As enterprises continue to transfer more of their technology infrastructure to the cloud, business service professionals across the IT sector are being forced to rethink their mission, objectives, strategy and tactics. In this blog we will explain the what, why and where the migration to cloud ushers in many more impactful opportunities for IT professionals to provide value to their organizations. As part of this paradigm shift, IT professionals will be able to evolve into strategic enablers by establishing new dimensions of collaboration to help their business units optimize technology investments and eliminate potential risks. We will categorize the impact of cost savings opportunities by either direct short-term actions versus long-term programs. In subsequent blogs we’ll provide additional clarification and best practice recommendations for IT managers to understand how to implement these cost savings objectives.
Let’s start this conversation with outlining the five areas where an effective cloud expense management program can help optimize the use of leased cloud technologies.
The strategic outcomes that are derived from having an effective corporate cloud expense management program include:
Examples of direct short-term actions that can be taken and result in an immediate impact on cost savings include:
Examples of long-term programs that can be implemented to optimize cloud expenses include:
It’s very important to be aware of both the pros and cons of implementing cost optimization opportunities. Organizations must take a holistic approach and understand all the inter-dependencies and develop effective forecast models to successfully achieve cost optimization.
Table 1 below summarizes the potential upside and requirements to implementing cost savings measures.
Return on Investment (ROI) as applied to cloud expense management is not as simple as the traditional ROI model since as stated in the above table, the lock-in rate and reserve capacity commitment for an RI agreement may not be as financially attractive after the CSP offers a future lower-rate standard option. As noted in the previous blog, CSPs often require one or three-year commitments of capacity to receive the discounted rate. The ultimate goal of the cloud expense management program is to lower the unit cost of doing business for each business unit. It’s important to note that the key variable in deriving unit cost is understanding the business metric relative to each business unit where Unit Cost = (Total Cost/<business metric>). The diagram below illustrates the how investing in RI can initially result in overspend versus public on-demand rates until the actual consumption meets the forecasted business model.
CSPs offer an ever-growing and ever-changing spectrum of cost savings opportunities. The CCoE needs to leverage the sophisticated statistical analysis of a cloud expense management platform that aggregates all the itemized charges and presents an intuitive hierarchical guided perspective in order to help identify and subsequently apply the appropriate savings program. Tables 2 and 3 below compare the RI cost optimization opportunities for a cloud server to just keeping the server on during actual working hours. The comparisons illustrate that the standard always-on monthly rate of $39.28 for 700 hours of usage can be reduced by 73% to $10.56 by only using the server at a standard on-demand rate during the actual 200 working hours. However, if this is a production always-on service that requires 24×7 availability, they could realize a total savings of 55% by incorporating the service into a standard 3-year RI commitment program, as illustrated in Table 3.
Table 2: Illustrates the cost of keeping a server on for a full month versus working hours only.
Table 3: Illustrates additional savings that can be realized with by leveraging one of the 1 or 3-year RI commitment options should an always-on service require 24/7 availability.
Table 4 outlines the derived value stakeholders receive based on the actions related to different services offered from an effective cloud expense management program.
Table 4: Represents the relative value of cloud expense management services provided.
Stay tuned to this blog series to learn some best practice recommendations on expanding your expense management program to include cloud services. In case you missed our previous blog about “Common Causes of Cloud Cost Overruns”, click here.
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