Cloud Costs: Why Companies Waste money in the Cloud

Cloud Costs: Why Companies Waste money in the Cloud

With cloud projects, companies often throw a lot of money out the window. What is the reason for this and what you can do about it. […]

The IT department has always had problems with budgets and finances. The fact that IT projects go beyond the budget framework is the rule rather than the exception. There are usually a few main causes for this. First of all, many IT employees, of whom I was one until about 20 years ago, don’t really understand anything about budgeting or how to predict costs. Most simply get the resources they think they need to get the best possible result. Secondly, most budget managers and other managers tend to consider overruns as normal, as it rarely has consequences if they spend more than planned.

As companies began to use cloud computing on a large scale, the overspending became even more confusing – and the budget overruns continued. I actually thought that most of the overspending would disappear with the advent of cloud computing. After all, cloud costs are much easier to predict due to usage-based pricing. In addition, the cost models are much cleaner. Companies do not have to deal with the allocation of costs for data centers, physical devices and their depreciation, as well as the cost of software licenses, which are constantly increasing, while the service and value of the software continue to decline.

Nevertheless, companies are currently wasting around a third of their cloud computing investments, according to a new survey of more than 750 organizations. The current Flexera study on the state of cloud computing shows that it is difficult for companies to implement cloud projects in such a way that they work as efficiently as possible. Instead, a large part of cloud investments is wasted.

When asked how much of the cloud spending is really efficient, the survey participants cited a value of around 68 percent. This means that 32 percent of cloud spending remains a waste. In addition, the respondents stated that cloud projects are on average 13 percent over budget. Although there are many understandable reasons for cost overruns in practice, this is monstrous. Why is so much money wasted? I have put forward some theses on this:

The first and most obvious is that the financial processes, capabilities and tools in the companies do not fit the cloud deployment model. Many companies lack continuous monitoring and management of cloud costs. If we turned up the air conditioning to 64 degrees in the summer, would we be surprised if our electricity bill turned out to be much higher? Without active monitoring of cloud usage and costs and without measures to reduce these costs, cost overruns are programmed.

Secondly, cloud projects often lack active processes, skills and tools to control costs. This is different from the Finops activities, but it is closely related to them. Cloud cost governance means that we enforce spending policies, which in turn forces cloud administrators, developers, and even users to be more careful about using a cloud resource.

Most often, cost overruns are associated with unused cloud servers or storage systems that are allocated and simply continue to operate. As a rule, these are not things that affect the business, but only general IT services that are obtained from the cloud.

Last, but not least: perhaps what is least understood is the fact that we often do not develop efficient and fully optimized cloud solutions. Instead, we build cloud solutions with an accepted or even just hyped solution in mind, for example with container or serverless components, instead of choosing a “minimum viable” solution that covers the needs of the company. The bottom line is: We need solutions that bring the greatest value to the company with the least possible effort in creating, providing and operating.

Don’t get me wrong, please. This is not to say that such technologies are not suitable. I’m just saying that we rarely focus on which solution is optimal; we choose the solution that makes us feel the best.

That’s right: most solutions can also be implemented in the end. But when we work like this, we leave money on the table. We drive up the costs for the project, the provision and the ongoing operation. Therefore, a large part of the 32 percent is due to inefficient spending.

It’s high time to get our financial processes and cloud governance solutions in order. If we experience an economic downturn, we will all wish we still had the money wasted in the cloud.

*David Linthicum is an American technology expert and author. His main topics include cloud computing, SOA, enterprise application Integration and enterprise architecture.

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