Mastering Cloud Economics: A Guide To Strategic Cost Management in Cloud Computing.

Overlooked Skills of a Cloud Practitioner.

Cloud computing encompasses a diverse array of skillsets that are often misunderstood, leading to misconceptions about their significance in the industry. One such misunderstood skillset is the ability to design and implement effective cloud security measures. While cloud security is paramount in safeguarding sensitive data, it is sometimes overlooked or underestimated in favor of more visibly tangible skills. Another often underappreciated skill is cloud cost optimization, which involves efficiently managing and minimizing expenses associated with cloud services. Organizations might undervalue professionals who possess this skill, missing out on substantial savings and operational efficiencies.

The difference between cloud service providers is mostly based on the APIs they offer. These APIs make certain deployment tasks easier. These conveniences come at a significant cost. The cost could be the literal monthly fees associated with the convinces or the hidden cost of stickiness to the service and with that their cloud environment.

The primary drivers that lead businesses to the cloud are efficiency and cost savings. Wanting to improve “time to market” as legacy IT organizations tend to move too slow. Large siloed teams that focus on specific technology tend to lose perspective of the big picture. Businesses today must be able to pivot, rapidly without resistance.

Migrating away from expensive data centers that require power, cooling and large teams to support in favor for the elastic characteristics of the cloud. Use and pay for only what you need. Reducing the size of IT staff or in some cases eliminating IT as a whole. It just makes sense.

Why costs can get out of control.

The concept of “not worrying about infrastructure” in the cloud drives ignorance which drives dependencies on cloud services.

As IT organizations downsize and transform to cloud operations teams, they lose expertise. Every company is told by “experts” that this is required to succeed. The goal is to bring in young talent who are more accepting of change and doing things differently. The experienced staff will be replaced with catalog of APIs that will manage all of the underlying infrastructure for you.

As compute resources are built, things like databases, DNS, firewall rules, image scans, data retention and surveillance just magically happen. If not done carefully you can find yourself spending $300/month to support $30 with of virtualized compute. As workload gets defined and put in scalable chunks, managing the cost per chunk is imperative. Not understanding costs beyond the linear price of compute and storage will lead to costs get out of control.

Free services are not always free. They may be free to deploy but have usage based metering that can make use of the service not sustainable at scale. We have seen free services turn in to paid service multiple times. Notification of these changes usually occur through email and are usually ignored with the other thousand spam messages cloud service providers send out monthly.

While cloud computing offers scalability and flexibility, it’s important for organizations to be aware of potential hidden costs that may arise. Some common hidden costs in cloud computing include:

  1. Data Transfer Costs: Many cloud providers charge for data transfer between different regions, availability zones, or outside the cloud network. Organizations with high data transfer requirements may incur unexpected expenses.
  2. Egress Fees: Cloud providers often charge for data leaving their network. As data flows out of the cloud to end-users or other services, egress fees can accumulate, particularly in scenarios with large amounts of data transfer.
  3. Storage Costs: While basic storage costs are often transparent, additional charges may apply for features like frequent access, retrieval times, or redundancy options. Understanding how data storage is utilized is crucial for managing costs effectively.
  4. Network Bandwidth Costs: Some cloud providers impose charges based on network bandwidth usage. High network activity, especially in situations like data-intensive applications or frequent interactions with external systems, can contribute to increased expenses.
  5. Licensing Fees: Certain software licenses may not be included in the standard cloud service offerings, and organizations may need to pay additional fees for using specific applications or software in the cloud environment.
  6. Idle Resource Costs: Leaving resources running when they are not actively in use can lead to unnecessary expenses. It’s important to implement strategies for scaling resources up or down based on demand to avoid paying for idle capacity.
  7. Compliance and Security Costs: Ensuring compliance with industry regulations and maintaining robust security measures may require additional tools or services, incurring extra costs beyond the basic cloud infrastructure charges.
  8. Personnel Training: Transitioning to the cloud may necessitate training for the existing IT staff or hiring specialized personnel with cloud expertise, which can contribute to additional costs.
  9. Downtime Costs: While cloud providers offer high availability, unforeseen outages can occur. Organizations need to consider the potential costs associated with downtime, including loss of productivity and potential damage to the brand reputation.
  10. Monitoring and Management Tools: Advanced monitoring, analytics, and management tools that enhance visibility and control over the cloud environment often come with additional costs. Investing in these tools can be essential for optimizing performance and cost-effectiveness.

To mitigate these hidden costs, organizations should conduct thorough assessments of their cloud usage, regularly monitor resource utilization, and implement cost management strategies tailored to their specific needs and usage patterns.

How are you managing elasticity? In many cases the scale out on demand algorithm is overly aggressive out of fear of not meeting performance expectations. Once these resources are scaled out they are not aggressively scaled back in. This is no different than how demand and capacity planning and budgeting was done in the past. Cloud resources cost more than on-premise resources. The cost savings in cloud all comes from only paying for what you need. Because you can rapidly scale out resources there is no need to pay for unused capacity once a year peak usage demands.

How to avoid cost runaway?

Prioritize cost savings when establishing key performance indicators. Reward results where costs are being managed. Educate your teams on cost pitfalls and embrace a culture of innovation.

  1. Rightsize Resources: Choose the appropriate instance types and sizes for your workloads. Avoid overprovisioning by regularly assessing and adjusting resources based on actual usage patterns.
  2. Implement Auto-Scaling: Utilize auto-scaling features to automatically adjust resources based on demand. This ensures that you only use and pay for the resources you need at any given time.
  3. Monitor Resource Utilization: Implement robust monitoring solutions to track resource usage, identify bottlenecks, and optimize performance. Use this data to make informed decisions about scaling and resource allocation.
  4. Utilize Reserved Instances: Take advantage of reserved instances or savings plans offered by cloud providers. Committing to a specific term can lead to significant cost savings compared to on-demand pricing.
  5. Explore Spot Instances: For workloads with flexible timing and lower priority, consider using spot instances, which are significantly cheaper than on-demand instances. However, be aware that spot instances can be terminated with little notice.
  6. Optimize Storage: Regularly review and optimize storage usage. Delete unnecessary data, use storage classes with lower costs for infrequently accessed data, and implement data lifecycle policies.
  7. Implement Cost Tags and Labels: Use cost allocation tags and labels to categorize resources based on departments, projects, or purposes. This helps in tracking expenses more granularly and understanding which areas contribute to costs.
  8. Set Budgets and Alerts: Define budgets for your cloud spending and set up alerts to notify you when costs approach or exceed predefined thresholds. This proactive approach allows for quick intervention to prevent unexpected expenses.
  9. Review and Optimize Networking Costs: Understand the network usage patterns and optimize accordingly. Minimize data transfer between regions, use content delivery networks (CDNs) for static content, and optimize bandwidth usage.
  10. Evaluate and Adjust Reserved Capacity: Regularly review and adjust reserved capacity based on changing workloads and requirements. Unused reserved instances may lead to unnecessary costs.
  11. Consider Multi-Cloud and Hybrid Strategies: Explore multi-cloud or hybrid cloud solutions to take advantage of cost variations between providers and optimize workload placement based on pricing models.
  12. Regularly Audit and Update Policies: Conduct regular audits of your cloud environment to ensure adherence to cost optimization policies. Update these policies based on changes in workload, business requirements, or cloud provider offerings.
  13. Explore Serverless Architectures: Consider serverless computing options for specific workloads. Serverless architectures automatically scale based on demand, and you only pay for actual execution time.
  14. Evaluate Alternatives for Data Storage and Transfer: Assess different storage and transfer options offered by your cloud provider. Consider cost-effective alternatives such as cold storage for infrequently accessed data.

Recognize where value is real. Azure, AWS and Google employ a large team of security specialists to focus on securing their cloud environments. These security teams have to meet expectations of their large, global customer base. If one of them were to be compromised it could be devastating to their reputation. Leveraging this to your benefit makes sense.

Follow “best practices” and augment with your own efforts. Use third party and open source products where possible, that are low cost yet provide as much or more capabilities.

Don’t fear a hybrid solution where you can leverage multiple cloud providers “free” offerings. Hybrid environments consisting of multiple cloud service providers and on-premise cloud services. Building Infrastructure as Code (IaC) for multiple environments. Use Terraform as it was meant to be used.

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Billy Felton

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