The business imperatives of cloud cost optimisation - Version 1

Cloud computing has revolutionised the way businesses operate, offering unparalleled scalability, flexibility, and performance. However, as organisations increasingly adopt cloud services, managing and optimising cloud costs has become a critical business imperative.

In Gartner’s November press release on worldwide public cloud spend, they are forecasting end-user spending to reach $723 billion in 2025 which is up from $595.7 billion in 2024. This growth in cloud spend should be welcomed with a degree of caution, as many businesses are not in control of their cloud consumption. In fact, Forbes reported that, “… recent surveys indicate that 30% of cloud spend is wasted.”

In this blog, we will explore the importance of cloud cost optimisation, the pitfalls of neglecting it, the benefits of ongoing optimisation, and the role of FinOps in achieving sustainable cost management.

Understanding cloud cost optimisation

Cloud cost optimisation involves strategically managing and reducing the expenses associated with cloud services while maintaining or improving performance and efficiency.

This process encompasses various intrusive and non-intrusive techniques such as rightsizing resources, leveraging pricing models (i.e. taking advantage of reserved instances and geography for beneficial commercial arrangements), automating processes, and monitoring usage to ensure cost-effectiveness.

As cloud environments grow more complex, businesses need to prioritise cost optimisation to avoid unnecessary expenditures and optimise their return on investment.

The pitfalls of not optimising cloud costs

Improper management of software licenses, whether on-premises or in the cloud, leads to increased risks and costs, including potential vendor fines and unnecessary expenses due to lack of license recycling and volume procurement. In some instances, the business case for cloud migration itself could be eroded by over consumption, if not carefully managed.
Some common pitfalls include:

Unpredictable expenses

Without proper cost management, businesses may experience ‘bill shock’ i.e. unpredictable and escalating expenses that can strain their budgets and limit their financial agility.

Resource waste

Overprovisioning and underutilisation of cloud resources lead to wastage, resulting in higher costs for unused or underutilised services.

Inefficiency

Inefficient resource allocation and lack of visibility into cloud usage can hinder operational performance and productivity.

Compliance risks

Inadequate cost management practices can expose organisations to compliance risks, as they may struggle to meet vendor license and/or subscription requirements.

The benefits of ongoing cloud cost optimisation

In contrast, continual cloud cost optimisation offers numerous cost, performance and environmental advantages that contribute to the overall success and sustainability of businesses.

Cost savings

By consistently monitoring and optimising cloud expenses, organisations can achieve substantial cost savings, freeing up budget and resources for strategic initiatives and innovation.

Enhanced efficiency

Optimising cloud resources and automating processes improve operational efficiency, enabling businesses to achieve more with less.

Improved performance

Proactive cost management ensures that resources are allocated based on actual needs, resulting in improved performance and user experience.

Scalability

Efficient cost optimisation supports scalable growth, allowing organisations to expand their cloud usage without incurring disproportionate costs.

Compliance and transparency

Implementing robust cost optimisation practices enhances compliance with regulatory standards and provides greater transparency into cloud expenditure.

Environmental

Cloud cost optimisation reduces energy consumption and carbon footprint, supporting sustainable practices and enhancing operational efficiency in GreenOps.

For more information on enterprise licensing in the cloud and how to optimise cloud costs, read our whitepaper.

FinOps: A strategic approach to cloud cost management

FinOps (cloud financial management) is a cross functional practice of technical, commercial, and financial resources that aims to reduce unnecessary cloud spend, forecast cloud cost more accurately, take advantage of better pricing through reserving resources in advance and accurately cross-charge and allocate costs internally.
This practice also includes more impactful technical measures to ensure optimal cloud consumption, such as database changes and CPU allocations.
Key principles of FinOps include:

Visibility

FinOps promotes transparency by providing real-time insights into cloud spending, enabling organisations to make informed decisions.

Optimisation

It focuses on continuous cost optimisation by leveraging data analytics, automation, and best practices to identify and eliminate inefficiencies.

Collaboration

FinOps encourages cross-functional collaboration, ensuring that all stakeholders are aligned in their efforts to manage and optimise cloud costs.

Governance

It establishes governance frameworks to enforce policies and practices that drive cost-effective cloud usage and compliance.

FinOps vs. Cost Optimisation

FinOps and cloud cost optimisation both aim to manage cloud expenses effectively, but they differ in approach and scope.

Cloud cost optimisation

Cloud cost optimisation is a tactical effort that focuses on non-intrusive measures to reduce costs through strategies like rightsizing resources, leveraging reserved instances, and eliminating waste.

For more information on how to create a financially sustainable cloud, read our whitepaper.

FinOps

FinOps is a broader financial management discipline that combines technology, finance, and operations teams to make data-driven decisions. It involves continuous cost monitoring, forecasting, and accountability to ensure the cloud spend aligns with business goals. FinOps is a strategic framework that integrates best practices into the organisational culture.

In summary

Cloud cost optimisation is an ongoing process crucial for businesses to unlock the full potential of their cloud investments. It involves strategic planning, continuous monitoring, and collaboration across departments. Prioritising cost optimisation can lead to significant savings, enhanced efficiency, and sustainable growth. Adopting FinOps as a strategic approach further empowers organisations to manage cloud expenditures effectively and achieve financial success.

In a rapidly evolving cloud landscape, proactive cost management is essential for maintaining competitiveness, agility, and resilience. As reliance on cloud services grows, the importance of cost optimisation cannot be overstated. By embracing optimisation practices and leveraging FinOps, businesses can ensure a cost-effective and efficient cloud journey.

Engaging with external partners for Software Asset Management (SAM) and FinOps expertise such as Version 1, will facilitate the delivery of specialised skills and a predictable commercial framework, benefitting in-house teams through cross-learning.

Our cost optimisation and FinOps methodologies have resulted in multi-million pound/dollar/euros savings for our customers, freeing up budget for adopting innovation, transforming legacy technologies and maintaining your businesses competitive edge.