Managing cloud costs: How to avoid the financial hurdles of cloud transformation

The promise of cost savings is one of the top reasons organisations choose to adopt cloud. Moving from on-premise to cloud can significantly reduce IT and resourcing spend and help organisations achieve more agility, flexibility and productivity, helping to strengthen their bottom lines.

However, cost savings are not a guaranteed outcome of cloud migration. It is not uncommon for organisations to find their migration costs ballooning as they move through the journey and for ongoing management costs to climb long after migration is complete.

In fact, most enterprises admit that migration cost is not only one of the biggest motivators to move to cloud, it’s also one of the biggest hurdles to cloud adoption.

As reliance on cloud grows, it’s important to understand the cost challenges of cloud migration and optimisation and how we can overcome potential inefficiencies and cost blowouts to utilise cloud to its full potential.

How can organisations overcome the competing challenge of leveraging cloud to accelerate innovation whilst maintaining sound cost management controls of cloud expenditure?

Cloud costs: Perception vs. Reality

The difficulty of predicting ongoing cloud costs has traditionally rocked business confidence and held some back from cloud adoption. In the last couple of years, however, the speed of change and digital transformation has seen more organisations take the step towards cloud migration despite these perceived cost challenges – and for some, it’s taking a financial toll.

A recent report from McKinsey shows that between 2021 and 2024, there will be approximately $100 billion of wasted migration spend globally. This can mostly be attributed to migration and modernisation inefficiencies and poor planning. The same report states that these inefficiencies are costing the average company 14% more in migration spend than planned each year.

Some of the most common reasons overspending occurs both in migration and ongoing cloud management include:

• Inability for an organisation to accurately predict future cloud consumption costs from new projects impacting adoption
• Inability of IT to achieve business confidence in the ongoing management of consumption-based cloud costs
• Restrictive budgets to perform ongoing innovation in IT operations

While migration is a fixed-term project, cloud is a long-term investment. Upfront costs are likely to be the most significant. Still, a poorly managed migration and failure to accurately plan for future needs can easily see long-term IT costs spiral instead of diminish.

Fail to plan, plan to fail

The factors most likely to determine the financial success of cloud migration are how you plan for it and the service provider you choose.

Organisations that try to carry out migration projects internally or choose a provider based purely on the lowest cost are more likely to face cost issues down the track. The same is true for those who fail to fully consider migration costs and ongoing cloud management (including indirect costs) or attempt to reduce costs through ‘ lift and shift’ methods, where on-premise applications are simply moved to the cloud without optimisation or modification.

Creating an accurate and detailed migration plan aligned with business needs and goals (both short and long-term) will not only help you manage costs but also get the most value out of the cloud. Ultimately, you get out what you put in – those who prepare and budget effectively will be able to maximise cloud output and value more.

The partner you choose should support you in this planning process and build an approach that will:

• Uncover inefficiencies in current processes or applications that can be improved alongside migration
• Build the objective of cost savings into the migration plan to deliver savings early and regularly throughout the process
• Focus not only on the tech side but also on improving the way IT teams operate in the cloud to ensure savings and efficiencies
• Look beyond migration to innovation and plan for ongoing improvements

Becoming a cloud success story

Looking at those organisations with cloud success stories, it becomes obvious that they have a few things in common – and that other organisations can emulate to achieve the same outcomes.

Ensuring the provider’s goals are aligned with the business’s, value creation is a core migration metric, CEO buy-in and involvement, an end-to-end plan pre-migration, and leveraging and investing savings into modernisation are all common success factors.

A well-planned and no-shortcuts approach to cloud is not to say that migration must be expensive. Successful cloud migration can be achieved even when budgets are limited – it’s not about cost cutting but ensuring cost optimisation is a priority built into the migration plan, and prioritising certain elements to ensure value add with cost blow out.

Angus Knight Group achieved cost optimisation from cloud and has seen substantial operational cost savings realised through the application of right-sizing and the right timing of Azure workloads in the environment despite a limited budget and timeframe.

They worked with our team at SXiQ to manage a cost-optimised and savings-focused migration. Because we are technology agnostic and our measure of success is cost minimisation, our motivation is the same as our clients. We are accountable for driving our customers’ outcomes, irrespective of revenue impact on cloud OEM. We do this by:

• Embracing a methodology designed to uncover inefficiencies beyond what is possible through the use of cost management tools alone by taking an application-centric perspective of how alternative cloud technologies can achieve the same business outcomes more efficiently
• Implementing FinOps cost management capability to embed processes as a repeatable activity and establish continuous cost management ethos into your business
• Using a combination of Microsoft and AWS native tooling, third-party tools and deep cloud architectural capability better to assess the available cost-saving opportunities beyond IaaS optimisation.

Perception and reality of cloud cots often differ when the initial perception wasn’t a realistic or fully considered idea of cloud reality. By planning alongside an experienced provider, you can avoid the potential financial hurdles and align perception and reality to ensure the most out of investment in both the short and long term.

Learn more about how SXiQ can tailor a cost-optimisation service to your specific pain points or technology areas to ensure cloud success.