7 Best Ways To Reduce Cloud Costs With Cost Management Tools

As businesses increasingly embrace the power and flexibility of cloud computing, they often find themselves grappling with a significant challenge: soaring cloud costs. The rapid growth and expanding complexities of cloud infrastructures can quickly lead to ballooning expenses, causing frustration and impacting the overall bottom line. 

Fortunately, amidst this dilemma, there is a silver lining in the form of cloud cost management tools, which provide a promising solution to mitigate this financial burden.

In this article, we will explore the seven best ways to reduce cloud costs by leveraging cost management tools. We will delve into the world of cloud expenditure optimization, highlighting practical strategies and techniques that enable businesses to gain better control over their cloud expenses. 

Overprovisioning of Resources

According to a recent Pepperdata study, the primary concern for 64% of businesses when it comes to operating in the cloud is effectively managing and containing costs.

In cloud cost management, the overprovisioning of resources is a prevalent problem that organizations face. Resulting in unnecessary spending on unused resources. 

Many businesses tend to err on the side of caution by provisioning more resources than necessary to ensure optimal performance and avoid any potential performance bottlenecks. However, this practice often leads to inflated cloud costs and underutilized resources.

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Source: Wallarm

Using autoscaling emerges as a valuable solution. Autoscaling allows businesses to dynamically adjust their resource allocation based on real-time demand. 

This approach ensures the right amount of resources is provisioned at any given time. Automatically scaling resources up or down in response to workload fluctuations allows organizations to optimize resource usage and avoid overprovisioning-related costs.

The benefits of using autoscaling for managing resource usage are twofold. 

  • It enables cost savings by eliminating the expenditure on unused resources. By scaling resources down during periods of low demand, businesses can reduce their cloud costs significantly. 
  • Autoscaling ensures that applications consistently perform optimally, even during peak loads, by automatically scaling resources up to meet the increased demand.

Implementing autoscaling involves the following key steps: 

  1. Organizations must first determine the autoscaling group criteria for their applications. This involves defining the metrics or conditions that trigger the scaling actions, such as CPU utilization or request rates. 
  2. Next, they need to create an autoscaling group and define its policies, including the minimum and maximum number of instances to be maintained. These policies govern how the autoscaling group dynamically adjusts resources. 
  3. Finally, businesses can launch their applications using the autoscaling group, allowing the system to automatically scale resources up or down based on the defined criteria.

Paying for Unused Resources

One common problem that organizations encounter in managing cloud costs is paying for unused resources. This issue can result in unnecessary spending and high cloud bills. In fact, organizations report that they waste 32% of cloud spend, according to the Flexera 2023 State of the Cloud Report.

When resources are provisioned but remain idle or underutilized, businesses incur costs without deriving any value from those resources. This inefficiency can significantly impact a company’s cloud budget.

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Leveraging the cost management tools provided by cloud providers offers a practical solution. Cloud provider cost management tools are specifically designed to help businesses monitor and optimize their cloud usage, including identifying and managing unused resources. 

Organizations can use these tools to gain visibility into their resource utilization and take proactive steps to eliminate or rightsize underutilized resources.

The benefits of employing cloud provider cost management tools to address the problem of paying for unused resources are multifold. 

  • These tools enable businesses to accurately track and analyze resource utilization, highlighting instances where resources are not actively being utilized. This visibility empowers organizations to make informed decisions about resource allocation and take appropriate action to optimize their usage.
  • Businesses can achieve significant cost savings by identifying and eliminating unused resources. Rather than paying for resources that are not providing any value, organizations can reallocate or terminate those resources, reducing their cloud bills and improving overall cost efficiency.

Implementing the solution involves a few key steps, namely: 

  1. Businesses must identify the cost management tools offered by their cloud provider. Your cost management tools list should include the major cloud providers. For instance, Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP) offer comprehensive cost management tools as part of their service offerings.
  2. Once the tools are identified, organizations need to configure them to track and monitor unused resources effectively. This may involve setting up alerts or creating rules to identify idle resources based on criteria such as inactivity duration or low utilization.
  3. After configuring the cost management tool, organizations should regularly review the reports and insights generated by the tool. These reports provide valuable information about unused resources, allowing businesses to take informed actions, such as resizing or terminating the resources as necessary. 

Inefficient Resource Allocation

Corporate cloud users typically encounter the problem of inefficient resource allocation, which may result in resource underutilization and increased costs. When poorly allocated or improperly utilized, businesses waste valuable computing power and incur unnecessary expenses

Implementing resource tagging provides a practical solution. This approach involves labeling or categorizing resources with specific tags or metadata that represent their purpose, owner, project, or any other relevant information. 

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Source: AWS

Tagging resources enables organizations to gain improved visibility into their resource allocation, enabling them to track and manage resources more effectively. This enhanced visibility empowers businesses to identify and address instances of inefficient resource allocation, leading to significant cost savings.

The benefits of using resource tagging to address inefficient resource allocation are manifold: 

  • It provides a clear and organized view of resource usage, enabling organizations to understand which resources are being utilized and which may be underutilized. This visibility allows businesses to make informed decisions about resource allocation and identify opportunities to consolidate or resize resources for optimal usage.
  • Resource tagging enhances cost allocation and accountability within organizations. Associating resources with specific tags lets businesses accurately attribute costs to departments, projects, or teams. This level of granularity facilitates cost tracking, budgeting, and chargeback processes, enabling businesses to gain better control over their cloud expenses.

To implement the solution, an organization must:

  1. Identify the resource types and categories they want to tag. This could include virtual machines, storage volumes, databases, or any other relevant resources within their cloud environment.
  2. Define a tagging strategy that aligns with the organization’s structure and objectives. This strategy may involve establishing naming conventions, tag hierarchies, or standardized metadata formats.
  3. Start tagging their resources accordingly. This can be done manually through the cloud provider’s management console or programmatically using automation scripts or infrastructure-as-code tools.
  4. Leverage the tag data to identify inefficiently allocated resources. Using the tagging metadata along with reporting and monitoring tools allows businesses to analyze resource usage patterns and identify underutilized or overprovisioned resources. It also enables users to take appropriate actions, such as resizing, rightsizing, or consolidating resources to optimize their allocation and reduce costs.

Lack of Visibility into Usage and Costs

Lack of visibility into usage and costs poses a significant challenge for organizations, as it can lead to unexpected bills and poor resource optimization in the cloud. Without a clear understanding of how resources are being utilized and the associated costs, businesses may struggle to identify inefficiencies, make informed decisions, and effectively manage their cloud expenditure. 

Leveraging third-party cost management tools provides a solution that offers improved visibility into usage and costs, leading to cost savings and better resource optimization. These tools allow organizations to gain deeper insights into their cloud usage patterns, resource allocation, and associated costs. 

These tools provide advanced analytics, customizable dashboards, and comprehensive reports that enable businesses to track and analyze their cloud spending in a more granular and meaningful way. 

With enhanced visibility, organizations can identify cost-saving opportunities and optimize resource allocation. They can also determine the best backup solutions and make data-driven decisions to align cloud usage with their budgetary goals.

The benefits of using third-party cost management tools for improved visibility into usage and costs are substantial. 

  • Organizations can gain a clearer understanding of their resource utilization, identifying instances of overprovisioning, underutilization, or inefficient spending. This insight allows businesses to take corrective actions, such as rightsizing instances, implementing cost-saving measures, or optimizing workload distribution across resources.
  • Secondly, these tools enable organizations to accurately allocate costs to departments, projects, or teams. With detailed cost attribution, businesses can perform accurate budgeting, financial planning, and chargeback processes. These benefits can foster transparency and accountability within the organization.

Implementing the solution involves the following key steps:

  1. Organizations should first identify third-party multi-cloud cost management tools that meet their specific needs and requirements. These tools can vary in cloud features, capabilities, and cost models, so thorough evaluation is essential to choose the most suitable option.
  2. Once a tool is selected, organizations need to install and configure it to collect cost and usage data from their cloud provider. This may involve setting up the necessary permissions and establishing the required integration between the cost management tool and the cloud provider’s APIs.
  3. After the configuration is complete, businesses can analyze the reports and insights generated by the tool. These reports offer valuable information about usage patterns, cost trends, and optimization opportunities.

Unexpected Costs Due to Unused Resources

When instances, databases, or storage volumes are provisioned but remain unused or underutilized, businesses incur unnecessary expenses. These unexpected expenses lead to financial waste and higher cloud bills. 

Implementing reserved instances offers a solution that delivers significant cost savings. This strategy allows organizations to reserve cloud capacity for specific instances, typically at a discounted rate compared to on-demand pricing. 

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Source: CloudAcademy

By committing to a specific reservation type and length, businesses can secure lower pricing for the designated resources, resulting in substantial cost savings over time.

Implementing reserved instances allows businesses to significantly reduce their cloud bills by leveraging the discounted pricing offered through reservations. This cost optimization measure is particularly beneficial for resources with consistent or predictable usage patterns.

Applying reserved instances involves the following steps:

  1. Organizations must first identify the instances they want to reserve. This involves analyzing their workload requirements, usage patterns, and long-term resource needs.
  2. Businesses need to choose the appropriate reservation type and length. Cloud providers typically offer various reservation options, such as Standard Reserved Instances, Convertible Reserved Instances, or Savings Plans, each with its own pricing and flexibility characteristics.
  3. After selecting the reservation type, businesses can proceed with purchasing the reserved instances. This typically involves specifying the quantity and duration of the reservation, as well as completing the payment process.
  4. Organizations need to apply them to their running instances. This step ensures that the reserved capacity is utilized, and the associated cost savings are realized. Depending on the cloud provider, this process may involve associating the reserved instance with a specific instance ID or applying the reservation at the account or organizational level.

Inaccurate Cost Forecasting

Erroneous cost forecasting is a prevalent issue that can lead to budget overruns and unexpected bills for organizations in the cloud. Without reliable cost projections, businesses may struggle to effectively allocate resources and plan their budgets, resulting in financial challenges. 

Addressing this problem entails setting up alerts and notifications for cost thresholds. This approach offers a solution that improves cost forecasting and budget management.

By configuring alerts and notifications for specific cost thresholds, organizations can receive timely updates when their cloud expenditure reaches predefined limits. This proactive approach enables businesses to monitor their spending and take appropriate actions to align with budgetary constraints. 

Setting up alerts and notifications provides real-time visibility into cost trends and helps organizations make informed decisions to optimize their cloud usage.

The benefits of implementing alerts and notifications for cost thresholds are significant. 

  • It improves cost forecasting accuracy by providing immediate insights into cost overruns or deviations from the planned budget. With timely notifications, organizations can identify potential budgetary issues early on and implement corrective measures to mitigate financial risks.
  • Setting up alerts and notifications enhances budget management by enabling proactive cost control. Businesses can closely monitor their spending patterns and identify areas where cost-saving measures can be implemented.

Implementing the solution involves a few key steps. 

  1. Organizations must first determine the cost threshold at which they want to receive notifications. This threshold should align with their budgetary goals and tolerance for cost variances. It can be a specific dollar amount, a percentage of the allocated budget, or any other relevant metric.
  2. Once the cost threshold is determined, organizations can set up alerts and notifications using the cloud cost management tools provided by their cloud provider. These tools offer functionalities to configure cost-related alerts based on predefined rules or customized criteria. Organizations can define parameters such as cost thresholds, time intervals, or specific cost categories to trigger the notifications.
  3. To ensure the relevant stakeholders receive the notifications, organizations should configure the alerts to be sent to the appropriate individuals or teams responsible for cost management and budget oversight. This guarantees that the right people are informed promptly and can take necessary actions in response to the cost alerts.

Lack of Governance and Compliance

Lack of governance and compliance in cloud cost management can expose organizations to security risks and financial penalties. Without proper oversight and control, businesses may inadvertently violate regulatory requirements, experience data breaches, or face penalties for non-compliance. 

To mitigate these risks, implementing cost allocation and governance policies offers a solution that improves governance and compliance, reducing risks and financial penalties.

By implementing cost allocation and governance policies, organizations establish guidelines and processes to ensure responsible and compliant cloud usage. These policies define roles and responsibilities and outline cost allocation methodologies. They also help enforce best practices for cloud cost monitoring such as resource provisioning, access control, and data security.

The benefits of applying cost allocation and governance policies are the following: 

  • It enhances governance and compliance by providing a structured framework to govern cloud usage and enforce security measures. With defined policies in place, organizations can ensure that cloud resources are provisioned and utilized in accordance with industry standards, regulatory requirements, and internal guidelines.
  • It helps organizations reduce security risks. Enforcing access controls, data encryption, and monitoring mechanisms helps businesses to strengthen their security posture and safeguard sensitive information. This proactive approach mitigates the risk of data breaches, unauthorized access, and other security incidents.

To implement the solution, organizations should undertake the following steps: 

  1. Firstly, they need to identify the relevant stakeholders and their roles in the cost allocation and governance process. This includes individuals responsible for cost management, compliance, IT operations, and security. Assigning clear roles and responsibilities ensures accountability and effective collaboration among team members.
  2. Next, organizations should define cost allocation policies and governance policies that align with their organization’s goals, industry regulations, and compliance requirements. Cost allocation policies establish guidelines for attributing costs to specific departments, projects, or teams within the organization. Governance policies outline rules and best practices for resource provisioning, access management, data protection, and compliance controls.
  3. Once the policies are defined, organizations need to implement them across their cloud infrastructure and applications. This involves configuring the necessary controls and mechanisms to enforce the policies effectively. Cloud provider tools and services, such as identity and access management (IAM), encryption, auditing, and monitoring features, play a crucial role in implementing and maintaining governance and compliance.

Empowering Cost Efficiency in the Cloud: Strategies, Action, and Future Trends

Implementing these strategies can help your organization optimize cloud costs, increase efficiency, and achieve better financial control. Assess your specific requirements, explore the tools and techniques mentioned, and tailor them to your organization’s needs.

Looking ahead, future trends in cloud cost management continue to evolve. Automation and artificial intelligence (AI) will play an increasingly prominent role in optimizing cloud costs by analyzing usage patterns, identifying optimization opportunities, and dynamically adjusting resource allocation.

Machine learning algorithms will enhance forecasting accuracy, providing more precise insights into future cost projections.

Moreover, the rise of multi-cloud and hybrid cloud environments will necessitate advanced cost management tools and techniques that span across different cloud providers and infrastructure setups. As organizations continue to embrace cloud technologies, optimizing costs will remain a priority, driving innovation and the development of more sophisticated cost management tools and techniques.

By implementing the strategies discussed in this article and staying informed about emerging trends, you can navigate the complexities of cloud cost management effectively. 

With careful planning, diligent monitoring, and proactive optimization, you can maximize the value of your cloud investments, achieve cost savings, and propel your organization towards a more efficient and cost-effective cloud infrastructure.