Managing cloud costs: Study says do this and you’ll spend 5X less

While most business leaders know their cloud costs are rising, far fewer are aware of the one small detail that can make a 5X difference in the price they’ll pay to lower those costs.

Can you guess what it is?

A 2024 research study of 500 IT departments and cost management programs reveals the answer, and it all comes down to your approach. That is, whether you build an in-house program, rely entirely on a managed solution, or take a hybrid approach (doing a little of both).

The findings show that a hybrid approach to IT expense management is around five times more expensive than a fully outsourced solution. That’s a huge cost difference! But what’s more? The findings also demonstrate that managed solutions correlate with faster insights, faster savings, and more FinOps maturity.

Why the 5X price difference? Automation and less overhead

That 5X price difference comes from several places: lower overhead costs, automation, and higher cost savings achievements which can offset the cost of hiring a cloud cost optimization service.

It’s easy to underestimate the administrative work and data analytics required to curb cloud, mobile, and telecom spending. In-house programs typically rely on humans and native tools found inside service provider dashboards – strategies that require higher overhead expenses.

Even those that take a more sophisticated in-house approach can get burned.

Forrester analyst Tracy Woo reports that cloud financial management typically requires 3+ full-time employees, and companies building an automated platform invest at least $1M in technology backed by teams of 15-45 engineers. With these barriers to entry, out-of-the-box solutions infused with advanced AI algorithms, robotic process automation, and fully managed services offer a turnkey alternative.

How to get faster insights & savings

As the Vanson Bourne research shows, businesses with either a fully outsourced or hybrid solution experience faster time-to-business insights (88%) and faster time-to-cost savings (88%). Only 66% of in-house programs deliver results within the first month, while 81% of fully outsourced solutions deliver results within the same timeframe.

Time-to-savings is a known problem, particularly for cloud cost management. A different study indicates that 75% of companies wait at least 2-3 years to see real results from in-house programs.

How do service providers accelerate results?

Tackle cloud cost overruns on multiple fronts

One key benefit is that solutions aid in both financial management and IT operational management. Financial analysts appreciate the overarching visibility into expenditures across multiple cloud infrastructure platforms and application spending, including both sanctioned and unsanctioned apps. Detailed reports can show fully loaded costs, how actual spending compares to the IT budget, and how expenses get charged back to each department and tied to innovation projects – key elements in measuring cloud ROI. 

Meanwhile, IT functional managers benefit from utilization insights, helping them understand how efficiently (or inefficiently) each asset or service is being used. They can pinpoint waste seeing where cloud infrastructure and software licenses are going unused. New purchases are made with discretion when IT teams know whether they’re squeezing the most value out of every resource they already own.

When both teams have the necessary information, the path to optimization is clear.  

Leverage advanced data analytics to reach FinOps maturity

FinOps is a well-known framework for optimizing cloud resources and costs. The study findings show a direct correlation between outsourcing and FinOps maturity; 94% of organizations that use a managed solution also have a dedicated FinOps practice.

This is higher than those taking a hybrid or in-house approach. Furthermore, those using outsourced solutions are more likely to have also achieved full deployment of their FinOps practice (61%) compared to those taking a different approach.  

What does it mean to be mature in your FinOps practice? The FinOps Framework defines maturity as progress marked by three key phases: 

1. Inform: Gaining granular clarity into invoices, service utilization, and usage analytics, and any expenses charged back to departments or business units. 
2. Optimize: Decreasing wasted cloud resources and leveraging discounts to reduce the price paid for cloud services. 
3. Operate: Closing the loop to create a continuous process of improvement.

Gartner warns most FinOps programs are immature in their practices, particularly in the areas of data and analytics functions. Analytics are among the top three challenges for in-house programs and the FinOps Foundation’s own research demonstrates that it can take weeks to determine the root cause of anomalous cloud spending.

What’s more? Missing analytics means missed opportunities to save money. AI-enabled FinOps programs are 53% more likely to achieve cost savings of greater than 20%, according to Foundry. 

Avoid key pitfalls and rise to FinOps success

This reality means most companies can’t get past the first, most basic “Inform” FinOps phase because they don’t have the information required to curb expenditures. Accurate catalogs and AI’s advanced analytics are the prerequisites for optimizing cloud costs. This is where IT and finance leaders should lean into strategic partnerships to make sure they don’t just spin their wheels trying to collect crunch numbers – a key pitfall to avoid.

Jumpstart your cloud optimization strategy with Tangoe, the leader in AI-powered cloud cost optimization.