The world of enterprise computing is evolving rapidly, and it’s no longer enough to provide access to powerful tools and applications. Enterprises must now deliver those same capabilities to employees across multiple devices while supporting security and compliance requirements. This requires a modernized approach to managing data centers and cloud infrastructures.
There are enterprise-level solutions out there for every business size and budget. For smaller companies, cloud infrastructure and services offer the flexibility, scalability, and cost savings required to compete in today’s market. However, even though most enterprises use cloud solutions, there are still challenges associated with optimizing cloud costs.
The good news is that while enterprise data centers are growing larger and more complex, cloud computing is becoming increasingly affordable. With cloud computing, enterprises can scale quickly and easily without investing heavily upfront in hardware and software. They can focus on innovation rather than infrastructure maintenance. And they can save money because they don’t have to pay for physical space and power.
This guide provides best practices for an effective Cloud cost optimization strategy. We’ve identified five key areas where you can cut costs and get rid of idle resources and Cloud waste, including:
1. Infrastructure
2. Software licensing
3. Data storage
4. Security
5. Cloud management
We’ll also discuss how to measure and monitor costs, so you know whether or not you’re getting value from your cloud investments.
Table of Contents
What is Cloud Cost Optimization?
“Cost Optimization” means “to determine which parts of an existing system need to be changed so they run better.” It usually entails analyzing the system’s current performance, identifying where it could improve by moving to the web (or some other type of distributed computing environment), determining what must be done to ensure success, and then making those modifications.
Optimizing an existing application might involve moving some workloads into the cloud, reducing the number of servers needed to support those workloads, consolidating data centers, or even changing how the application works. For example, one way to optimize an eCommerce site is to use Amazon Web Services (AWS). AWS provides flexible computing resources such as virtual machines, storage, databases, networking, load balancers, security groups, and monitoring tools. These features enable you to quickly provision capacity based on demand rather than building large infrastructure upfront. You can scale up or down without worrying about managing physical hardware.
Cloud optimization as a practice extends well beyond just managing workload. It includes any activity that improves any aspect of your organization’s performance, including but not limited to: Business Management, Risk Reduction, Increasing Revenue, Improving Customers Satisfaction, etc.
Why Cloud Cost Optimization?
Cost optimization is about reducing cloud spend while maintaining quality. This includes minimizing the number of servers you use, maximizing server utilization, and keeping your network bandwidth low.
The best way to do this is to ensure you buy enough capacity upfront. If you don’t buy enough capacity, you end up having too many servers running around doing nothing. You also pay for servers that sit idle. So, how much capacity do I need? There are three ways to answer this question:
1. Estimate demand based on historical activity.
2. Use a workload simulator to estimate future demand.
3. Measure actual current demand.
Cloud Computing 101
The following sections outline some basic principles for evaluating cloud solutions. These principles apply regardless of whether you consider using a public cloud like AWS or a private cloud like VMware vSphere.
Identify Your Needs
Before choosing a cloud solution, you first need to identify your needs. You must decide if you want to host your infrastructure or lease capacity from a third-party provider. You also need to determine how much capacity you need and how frequently you need it.
Consider Your Options
Once you’ve identified your needs, you have two main choices: public and private clouds. Public clouds provide shared infrastructure services such as storage, networking, and computing power. Private clouds offer similar services but are hosted internally within an organization’s network.
Public Clouds
A public cloud provides shared infrastructure services to multiple users. A good example is Amazon Web Services (AWS), which offers virtualized server instances, storage, networking, and other services. In addition to providing these services, AWS has an extensive partner ecosystem that sells complementary products and services.
Private Clouds
A private cloud is hosted within an organization’s internal network. It typically includes dedicated hardware that the organization manages. An example is VMware vSphere, which runs on physical servers in an enterprise data center.
Cost Matters
When deciding between public and private clouds, one important consideration is cost. Public clouds tend to be more expensive than private clouds. However, many organizations find that the flexibility provided by public clouds makes up for this higher initial cost.
To help you make an informed decision about cloud costs, we recommend that you perform the following analysis:
• Determine the total capital investment required to build out your cloud environment.
• Calculate the annual recurring cost of running your cloud environment.
• Compare the total cost of ownership (TCO) of your current infrastructure to the TCO of your proposed cloud environment.
• Consider the availability of resources when determining the number of instances needed for your application.
• Evaluate the performance characteristics of your existing infrastructure compared to those of your proposed cloud environment, including response time, throughput, and reliability.
• Identify any additional requirements that may arise during deployment. For example, you might need to purchase equipment or hire other staff.
• Review the security features available in your cloud environment.
Optimization Challenges
There are many challenges involved in cloud cost optimization. Some of these challenges include:
• The lack of visibility into the underlying details of the environment.
• The inability to control the environment.
• Lack of automation.
• Inability to scale up and down quickly.
• Inability of the system to handle failures.
• Inability for customers to manage their environments.
• Lack of transparency about what is going on inside the clouds.
• Complexity of managing large numbers of virtual machines.
• Difficulty in making decisions based on limited information.
• Difficulties in maintaining consistency across multiple systems.
• Inability or unwillingness to pay for unused resources.
Capacity
There are two main questions when deciding how much capacity you need:
1. What type of capacity do I need?
a) Virtual Machines – The most common form of capacity available through public clouds. A VM is a lightweight operating system that runs inside a hypervisor. VMs provide a great deal of flexibility because they allow you to run multiple different types of workloads on the same physical machine. They also come in several sizes ranging from small single-core systems to massive multi-core clusters.
b) Compute Instances – Also known as compute units, these are smaller instances that only contain CPU power. They are ideal for running short tasks like web serving or database queries.
c) Storage Volumes – Similar to VMs, volumes are containers that hold persistent data. Unlike VMs, volumes are not associated with a specific instance, so you can easily move them around.
d) Network Interfaces – These are used to connect instances to other services within the cloud. Each interface has its IP address and port.
e) Security Groups – These rules control traffic in and out of each instance.
f) Auto Scaling Groups – These groups automatically scale up or down the number of resources (instances, storage volumes, network interfaces, security groups, etc.) as needed.
g) Elastic IP Addresses – An elastic IP address allows you to assign an IP address to a resource without tying it to a particular instance. It’s perfect for applications where you want to be able to move instances around at will.
h) Reserved Instances – Reserved instances give you access to additional capacity at a discount. For example, you might reserve 10% of the total capacity for free.
i) Spot Instances – Spot instances are reserved capacity that expires after a specified time. When the spot instance expires, the service provider reclaims the unused capacity and returns it to the market. This means there is no guarantee that you will get your reservation price.
j) Dedicated Hosts – Dedicated hosts are virtual machines dedicated to a single application. They are costly compared to other forms of capacity.
k) Serverless Computing – Serverless computing refers to applications that use serverless infrastructures such as Amazon Lambda or Google Cloud Functions.
2. How much capacity do I need?
Let’s start by answering the first question. The most common types of capacity are:
• Physical servers – these are the physical computers that run your software. They provide CPU power, memory, disk space, and other resources.
• Virtual servers – these are the virtualized versions of physical servers. A virtual machine is like a computer inside another computer. You can think of it as a lightweight version of a physical server.
3. What about future growth?
The second question is more difficult to answer. There are two main ways to grow your capacity:
• Growth through acquisition – if you buy a company that already has the capacity, you can add it to yours.
• Growth through expansion – if you build new capacity, you can either expand into existing buildings or construct new ones.
4. Where should I host my capacity?
The final question is also the easiest one to answer. Choose the cloud if you choose between hosting your capacity on-premises or in the cloud. On-premises capacity requires significant upfront capital investment and ongoing management costs. In addition, you lose flexibility when you put all your eggs in one basket.
5. How do I know which cloud providers offer what capacity?
There are many different cloud services available today. Some focus on specific functions, such as database hosting, while others offer a full suite of services. Check with your cloud service provider to determine which cloud services meet your needs.
6. What is the best way to manage capacity?
There are several options for managing capacity, including:
• Capacity planning involves forecasting how much capacity you need over the next year and then purchasing enough to cover those requirements.
• Capacity buying involves purchasing capacity based on actual usage rather than forecasts.
• Capacity leasing involves renting capacity at a fixed rate per unit of time.
7. Can I scale up or down?
Yes, you can scale up or down your capacity. However, scaling up usually increases prices because you pay for additional capacity. Scaling down may lower costs, but you don’t get access to unused capacity.
8. What happens when I reach my capacity limits?
You will be charged an extra reservation fee when you reach your capacity limit. This fee helps ensure that you won’t exceed your capacity limits.
9. Do I need to worry about security?
Yes, it would help if you took precautions to protect your data. For example, you should encrypt sensitive information stored on your servers.
10. Are there any hidden fees?
No, there aren’t any hidden fees. The only costs you’ll see are listed on your monthly invoice.
Cloud Security
Security is a top priority for most organizations. The critical question is whether it can provide secure access to sensitive data from a cloud environment.
In general, there are two approaches to providing secure access to data stored in a cloud environment:
• Encrypting data before it leaves the customer premises.
• Using a Virtual Private Network (VPN).
How To Reduce Your Cloud Bills
Enterprises struggle to control cloud spending because it requires them to understand how much they are paying for cloud resources—and what those dollars buy. This article outlines four key areas where you can save money on cloud spending:
1. Identifying and Remediating Suboptimal Infrastructure Provisioning
2. Establishing Best Practices for Financial Management
3. Optimizing Cost Per Use
4. Mapping Out Cloud Costs
5. Choosing the Right Cloud Service Provider
Cloud computing transforms business operations by providing IT departments with flexible infrastructure and applications. But these benefits come at a price. Businesses must carefully consider their cloud strategy before committing. They must evaluate whether they want to use public clouds (like Amazon Web Services) or private clouds (like VMware or vSphere). And they must determine how much capacity they need and how they plan to acquire it.
Cloud Cost Optimization vs. Cloud Cost Management?
Cloud cost management focuses on allocative efficiency, while cloud cost optimization aims to optimize operational efficiencies and reduce operating expenses. Cloud cost management looks at the entire life cycle of cloud usage, including allocation, monitoring, reporting, and analysis. This helps businesses identify areas where costs are being incurred unnecessarily, such as overprovisioned resources, unused capacity, or inefficient processes.
Cloud costs optimization, however, focuses on optimizing operational costs by leveraging analytics and automation to improve productivity for cloud customers. For example, you might use machine learning to automate manual tasks or implement a hybrid IT model to combine physical servers with virtual machines.
The key difference here is that cloud cost optimization is focused on the bottom line, whereas cloud cost management provides visibility across the entire lifecycle of cloud usage. Either way, you want to get the best cloud pricing possible.
What Does Cloud Computing Mean For Me?
While cloud computing has become increasingly popular, there are still many misconceptions surrounding this technology. Many people believe that cloud computing is synonymous with Web hosting services, while others think it’s simply another way to deliver video games online. In reality, cloud computing encompasses much more than just web hosting. You could say that cloud computing is an umbrella term that covers everything related to the delivery of IT services over the Internet. Here are some common examples of how cloud computing impacts your life:
• Software as a service (SaaS): SaaS offers software solutions in the form of hosted applications. These applications include Microsoft Office 365, Salesforce CRM, and Google Docs.
• Platform-as-a-service (PaaS): PaaS enables developers to build and deploy applications without worrying about managing servers or installing software. The most well-known example of this type of cloud service is AWS Elastic Beanstalk.
• Infrastructure-as-a-Service (IaaS): IaaS allows users to provision virtualized server environments through APIs. Examples include Windows Server 2012 R2, Linux VPS, and VMware ESXi.
• Software plus services: Software-plus-services refers to the combination of software and other services offered via the cloud. A good example of this would be Microsoft Azure SQL Database combined with SharePoint Online.
• Hybrid cloud: A hybrid cloud combines both public and private clouds. It can also refer to a company using multiple cloud providers. An example of this would be a company that uses AWS for its primary data center but also stores backups on Dropbox.
Auditing Cloud Costs
Many companies find that their cloud costs are too high and paying too much for cloud services because they haven’t performed an effective cloud service assessment for a long time. They’ve depended on their cloud vendors to keep track of costs such as bandwidth usage, compute capacity, and data store size. However, many factors outside their cloud vendor’s direct influence could affect how much they spend on cloud services, and that is why you should conduct frequent audits to optimize costs.
Over the course of your organization’s history, you may have had multiple systems that were used to support various applications. Some of these systems may have been running 24/7, others only during certain times of the day. Regardless of how much usage each system gets, you can still track the total number of dollars spent on those systems. By comparing apples to apples, you’ll be able to see if any of them are costing too much. You could also consider having separate tiers of resources based on the workload types.
Audit your cost structure to identify where you might be spending too much money or not enough. Examine the parts of your infrastructure where you think you could save money. Does one vendor provide services that another does better? Can you consolidate resources to reduce overhead? How can you improve efficiency across your entire IT environment?
Wrapping Up
The bottom line is that cloud computing offers tremendous benefits but comes at a price. It requires you to ensure you get the most value possible from your multi-cloud solutions. To do this, you must understand what cloud computing means for your business and take steps to optimize its performance. Lucky for you, our cloud architects and engineering team are ready to help you achieve peak performance! Contact us today to learn more about how we can help you maximize the return on your cloud investments with actual savings.
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