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Cloud Cost Optimization
April 29, 2022

Why Your Cloud Cost Is Difficult to Understand?

Shungo Arai
Translations are provided by machine translation. In the event of any discrepancy, inconsistency or inconsistency between the translation provided and the English version, the English version shall prevail.
Table of contents

It has become a standard for many businesses, public organizations, and educational institutions to consider the public cloud as the first choice when selecting an IT infrastructure. Within organizations that have already adopted the cloud, the number of accounts and the spend on cloud are also on the rise as the cloud adoption expands into new projects or business units within the organizations.

Amazon Web Services (AWS) states the following two financial advantages out of “Six Advantages of Cloud Computing”:

  • CapEx to OpEx.In the past, the costs for data centers and servers were recorded as assets after investing in advance, and amortized over a certain period while the cloud only charges the costs for the resources consumed and does not require any prior heavy investment.
  • Economies of scale. Hyperscale cloud providers achieve higher economies of scale resulting in lower prices offered to users.
  • However, it is now an issue for many user organizations to understand the costs of the cloud which is basically in pay-as-you-go price model and whose list price is frequently changed and even new purchase options are sometimes introduced.

    We will analyze the issues user organizations are facing in understanding cloud costs in this article.

    Multi-layered Challenges for Cloud Costs

    The image below illustrates the challenges in understanding cloud costs. The issues have multiple layers ranging from visible one to hidden ones like an iceberg. Let's start from the top of the iceberg.


    Difficulty in accurate cost understanding

    Among the various issues, the one most familiar to user organizations issue is probably would be the "difficulty in accurately grasping costs understanding." If various departments or/ projects in your organization use multiple accounts or cloud providersvendors, it must be more or less challenging to collect entiremany invoices from the cloud providersprivudervendors and accurately allocate the spendusage amount for each department and/ project accurately. This complicated calculation would require human resources with cloud knowledge, and  tends to cause human errors such as miscalculation mistakes are likely to occur

    It is this challenge that many organizations have to worry about. However, this is just the tip of the iceberg, and you will find furthermany "invisible challenges" under the water.

    Knowledge Costs

    Why is it difficult to get an accurate picture of costs? The direct reason is that the provision method and price and delivery models set by the cloud provider vendors are complicated and change frequently leading to complexities. An invisible challenge laying right below sea level is about “knowledge”.

    Many organizations use spreadsheet software (e.g. Excel, Google Sheets, etc.) to monitor the cost of the cloud. Organizations that heavily spend a lot of money on the cloud often have their own may be developing in-house tools developed internally. In either case, macros or and systems will need to be updated or changed when changes occur on the cloud provider vendors change something inside. In addition to the "maintenance cost" on spreadsheets or tools, another problem behind is that such maintenance needs the accurate understanding over the changed parts including if there is any change, or what the difference from the previous is

    For this reason, it is often the case that in many companies and organizations usually heavily rely on a certain "savvy person" who has a systematic and holistic understanding of cloud costs. In other words, the tacit knowledge on cloud costs is often embedded to a specific individual in an organization.

    Those maintenance costs and individualized tacit personalization of knowledge can be collectively called "invisible costs related to knowledge."

    Passive Attitude Towards Cloud Costs

    "The difficulty in accurately cost understanding costs" and the "costs related to knowledge-related costs" are related to further problems;. It's a passive attitude towards cloud costs. The first "difficulty in accurately cost understanding costs" is aboutwas related to the costs already incurred. It will be even more difficult to know in advance what costs will be incurred in situations where it is difficult to know exactly what costs have been incurred. In such a situation where there’s a difficulty to understand even the costs already incurred, uUnderstanding future costs in advance will be far more difficult

    "Pay-as-you-go" is one of the key advantages features of the cloud., Any service offered in a pay-as-you-go model requires users’ careful attention to estimating and controlling its costs in any ongoing time period, however such proactive attempts cannot be conducted without a timely cost visibility.

    Cloud Fees Are Left Unchecked

    As a result of the issues above, organizations fall into a the situation of just paying the invoices coming from by the cloud provider vendors, without questioning whether those bills are adequate not realizing that there are multiple ways to reduce their cloud spend. By taking various purchasing options provided by cloud vendors and taking measures to reduce costs, the financial cost advantage benefits that cloud provider vendor highlight can be realized by leveraging various purchasing options offered and implementing measures for cost reduction though., Unfortunately, not many organizations have stepped on a journey to optimize and reduce the cloud costs.

    Challenges for the Organization

    Let's recapitulate the issues listed above from an organizational perspective. As shown below, it can be classified into three categories: "cost understanding and optimization", "jobs required workload", and "cost awareness",. which alsoIt can be said that these three correspond to "action", "process", and "mindset".

  • Action level challenges: Cost understanding and optimization
    1. It is difficult to accurately understand the cost per ach department or project within the organization, therefore, and it is difficult to identify whether and where the source of cost-related issues are.
    2. Lack of accurate and timely costs recognition prevents are not known, it is not possible to take further steps for further cost reduction and optimization
  • Process level challenges: Jobs required
    1. Huge amount of effort is needed to understand the cost. and Consequently, organizations manage to run a process monthly for cost report once a monthand analysis. and cannot allocate their time and resources for However, more frequent cost recognition, e.g. daily, or weekly.
    2. Even if cost calculation aggregation is automated either by (in-house tools, Excel macros or internal tools, etc.) organizations, you will still be plagued by maintenance due to service changes and updates of services at on the cloud provider vendors end side and heavy reliance  on a specific that one individual with deep specific cloud knowledge on cloud costs.
  • Mindset-level challenges: Cost Awareness
    1. LackThe absence of timely cost understanding and sharing of costs makes it difficult to foster cost awareness in the user departments (LOB).
    2. LackThe absence of cost awareness tends to result in further delays in cost understanding and optimization actions. The cloud costs in the organization are often left consuming is in such organizations
    3. Accounting department has difficulties into confirming whether the costs are adequate accurate appropriate as the details of the costs cannot be understood without cooperation with IT or engineering team

    In order to deal with these problems, in recent years, advanced organizations have started to form "Cloud Center of Excellence (CCoE)", a cross-functional departmental cloud dedicated team responsible for developing and managing the cloud strategy"Cloud Center of Excellence (CCoE)" has been formed, and to bring frameworks such as "Cloud Financial Management (CFM)" and "FinOps" into practice.

    Related Articles

  • Basics for Your Cloud Cost Understanding
  • Basic Ways for Cloud Cost Reduction
  • What is CFM / FinOps?
  • What is CCoE?
  • What is Showback / Chargeback?
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