Cloud Cost Management best practices for multi-cloud environments

What is cloud cost management?

Cloud cost management refers to the practice of tracking, allocating, analyzing, and reporting cloud spending to ensure that cloud resources are used efficiently and in alignment with business objectives. It plays a crucial role in managing the variable cost model of cloud infrastructure as a service (IaaS), allowing organizations to maintain financial accountability while optimizing their cloud investments.

Cloud cost management focuses on understanding how resources are being used, identifying areas where costs can be reduced, and implementing processes for effective spending control. This includes monitoring usage patterns, allocating costs to specific departments or teams through methods like showback or chargeback, and automating the generation of cost reports to foster a culture of financial awareness.

The primary goal of cloud cost management is not only to reduce expenses but also to ensure that cloud spending correlates with productive activities that drive business growth. While cost optimization is a core component of cloud cost management, it also involves ensuring that spending aligns with business goals, such as expanding customer bases or launching new features that drive revenue.

In essence, cloud cost management helps organizations make informed decisions about cloud investments, ensuring that every dollar spent contributes to business success while maintaining performance, compliance, and security standards. It acts as the foundation upon which effective cloud cost optimization strategies are built, transforming financial insights into business value.

Cloud Cost Management vs. Cloud Cost Optimization

While both cloud cost management and cloud cost optimization are integral to managing cloud resources effectively, they focus on different aspects of the financial control process.

Cloud Cost Management:

Cloud cost management is centered around allocating, tracking, reporting, and analyzing cloud expenditures. It provides visibility into how resources are being used and ensures financial accountability by allocating costs to specific departments, teams, or projects. The goal of cloud cost management is to ensure that cloud spending is tracked and controlled, helping organizations stay within budget and maintain financial transparency. It lays the groundwork by providing insights into cloud spend patterns and identifying areas that need attention.

Cloud Cost Optimization:

Cloud cost optimization goes beyond tracking and managing spend—it uses the insights gathered from cost management to actively improve the efficiency of cloud spending. It involves continuously evaluating and adjusting resources to maximize business value at the lowest cost. The goal of cloud cost optimization is not just to reduce costs but to ensure that spending aligns with business objectives. This means that an increase in cloud costs is acceptable if it leads to growth, increased revenue, or other positive business outcomes.

9 Best Cloud Cost Optimization and Management Practices:

Understand your cloud bill

Understanding your cloud bill is essential for effective cloud cost management. Instead of focusing solely on the grand total, it’s important to break down and analyze the charges in detail. This allows you to identify where your money is going and find opportunities to optimize costs. Key areas to review include:

• Compute Costs: Charges for processing power, which vary based on the types and sizes of virtual machines used. Pricing differences arise from factors like regional variations, reserved vs. on-demand instances, or the use of spot instances.
• Managed Services Costs: If you're using managed services like databases, you’ll incur charges based on usage or per-hour rates.
• Storage Costs: These cover the cost of storing data, which depends on the type of storage, redundancy options, and additional fees for data retrieval and transfer.
• Discounts and Savings: Any savings programs, like reserved instances or committed use contracts, will be reflected here, reducing your overall costs.

Cloud vendors provide billing details explaining the cost of cloud services. You can use this information to identify high-cost areas and generate savings.

Identify Underutilized Resources

An essential part of cloud cost optimization is identifying and eliminating underutilized resources that quietly inflate your cloud expenses without providing any value. Often, resources are provisioned for temporary tasks and are left running or attached, leading to unnecessary charges. By regularly monitoring and managing these idle resources, you can significantly reduce waste and optimize your cloud spend.

Here are a few steps to effectively manage underutilized resources:

• Set Up Regular Monitoring: Implement cloud monitoring tools to track key metrics such as CPU, disk I/O, bandwidth, and memory usage. These tools can alert you to resources with consistently low or no activity, signaling potential opportunities for downsizing or removal.
• Locate Idle Resources: Look for resources, such as virtual machines, databases, or storage, that show minimal activity over extended periods. For example, an idle database with little to no read or write operations for months could be a candidate for deletion or downsizing.
• Evaluate and Take Action: Once you've identified underutilized resources, assess whether they will be needed for future projects. If not, take action by removing or scaling them down to avoid unnecessary costs. Regularly pruning these resources ensures you’re only paying for what your business actively uses.

Right-Size Your Computing Services

Right-sizing involves adjusting your computing resources to match your actual needs, ensuring you’re not overpaying for excess capacity while also avoiding performance bottlenecks from under-provisioned resources. This process includes reducing the size of over-provisioned resources and scaling up those that are underpowered. By right-sizing, you can optimize both performance and cost efficiency.

Use Reserved Instances and Savings Plans

To significantly reduce cloud costs, leveraging Reserved Instances (RIs) and Savings Plans (SPs) can offer substantial savings compared to on-demand pricing models. These pricing models allow businesses to commit to long-term usage, benefiting from discounts of up to 75%

• Reserved Instances (RIs): RIs allow you to prepay for specific compute instances for a term of 1 or 3 years, securing a lower rate compared to on-demand instances. This model is ideal for workloads with predictable and steady usage patterns. However, it requires careful planning and analysis of your historical usage to ensure the right instance type and region are selected.
• Savings Plans (SPs): Savings Plans offer similar discounts but with greater flexibility. Rather than committing to a specific instance type or region, you commit to a set dollar-per-hour usage rate for 1 or 3 years. This allows you to switch between different instance types, operating systems, or regions while still benefiting from reduced costs. SPs are well-suited for workloads with variable usage patterns but still offer the same significant savings.

Both RIs and SPs provide strategic cost-saving opportunities for businesses, enabling them to cut down on cloud expenses while maintaining the necessary computing power to support operations.

Leverage Spot Instances

Spot Instances offer a great way to significantly reduce cloud costs by allowing you to bid on unused cloud capacity at much lower prices compared to on-demand instances. However, since they can be interrupted by the cloud provider when demand increases, they are best suited for non-critical workloads that can tolerate interruptions.

To make the most out of Spot Instances:

• Monitor Spot Prices: Spot instance prices fluctuate based on supply and demand, so regularly monitoring these prices using third-party tools can help you time your purchases for maximum savings.
• Choose the Right Use Cases: Spot instances are ideal for workloads that can be interrupted without major consequences, such as stateless applications, development environments, batch processing, or test workloads.
• Integrate with Load Balancers: Linking your Spot Instances with load balancers ensures workload distribution, mitigating the effects of any instance interruptions.
• Have a Fallback Strategy: Since Spot Instances can be reclaimed with little notice, having a contingency plan in place, such as automatically switching to on-demand instances, is crucial to maintaining uninterrupted operations.

Set Up Monitoring and Anomaly Detection

Effective cost optimization starts with monitoring key metrics and detecting anomalies that could lead to extra costs. Here's what to track:

• CPU and Memory Utilization: Identify underused or overutilized instances. This ensures resources are right-sized for workloads.
• Network Traffic: Monitor spikes in traffic to manage data transfer costs.
• Storage Usage: Regularly clean up unused storage to prevent costs from piling up.
• Instance Uptime: Turn off instances when not in use, especially outside business hours.
• Error Rates: High error rates can drive up costs due to reloads or extra CPU usage.

You can set alerts to notify you when you approach or exceed expected spending thresholds. Once you analyze an anomaly’s root cause, you can address it to prevent unexpected costs and stick to your planned budget.

Use Data to Optimize Cloud Costs at Every Stage of the Software Development Lifecycle

Cost optimization shouldn't be an afterthought but a continuous process throughout the software development lifecycle. Here's how to integrate cost efficiency at each stage:

• Planning: Justify your budget and use historical cost data to make informed decisions, reducing unexpected expenses and adjusting budgets early.
• Design & Build: Ensure cost-effective architecture decisions, keeping track of planned spending and unit costs, which helps with scalability.
• Development: Use smaller, cheaper instances for testing and build cost-efficient, lightweight applications.
• Testing: Leverage automated and spot instances for testing to reduce resource use and costs.
• Deployment: Automate processes to limit resource use and minimize errors.
• Monitoring: Set real-time monitoring and alerts for anomalies, using auto-scaling and load balancing to handle traffic changes efficiently.
• Maintenance & Updates: Regularly review and deprecate unused resources, testing updates on smaller instances to reduce costs.

Set Budgets

Setting clear budgets is essential for controlling cloud costs. Collaborate with engineering leaders, product teams, and executives to define realistic cost goals for each project, avoiding arbitrary numbers. Align budgets with the delivery plan, considering factors like product features, free trials, or enterprise-level offerings.

A monthly budget tailored to your organization's needs allows you to strategically plan and manage cloud resources, making tradeoffs during development to balance cost with performance and resiliency. An established budget ensures you're optimizing costs while keeping spending on track.

Build a Culture of Cost Awareness

To ensure effective cloud optimization, fostering a culture of cost awareness is crucial. Organizations that excel in this area often establish Cloud Centers of Excellence or FinOps practices to standardize cloud best practices through Cloud Operating Models.

Tools like Densify aid in promoting cost awareness across departments with transparent, detailed reports that reveal hidden waste and spending patterns. Decision-makers can then sponsor company-wide cost optimization initiatives, employing strategies like showback or chargeback, and incentivize teams that actively rightsize their resources, making cost efficiency a shared priority across the organization.

Achieve Cloud Cost Optimization using Harness Cloud Cost Management 

Manually overseeing and implementing all the cost optimization techniques can be daunting, which is why Harness provides a comprehensive suite of features designed to streamline Azure cost optimization. Harness CCM leverages machine learning and AI to manage your cloud expenses effectively, minimizing waste and maximizing efficiency. From Recommendations that help you better manage and allocate resources to AutoStopping rules that automatically shut down idle resources when not in use, Harness ensures everything is automatically managed, allowing you to focus on your core business while significantly reducing costs. 

For organizations utilizing AWS EKS clusters, the Cluster Orchestrator (currently in Beta) optimizes both performance and cost. Additionally, the Commitment Orchestrator simplifies the management of Reserved Instances and Savings Plans. 

Together, these features help you achieve cloud cost optimization, better performance, and enhanced cost efficiency.

Learn more about Cloud Cost Management by Harness, or book a demo today.