Preventing runaway cloud costs in 2024

With the increasing adoption of cloud services, managing cloud costs has become a top priority for CFOs in 2024.

With 55% of companies spending more on cloud services this year compared to the last, it’s clear that the cloud is no longer a luxury but a necessity. However, managing these costs effectively requires a strategic approach.

A recent study by Vertice, which surveyed 600 finance and technology leaders across the US and UK, revealed that a quarter of companies described their cloud spend as a significant increase compared to last year. Only 5% reported cloud costs to be lower than they were in 2022.

“Just like in football, success in finance requires making smart, decisive moves that score major wins for the organisation.” —  Dan Crumb, CFO of the Kansas City Chiefs.

The impact of rising cloud costs

The COVID-19 pandemic has accelerated the adoption of cloud services, with organizations relying on the cloud to support remote work and digital transformation initiatives.

However, this rapid adoption has led to unexpected challenges in managing cloud costs. According to a report by International Data Corp, total worldwide spending on cloud computing is projected to surpass $1 trillion in 2024, with a compound annual growth rate of 16%.

As cloud spending continues to increase, many organizations are facing cost overruns and unexpected expenses. A study by International Data Group and IT services provider Insight revealed that 70% of organizations experienced public cloud costs that were significantly higher than initially anticipated. Unplanned cloud adoptions, lack of merger and acquisition integration, and data egress charges were identified as the top reasons for cost overruns.

To effectively manage cloud costs, CFOs need to take a proactive approach and establish robust cost management practices. Cloud cost management involves analysing and optimising cloud spend to ensure that organisations are getting the most value for their investment.

Establishing a cloud cost management team

One of the key steps CFOs can take is to create a dedicated cloud cost management team. This team should include members from finance, IT, and other relevant departments.The team’s primary responsibility is to monitor and control cloud spending, identify cost-saving opportunities, and ensure cost optimisation across the organization.

Assigning ownership of cloud resources to specific teams or individuals is essential for effective cost management. By clearly defining cost ownership, organizations can promote accountability and better control cloud spending. Each team or department should be responsible for monitoring and managing the costs associated with their allocated cloud resources.

Defining clear budgets for cloud spending is also crucial to ensure cost control. CFOs should work with IT and business leaders to establish realistic cloud budgets based on the organization’s needs and priorities. Additionally, organisations should implement policies for resource provisioning, usage, and cost allocation. These policies will help enforce cost-conscious behaviour and prevent unnecessary spending.

In addition, organisations need real-time visibility into their spending. Implementing cloud cost management tools can provide valuable insights into cloud usage and expenditure. These tools enable organisations to monitor spending in real-time, generate reports, and identify cost anomalies and trends. By regularly reviewing cost reports, CFOs can proactively address any cost overruns or inefficiencies.

Implementing resource right sizing

Resource right sizing is an essential strategy for optimizing cloud costs. By analysing resource utilisation data, organisations can determine the appropriate size and capacity of their cloud instances. Right sizing ensures that resources are neither underutilised nor overprovisioned, resulting in cost savings without compromising performance.

Similarly, data transfer costs can often be a significant expense in cloud environments. CFOs should closely monitor data transfer costs between different services and regions. By optimising data transfer and caching frequently accessed data, organisations can reduce unnecessary costs associated with data movement.

Automation too plays a crucial role in cost optimisation. CFOs should explore automation and scripting tools to perform cost optimization tasks. For example, organizations can automate resource scheduling based on usage patterns to ensure resources are only active when needed. By leveraging automation, organizations can achieve cost savings and improve overall operational efficiency.

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