How to Estimate Financial and Operational Cloud Costs

Everything your business does in the cloud costs money. Whether it’s spinning up a new VM or running queries in a data warehouse, you are being billed for it. The main attraction of moving to the cloud may be easy setup with no upfront cost. However, without proper planning, budgeting, and management, your cloud spend can quickly spiral out of control.

Each cloud provider has its unique pricing model, so minimizing your expenses greatly depends on those models. Estimating and budgeting for planned workloads is vital to cloud cost optimization. In this article, we will provide a high-level overview of factors that affect cloud costs. Then we will touch on cost optimization techniques. We’ll close with an introduction to a few cloud usage analysis tools—including Cisco Intersight which provide visibility for businesses who want a better understanding of how their cloud budget is being spent.

While multiple factors affect cloud costs, let’s start with a primer on the two IT expense models: CapEx and OpEx.

CapEx and OpEx

In IT finance, capital expenditure (CapEx) refers to major upfront costs of procuring and configuring IT infrastructure, network, and software, which is a long way of saying, buying things. This typically applies to on-premise equipment. Operational expenditure (OpEx) refers to the day-to-day costs of maintenance staff salaries, upgrades, depreciation, power, air-conditioning, real estate, and so on.

Since cloud providers already take care of the infrastructure and platform setup, CapEx does not apply here. Similarly, as the cloud providers also take care of the operational and maintenance activities, the regular OpEx for on-premise environments also becomes invisible.

When adopting a cloud infrastructure model, businesses face a Pay-As-You-Go (PAYG) usage cost. This is the cost that cloud providers charge you for using their systems. The more you use, the more charges you incur. To IT finance, this PAYG usage cost is the cloud OpEx.

Cost Dimensions

The way the PAYG model affects your cloud costs depends on the nature of your IT setup and the individual cloud services your IT workloads use. Naturally, you will incur fewer costs when running a cloud-only setup instead of a hybrid environment.

Also, each service on a cloud platform is priced with different pricing tiers. For a multi-cloud setup, each vendor will have different pricing models for similar services.

Cloud Services

Predicting cloud service costs can be confusing and difficult, but you can still estimate (and budget) by first identifying the resources for your workloads. The table below shows some common resource types and the typical factors that affect pricing:

Environments

The number of environments you run will also affect your cloud costs. For example, if you have identical development, test, staging, and production environments for each application, your cost would be higher than having only non-production and production environments.

Having identified the types of resources your workloads will need, you can use a cloud cost estimator to estimate your spending. Most major cloud providers provide a cost calculator. These calculators are very comprehensive and are always up-to-date with the latest pricing figures:

The key to cloud cost optimization is to adopt a holistic view of your total application landscape to find the resources it needs and profile its usage patterns. You can create a baseline with the help of monitoring tools showing usage patterns during peak and non-peak periods. After profiling your resource usage over several weeks, you’ll likely begin to see trends that surface some of the following patterns:

• Over-provisioned and under-utilized resources
• Resources that only need certain levels of availability or power during specific windows of time
• Resources that can be consolidated for improved cost-effectiveness

With solid data to support your conclusions, you can begin taking concrete steps to optimize your spending. For example, you can plan ahead to consolidate resources and automate resource scheduling so non-usage hours are not incurring costs.

With good planning, you can optimize costs by taking advantage of different pricing tiers, and so without negatively impacting affecting your application performance or availability. For example, you could purchase a fleet of instances through a mixture of spot, on-demand, and reserved instances to maximize savings. Once again, there are tools available that can help you calculate such combinations.

There are several tools available for organizations looking to analyze and understand their cloud costs, including:

Cloud Analyzer connects to your AWS account with an IAM role that has read-only access to your cost and usage reports. From there, it can analyze all of your cloud spending, providing visualizations and actionable suggestions for optimizing your cloud costs.

Apptio Cloudability, similarly, provides visualization to an organization’s cloud costs by grouping costs by tags. Organizations can tag resources based on team or project. This provides a granular view into cloud costs on a per-team or per-project level.

Cisco Intersight is a Software-as-a-Service (SaaS) systems management platform for the cloud. It has several services that can analyze your cloud environment, automate and orchestrate deployments, and perform resource optimization.

Intersight streamlines deployments by using server profiles. Server profiles allow you to configure policies for compute, management, storage, and network—essentially defining how your infrastructure landscape should look. After that, deployments can be done with minimal effort as Intersight integrates with popular orchestration tools.

Among its many features, Intersight also provides deep visibility into the performance of your servers with customizable dashboards, alerts, and warnings.

Tools like Cloud Analyzer, Cloudability, and Intersight help provide a clear view of your application landscape so that you can understand your cloud costs and optimize your cloud spend.

Conclusion

Moving to the cloud can benefit companies both financially and operationally. However, you still need to be aware of how much you will spend.

Organizations are now adopting a new discipline called FinOps, bringing both IT finance and cloud operations teams together for a clear picture of the cloud footprint, streamlining existing deployments, and optimizing new ones. Cloud cost estimators are the most basic tools for this purpose. New, more sophisticated platforms like Cisco Intersight promise more efficient monitoring and automated adjusting of cloud resources based on set policies. To learn more about Intersight, you can view demos, take a quick feature tour, see the documentation, or sign up.

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