How to Achieve Cloud Cost Optimization (CCO) in 2024

Cloud adoption is rising but customers are losing track of cloud costs. Cloud cost optimization (CCO) helps users manage cloud costs while achieving an optimal cloud performance.

What is cloud cost optimization (CCO)?

Cloud Cost Optimization (CCO) is defined as the process of decreasing the entire cloud expenditures without diminishing the organization’s cloud performance. It is achieved by detecting mismanaged resources, diminishing waste, reserving higher discounts, and Right-Sizing computing services to scale. Cost optimization allows clients to arrange the most efficient way to allocate cloud resources. By doing so, the waste is avoided while the performance in the cloud increases. 

Why is cloud cost optimization important? 

Because almost all organizations rely on the cloud, spend significant sums on cloud costs and are wasting cloud resources. This problem is getting worse.

Today, 92% of world enterprises rely on cloud technologies, and nearly 32% of IT budgets is dedicated to cloud spending.

Cloud enables lower initial IT costs and scalability but can be expensive in the long run. It is estimated that 30% of cloud spending is wasted, and companies generally over budget nearly 24% for their cloud needs. Therefore, CCO is necessary to increase an enterprise’s cloud Return on Investment (ROI).

Organizations expect an average increase of cloud spending by 39% over the next 12 months.

The expected growth in cloud spending, and the size of wasted budgets clearly show the importance of cloud cost optimization:

• 61% of the organizations surveyed in the report stated that they plan to utilize cloud cost optimization, making it the top initiative for the survey’s fifth consecutive year.
• You can also see the increase in CCO demand in Google queries in the image above

What are the benefits of cloud cost optimization?

Cost reduction

Cloud cost optimization can yield major reductions in cloud costs. Some vendors who offer cloud cost optimization tools claim the following numbers:

• An average of 23% cost reduction with Crayon’s Cloud Economics
• An average of 40% cost reduction according to Snow Software

Higher visibility and utilization

A solid cost optimization strategy affects the fiscal space as well as overall business performance. For instance, it will bring about more visibility. While cloud expenditures are monitored and structured, you will find unused resources and scale the cost/revenue ratio for your business. Through cloud cost optimization, you will be more aware of how the cloud is used, enabling more precise measurement. 

Cloud optimization enables the discovery of underutilized features, identification and consolidation of the resources, and mismanaged tools. It allows cloud clients to measure and improve those flaws, preventing waste. Such visibility eventually reduces unnecessary cloud costs while increasing cloud utilization. In this sense, CCO will not only reduce cost but also establish the  balance between cost and performance.  

Productivity, efficiency & innovation

The optimization enhances the productivity of the software development or IT teams of organizations. Cloud cost optimization tools analyze the areas the cloud providers deal with. These analyses guide IT teams tp optimize the cloud performance. They simply utilize their time and abilities on the appropriate tasks in the proper time. As expected, productivity and efficiency go hand in hand. At the end, CCO generates more time and sources for the decision-making time and innovation in the company.     

For instance, AWS provides Reserved Instances for stark cost reduction and Microsoft Azure’s VM Instances, allowing companies to re-allocate their budget and pricing. These services also help the companies to achieve best coverage for different business units.

How to achieve cloud cost optimization?

Every company develops different optimization strategies for the nature of their business. Nonetheless, there are several steps that they commonly follow on the path to cloud cost optimization. These steps consist of administration, cost optimization, and procurement across the cloud platforms they employ:  

1. Evaluating resources: To begin with, all organizations evaluate their resources to find idle resources and consolidate them. Without this, important cost drivers can be missed, or duplicate purchases may be made. The optimization allows companies to comprehend how much computing power they must purchase, not to waste money.
   1. In some cases, computing instances that were terminated may still have attached, active storage resources. Removing these is the first step in cloud cost optimization. In addition to public cloud services, enterprises can audit their private, on-premises computing resources acquired in the past, and expect to reclaim 10% of these according to Snow Software.
   2. Moreover, many businesses do not understand the functions of the resources they use, and their pricing. Improving resource scheduling and optimizing the pricing can lead to major cost savings by itself, up to 80% in some cases. For example, many businesses buy too much storage capacity, and of the wrong performance level, leading to 25- 30% cost savings when optimized.

2. Identifying reserved instances: The second step is to detect the reserved instances companies bought excessively and discover ways to replace, change, downsize these instances. For example, the enterprise still pays for 100% utilization despite 1-5% CPU usage.
   1. Spot Instances, which are instances that use spare capacity that is available for less than the On-Demand price, are helpful for dealing with the excess capacity of cloud services. The spot instances come with large price discounts which can be as much as 90% compared to on-demand capacity.
   2. Spot instances are temporarily available, and best suited to computing jobs that can be terminated quickly, or batch jobs that can be executed without user input. Large enterprises often perform such jobs and can benefit from using Spot Instances. 

3. Optimizing the framework: The third point is related to establishing a better framework and general governance system. There are several ways to create such a framework depending on the necessities of the business. Therefore, listing needs and aligning the cost with these needs will be wiser.  

4. Optimizing storage and subscriptions: In the same line, companies tend to overbuy storage and subscriptions. These cloud storages and massive subscriptions can be easily estimated corresponding to the company requirements. In the past, it was difficult and time consuming to increase capacity therefore companies held onto excess capacities which are today easily auto-scaled, removing such need for excess capacity. 

5. Assigning monitoring tasks to specific employees: The fifth component is ensuring that managing and monitoring the cloud servers are clearly assigned to the respected business developers. In new projects or campaigns, new servers in the clouds are commissioned. On the other hand, it is often not clear how these servers managed and monitored or who is in charge of decommissioning them once the projects are complete. Such a minor adjustment can serve as a lifesaver when it comes to cutting expenses.

6. Benefiting from offers: The final factor is about exploiting the cloud at the most. That includes understanding and executing the licenses and subscriptions, the types of licenses qualifying for hybrid benefits, taking advantage of promotions, and validating the prices.    

What are the top cloud cost optimization tools?

There are numerous tools and platforms that are currently available in the market. Cloudera, AWS Cost Explorer, Crayon, Densify, and CloudCheckr are some examples to present. Feel free to read our data-driven comprehensive ranking of cloud cost management tools along with market presence matrices.

How to choose the right CCO tool?

Each platform has its pros and cons to consider, but its structure and needs matter the most. The decision on one of these solutions relies heavily on the scale and complexity of the firm.    

As a simple example, suppose a firm works with GCP Billing, a built-in tool that Google Cloud Platform provides. It has a simple cost structure and works perfectly on a small scale. It gives a broad-level view of costs and their origins and recommendations based on individual usage. Meanwhile, it is criticized mainly due to stable tag hygiene requirements to get cost visibility. It fails to respond to the complex needs of engineering or finance sectors. It is blind towards hybrid cloud and container costs. GCP Billing also cannot detect and present unallocated resources. 

1. Based on the example, it is recommended that the firms invest time searching and matching the most relevant optimization tool for their business needs, sector, and unique company structure. 
2. The approach the firms take is essential in shaping future cost optimization strategies. They can choose a multi-cloud approach or prefer a cost-efficient redundancy by taking the firm’s calls and sector into account. 
3. To minimize unnecessary data movement, which costs money, fixing a cost-inefficient cloud architecture is fundamentally advised. 
4. The final comment is a reminder that firms might sacrifice money in exchange for efficiency and performance in some cases. Many times, there can be a cost for an immediate hit of performance. 

What are the challenges that face CCO?

Cloud optimization can be a crucial step to reducing costs. However, many companies struggle in implementing it due to challenges and vital details which are emerging on the path to a steady optimization process:

• Organizational predicament which results from the company departments’ priorities. Application owners, finance departments, and IT operations departments of the company often clash. They cannot meet at the common point for a proper, functioning, and efficient strategy to optimize the cloud costs. They focus on different aspects. For example, engineers may be focused on improving the performance of the system, while the finance team may focus on reducing costs. 
• Lack of adoption: In some cases, organizations reject the implementation of cloud cost optimization even though they heard about it and might be in need of it. Generally, continuous company growth legitimizes the rejection of optimization strategy. Bigger enterprises with multiple cloud platforms complain about the heavy effort for manual CCO, even though there are tools to automate the process.   
• Commitment to CCO: It is important for organizations to remember that cloud optimization is not a one-time deployment that endures permanently. Developers will constantly change the specific areas of a cloud application. Therefore, the companies must acknowledge that their engagement with the optimization will be a long-term process. 

What are some case studies about CCO?

There are various success stories on behalf of benefits of cloud cost optimization. Leaf Group and Atlassian are two cases among many, proving cost and utility related benefits. Leaf Group is a consumer internet company which used to suffer from high Amazon S3 storage costs. Once they optimized their storage types by CloudCheckr’s CMx, they reduced their cost by 25 %. Likewise, Atlassian, a company that develops software development tools achieved more than 90 % utilization in their RIs through Apptio’s Cloudability.

As SaaS experts at AI Multiple, we can guide you find the right SaaS tool for your business.

If you want to find a SaaS vendor relevant to your business, we can help you find the right vendor and optimize your SaaS: