance, and procurement teams.
As business dependency on the cloud grows, it is vital that the C-suite understands both: a) what has changed, and b) how vital it is to adjust the IT-spend planning process accordingly.
While the general process for datacenter financial planning is relatively clear – determine hardware capacity requirements, make the large CapEx hardware purchase, and review on a semi-annual basis with the operational leaders – planning for cloud-based services is substantially different. Organizations have moved away from the traditional pay-upfront, ‘buy-and-forget’ model and have shifted to the cloud to garner an array of attractive benefits, including:
- Shift from CapEx to OpEx purchasing model
- Opportunity to scale and meet new growth demands
- Rapid access to the latest database, AI, and machine learning technologies
However, this flexible model also introduces complexity, volatility, and commercial risk. The drive to ‘pay-just-for-what-you-use’ means that services are metered by the second. This vaunted scalability also means that there are few built-in checks to stop rapid proliferations of resources, leaving the door open for costs to spiral out of control.
Meanwhile, cloud services vendors have a vested interest in making their services as complex and as nuanced as possible; not only is your wastage their profit, but your adoption to a service ties your team’s skills to its platform.
The number of proprietary services and pricing models continues to grow, further complicating this space. For example, in the last year, Amazon Web Services (AWS) introduced more than a dozen new cloud services, bringing the total to more than 200 – and its most popular service, Elastic Compute Cloud (EC2), has nearly 2.5 million price points. Keeping up with this rapid escalation of services and their unique aspects is a growing challenge for organizations, as they work to stay educated and informed about the myriad cloud offerings.
Worldwide public cloud services expenditures
According to Gartner, worldwide end-user spending on public cloud services was forecast to grow 18.4% in 2021 to a total of $305 billion, which is up from $257.5 billion in 2020.
As spend levels increase and complexity deepens, the need for visibility and control rises. Out-of-control costs are a growing concern for the C-suite as organizations struggle to manage cloud service expenses, provider agreements, and estimate long-term usage. Cloud budgets are also growing consistently as well: companies expect their cloud spend to increase by 47% next year, and state that on average they are 23% above budget (according to a recent Flexera study) – something which we see echoed with our clients as well.
Against this background of a rapidly shifting landscape and growing complexity, it can be difficult to know where and how to start. However, the good news is that there are some simple steps to regain control and improve governance of your cloud spend, with the objective to reduce the risk of cost spikes, increase the predictability of cloud spend, and drive significant cost savings.
The challenge to effectively manage cloud services can be daunting, but by following key cost-reduction and service management strategies, you can help your organization get the most from it.