Without cloud, the last 18 months would have looked very different
All businesses are now incredibly dependent on this technology, so IDC’s estimated increase for cloud infrastructure spending in 2021 shouldn’t come as a surprise, at a rise of 12.9 per cent to $74.6 billion compared to 2020.
The cloud hosts and supports so many technologies that organisations depend on every day, some of which are designed to improve efficiency and streamline processes to generate huge savings. However, many organisations are finding that these savings are being offset by spiralling cloud costs and cloud waste. In fact, almost a third of organisations’ cloud investment is inefficient, according to several estimates.
Companies are on a slippery slope – they are utterly dependent on cloud and are only going to plough more investment into it. The result: out of control spending, and an ever-growing cloud value gap.
It has become a strategic priority for enterprises to realise the full benefits of the cloud, but with so much already being spent and wasted on it, when it comes to future investment, the Board may be reluctant to direct any additional investment its way.
So how has this situation emerged?
One issue is that there are a lot of junior people who have the power to make many small decisions that drive cloud costs. In such case, a user self-service portal without guardrails ends up doing a disservice at an organisational level. Cloud spend tools are always helpful to manage and orchestrate costs. However, without the right governance and processes in place spending can still get out of control. The cumulative effect being an overall surge in cloud expenditure, with no oversight whatsoever, i.e., the large variety of users and budget holders exacerbates the cloud sprawl. Furthermore, these resource holders often won’t have a great deal of visibility into what their applications will cost in the cloud and they are not being held accountable.
Cloud price fluctuations and new services being offered all the time, which may or may not benefit the business, compound the problem. There are also very complex discounting structures that can be confusing, meaning it is very difficult to achieve any sort of grasp of ongoing cloud spend, which is only driving the need for cost transparency and controls.
Cloud waste creeps in when the type of cloud infrastructure in-use does not align with the businesses’ objectives. If the organisation is more focused on analytics, their cloud requirements will be very different to one that mostly uses AI. Without understanding how the business gets value from cloud from the outset, it goes without saying that cloud strategies will lead to inefficiencies.
Lastly, many enterprises fall into the trap of regulatory compliance being implemented by committee rather than by design. However, unnecessary costs will occur as a result when appropriate compliance mechanisms have not been embedded properly in cloud engineering, which then need incorporating later. Also, many organisations don’t leverage the benefits of Bring Your Own Licenses (BYOL – a model that lets companies use their licenses flexibly) and purchase them on cloud, resulting in additional costs.
Additional insight and capabilities are required to recognise and implement cloud savings across a vast enterprise, but where to start?
How much am I spending on cloud?
The first step is to identify where cloud spending and waste typically happens in the enterprise’s processes and workflows, and by which departments, groups and roles. For example, something as basic as comparing invoices from suppliers with the contracts in place between them to identify whether over-billing is happening, can uncover enormous savings. After that, AI and machine learning can be rolled out to automate this process, as in a huge enterprise there can be thousands of cloud-related invoices.
As cloud investment is only expected to grow, setting up a dedicated cloud cost management capability is crucial. They can be on hand to continuously measure and monitor spend and be accountable for activities such as choosing the right-sized instances for a lower cost, optimising the size of cloud environments, using auto-scaling, selecting the right price model for cloud contracts, and implementing simple and standardised resource tags/labels to identify cost owners. Furthermore, they can apply the correct archiving policies – including storage levels – to the data needs of the applications, to further cut outgoings on cloud. Also, by asking how many services are in use, and by how much of the cloud estate, will help uncover where savings can be made.
Automating processes makes a huge impact on tracking and managing cloud spend. While cloud providers’ native tools give IT teams the power to control the costs and workload lifecycle, it is still the organisation’s responsibility to tackle the processes themselves. Most of the right sizing, workload management, controls and procedures could be automated to reduce human intervention and standardise how to manage costs on the cloud. But automating these processes is not achievable overnight – it is a contact learning exercise and requires continuous investment to understand how to efficiently manage the cloud.
Once initial cloud spend is under control, closing the value gap is the next priority.
Use the right cloud for the right task
Organisations are not always using the appropriate cloud function for what they are trying to achieve. That’s why businesses must select the most appropriate cloud infrastructure to meet their organisational goals and objectives. As a basic level, there is simply commodity infrastructure to provide computer power and data storage. At an intermediate level, cloud can be used for increased agility, scalability, and speed of provisioning to improve technology products’ speed to market. For the most innovative companies, cloud can be used for analytics and advanced technologies including AI and machine learning. While using Infrastructure as a Service (IaaS) makes the migration easier, it does not necessarily result in cost benefits as it merely transfers the workload to another host. Real cloud cost benefits are only realised post moving to Platform as a Service (PaaS) or Software as a Service (SaaS) tools.
Cloud Value Mapping
Once you have your cloud strategy in place, creating a ‘cloud value map’ will help improve return on investment. This starts by reviewing current cloud usage and assessing the degree to which the business benefits are being realised. By analysing operational usage, whether the cloud is underpinning the ability to execute higher up the stack and acting as an enabler for the businessvprocesses and systems, will highlight not just where spending can be cut, but where there is an opportunity to increase investment to better support the rest of the business.
The foundation of a cloud value map is to establish a set of operational metrics that support the business. These relate to the business value that is produced from the adoption of Agile or DevOps technologies, operation tools integration, or effectiveness of monitoring from a risk or cost controls perspective. This stage is where bottlenecks can be addressed to eliminate disruption further down the line, and to support the strategic business KPIs.
The next step is to set out your enabler metrics. These are related to cloud capabilities that are not specifically connected to end-user services, but which enable their use, agility, and effectiveness. These include cloud technologies such as Functions as a Service, Containers as a Service or hybrid cloud integrations that make a broader catalogue of technologies accessible. Enablers support organisations in the successful implementation of more customer-orientated services.
The final stage for consideration is business services metrics, which noticeably impact customers and users. This includes services driven by the IoT, AI or API Management. These are customer engagement enhancing services that deliver an improved, more personalised, and seamless experience. But they can only work effectively if there has been a comprehensive and structured investment in the maturity of the operational and enabler metrics. For example, a company may introduce a chatbot to engage with its customers, but the chatbot will be useless if the operational metrics and enablers below it are not configured properly.
Once this mapping has taken place, it is then possible to evaluate operational usage against it and see whether the cloud is having a real impact on the systems and processes it is meant to be improving. If the needle isn’t moving, that’s where cloud cost effectiveness can be addressed.
This type of assessment must include analysing operational usage – whether cloud is supporting the ability to execute higher up the stack; whether cloud is acting as an enabler for business processes and systems; and the extent to which it is impacting the processes and customer journeys. By undertaking this process, IT teams can be confident that they are running a cost-effective cloud infrastructure.
Unleash the benefits of cloud
Sadly, most businesses are over-paying for their configuration of cloud infrastructure and have lost control of where it truly adds value. But it doesn’t have to be that way. Cloud is like moving to a new city and looking for new accommodation; you may choose to buy a house (private cloud), rent a flat (IaaS on public cloud) or stay in a hotel (managed services on public cloud), i.e., workloads must be hosted on the suitable cloud offering as per the requirement. The organisations that do manage to structure and streamline their cloud investments most effectively will unleash business benefits across the whole enterprise to help drive digital value creation in the future.
About the Author
Adrian Bradley is Partner and Head of Cloud Transformation at KPMG UK. KPMG is a leading UK provider of tax, audit and advisory services. We are a UK limited liability partnership, employing 14,000 people in 22 offices across the country. We focus on clients’ big issues and opportunities by providing innovative approaches and deep expertise to deliver real results. KPMG LLP is a global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
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