Why Cloud Cost Optimization matters

Estimated time to read: 8 minutes

Why Cloud Cost Optimization Matters¶

Cloud cost optimisation is crucial as it helps to control the cost of cloud services, which, if not monitored, can rapidly grow and become a significant part of an organisation's budget. By optimising cloud costs, businesses can ensure they're only paying for the needed resources and using them as efficiently as possible. However, that's not the only reason. Monitoring what you use and how much it costs helps you identify or prevent malicious activities. The hackers usually compromise servers that have been forgotten for years and are vulnerable, and for the same reason, no one notices the compromise until it is too late. I have seen cases where the server's lists, service inventories, and catalogues don't include active instances. However, you can't hide them from the billing! Worth to remind you of the story of "The Accountant and Al Capone".

Understand your Cloud environment¶

This involves capturing what you need to deliver your products and service. A good technic is to tag or label your infrastructure and categorise them based on value streams or funding streams. That will give you a good first level of identification and understanding of what does what and who is responsible for them.

Understand Your Cloud Costs¶

This involves knowing what services you are using, how much they cost, and how their cost and funding structures work. Every cloud service provider has different pricing models. Understanding them is key to effectively managing costs. For example, prepaid and service reservations could help you reduce your cloud spending significantly. However, that needs good planning. You must monitor Service usage and costs, unused resources and idle instances, Spend reduction, right-sizing instances, and reserved instance utilisation.

All cloud providers offer a cost visibility and suggestion report. For example, AWS provides Cost Explorer to visualise, understand, and manage AWS costs and usage over time. It shows the costs of different AWS services and helps identify service usage patterns. Also, suggest how to reduce your cost based on the history, for example, by buying reserved instances or changing CPU type or instance size. Through Google Cloud's "committed use contracts," businesses can receive large discounts in return for committing to a specific usage level. This can lead to significant cost savings for predictable workloads.

Improve Your Margins¶

That's obvious when cloud costs are optimised. The money saved can improve profit margins. This is particularly impactful for businesses with high cloud spend, where even small percentage savings can translate into substantial dollar amounts. A company could reduce its cloud costs using modern technics like Serverless or cleaning unnecessary files, snapshots, backups and logs. Also, use Autoscaling technics that help you to support your customers when they need your service. Therefore, it is worth monitoring the Metrics, Gross margin, net margin, and operating margin.

New Revenue Streams¶

Savings from cloud cost optimisation can be reinvested into other areas of the business to drive growth and open up new revenue streams. For instance, saved funds could be allocated to R&D, marketing, or expansion into new markets. Most of the time, we have instances that are sitting around unused. We can use that resources/money to provide better or faster testing for our new release. That also makes it important to have DevOps pipelines in place.

Improve Performance¶

Cloud cost optimisation isn't just about reducing costs. It can also lead to performance improvements by helping to identify and eliminate inefficiencies in your cloud setup. For example, By implementing Amazon CloudFront, a company could reduce their load times and latency, providing a better user experience and potentially reducing user churn. Still, it is more cost-effective than running the same service with your EC2 instances and reverse-proxy maintenance across different regions. Familiarise yourself with the Total cost of Ownership (TCO) it will help you make better decisions and reduce the cost while improving performance.

Align Costs to Value¶

Align cost to value and creating priorities is part of your Agile culture. Cost optimisation allows you to allocate your budget towards the services and features that provide the most value to your business. By aligning costs to value, businesses can ensure that their cloud investments drive the maximum possible return. Working with Labels and Tags you can create appropriate reports and insights and understand ROI, TCO. That allows you to feed your Value streams and funding streams with data secured from Data-Driven decisions or Informed decisions.

There are cases when we scale services and the price per customer changes. For example, we currently have a service with 1000 users, which costs us as cloud infrastructure £1000 per month, and the current utilisation of the platform is 90%. That means we must take charge of every customer for at least £1. Because of our architecture, we can scale our infrastructure in steps of 1000 users. That means if you set a second set of servers, the monthly cloud cost will be £2000. That means, as a result, we need to find at least another 1000 users for the platform to control the cost, or we need to charge our users more.

Cost-Conscious Culture¶

Cloud cost optimisation promotes a cost-conscious culture. It encourages teams to be aware of the costs associated with their work and to consider cost-efficiency in their decision-making processes. Building the habit within the team that they close every cloud resource and service when they finish their work or schedule every evening to shut down all the non-production environments are some of the best practices to reduce the development cloud cost and build the habit and good behaviour. Also, at the end of the day, we need to think and look after our planet. We are not only saving money for our business, but we are also saving our planet.

Monitoring metrics like Changes in spending habits, frequency of cost audits, and cloud cost per employee are also good practice.

Engineering Productivity¶

Cost optimisation can improve engineering productivity by helping identify and remove bottlenecks and inefficiencies. When engineers can spend less time managing resources and more time on value-adding activities, overall productivity can increase. By automating routine tasks keeping the cost under control while at the same time using autoscaling and serverless environments, engineers can focus more on developing and less on maintaining, leading to increased productivity.

Agility¶

Cloud cost optimisation is not only around close instances, data retention policies or finding the better instance type for your Database. Coud optimisation is all about organising your environment for better visibility and building the right culture. I have seen that working with Value streams and/or Funding streams is a good way to keep track of what is happening in your cloud environment and be aligned with the business owners of the service.

Value Streams¶

A value stream is an organisation's steps to provide a product or service that customers want or need. These steps span different departments or parts of the organisation, often including idea generation, product development, production, delivery, and customer service.

Analysing value streams involves mapping out all the activities involved in delivering a product or service, from start to finish, and looking for ways to eliminate waste, reduce costs, and increase efficiency.

Key aspects of value stream analysis include:

Identify the product or service to be analysed. Map out all steps involved in delivering the product or service, including support and management activities. Measure the time and resources used at each step. Identify any sources of waste or inefficiency. Look for opportunities to improve the process. For example, a software company's value stream could include steps like concept development, design, coding, testing, deployment, and customer support. By mapping out these steps and measuring the resources used, the company could identify inefficiencies, like bottlenecks in the testing process or wasted time in deployment, and make improvements.

Funding Streams¶

Funding streams are the financial resources that an organisation uses to support its activities. This could include income from sales, investments, donations, government grants, etc.

Analysing funding streams involves understanding where an organisation's money comes from and how it's used. It can help organisations identify their most and least profitable activities, make informed budgeting decisions, and find opportunities to increase revenue or reduce costs.

Key aspects of funding stream analysis include:

Identify all sources of funding. Measure the amount of money coming from each source. Identify where that money is being used. Look for opportunities to increase revenue or reduce costs. For example, a non-profit organisation might have funding streams, including donations, government grants, and fundraising events. By analysing these funding streams, the organisation could identify opportunities to increase donations, apply for more grants, or improve the profitability of their fundraising events.

In the context of cloud cost optimisation, value streams could be analysed to find opportunities to reduce cloud spending (like moving data to cheaper storage or right-sizing instances), and funding streams could be analysed to ensure cloud spending is aligned with the organisation's financial resources and priorities.