In an industry poised to exceed $250 billion in the the coming years, there isn’t a better time to review your cloud deals to ensure your company is getting maximum value for its cloud spend. As Ian Barker reports, companies are wasting an enormous amount of money on cloud services. These excess costs can be reduced and even avoided.
Here are some things to think about when entering into cloud-based transactions:
- Size your environment correctly. Make sure your environment is sized correctly. Barker reports that “Forty percent of [cloud-based application] instances are sized larger than is required for the workload and could be resized — and therefore made cheaper — without impacting performance of the application.” An environment that is larger than your business needs results in wasted spend. A key benefit of cloud-based applications is the flexibility to re-size your environment periodically. Ensure that your contracts permit this and spend the time to periodically audit your environment to ensure you are using what you have — if you need more, ramp up, and if you have too much, control your cloud costs by scaling down.
- Turn them off! How many of your virtual machines run 24X7 (even though they aren’t being used). As Barker tells us “Turning [your virtual machines] off during times they are not in use can make significant savings. For example, shutting down development instances that are not used at night and at weekends can save 67 percent of the spend.”
- Check your contracts. Typically a cloud computing service will be offered on a “pay as you go” or “pay per use” cost structure (e.g., per virtual machine each hour, per gigabyte of storage each month). Accordingly, your cloud agreements should provide for the ability to both add and remove resources, with a corresponding upward and downward adjustment of the service fees. While the best time for the customer to negotiate rates for incremental use is before signing the agreement, you can periodically re-visit your agreements and engage with suppliers to negotiate more favorable and market-based terms. Additionally, it is fairly common for customers to lock in recurring fees for a period of time (e.g., one to three years) and thereafter a fee escalator based on a pricing index like CPI.
- Watch for additional fees. As part of your cloud transactions ensure that you have identified and included in the fees all potential supplier revenue streams (or, at the very least, if all revenue streams aren’t included in the fees you are paying, you nonetheless know what they are, can anticipate them, and include them in your company’s budgeting process). It is fairly common for providers to attempt to charge additional fees for such things as storage after a certain amount of data, or for software updates.
- Processes matter. Your company’s internal business processes and practices may also be contributing to your cloud computing waste. As Barker reports, “A further cause of waste is a decentralized approach, where departments and business units are able to set up their own cloud instances with no need to go through lengthy approval processes.” Unfortunately, this also means that transaction documents aren’t getting reviewed by lawyers who know what to look for in these types of transactions and know what to negotiate in order to ensure that the company is extracting maximum value out of the relationship and the cloud environment. Implement a process to reduce the ability of business units to enter into unchecked transactions.