Cloud transformation is already moving beyond technology to change the way businesses operate and innovate. But as the cloud becomes an operating model for a company, effective cloud cost management is critical to the organization’s health.
Before organizations start a cloud transformation, they should develop and align technical and financial strategies for this journey. This will allow them to set measurable goals for their cloud shift, optimize resource utilization, and ensure a smooth cloud transformation.
In this article, Itransition’s cloud consultants, guide you through common cloud migration expenses, potential financial pitfalls on your cloud journey, and cost optimization strategies.
Cloud adoption costs
While cloud transformation can lead to long-term savings, the initial stages of the cloud journey and ongoing cloud usage can be costly if budgeted irresponsibly. Here are the main costs associated with each consecutive stage of cloud migration.
Cloud readiness assessment
Any cloud journey requires a strategy. To develop the optimal cloud adoption plan for your company, you need to do a cloud migration assessment, evaluating your existing IT infrastructure, business software and applications you use, and data you gather and process to determine your cloud infrastructure needs, such as computing, storage, and networking resources. For example, assessing your apps helps you to find the best method for migrating or modernizing them for the cloud.
Cloud migration assessment is a project on its own, requiring the investment of time and effort. Sometimes, you need to hire cloud consultants to perform a thorough cloud readiness assessment and buy specialized assessment tools, such as application portfolio management or performance and dependency mapping tools.
Cloud strategy development
After assessing your cloud readiness, you need to develop an effective cloud strategy that outlines a clear path to maximizing the benefits of the cloud while avoiding costly mistakes and pitfalls along the way.
The cost of designing a cloud adoption strategy depends on factors such as organization size and complexity, the scope of cloud adoption plans, the amount of customization required, and the expertise of the cloud consultants involved.
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Migration and deployment
Once the assessment and planning are finished, organizations move on to the migration and deployment stage which involves moving applications, data, and workloads to the cloud environment according to the established plan.
When deciding on a cloud deployment strategy (single cloud, multi-cloud, or hybrid cloud), keep in mind that multi-cloud and hybrid cloud deployments are more expensive.
Depending on the scope, the migration process may involve rehosting (lift and shift), refactoring, re-platforming, re-architecting, or redesigning your existing solutions for the cloud.
The lift and shift method is the fastest and least expensive way of cloud migration, as applications are moved as-is from your on-premises infrastructure to cloud infrastructure, which doesn’t require a large team.
However, rehosting is suitable for moving workloads that are cloud-ready to some extent (for example, apps built on microservices architecture) or as a first step to rearchitecting a monolithic application for the cloud. In other cases, preparing your applications for the cloud requires refactoring, re-platforming, rearchitecting, or redesigning, which are more expensive, labor-intensive, and time-consuming.
At the end of the cloud migration process, there are costs associated with testing the performance of the migrated applications, penetration testing of the new environment, and regulatory compliance assessment.
To sum up, estimating the cost of the actual migration is a challenging task since it greatly depends on the expertise of the team performing the migration. Hiring a consulting partner with a proven track record of managing cloud migrations can accelerate the project and reduce the risk of downtime.
Change management and training
Moving to the cloud will change how your teams work, requiring new skill development and technical training. The expected skill gaps arise in areas such as security management, cloud app development, and cloud infrastructure management and administration.
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Ongoing management
Cloud operational expenses consist mostly of cloud infrastructure costs for the three core areas: compute, storage, and network.
Compute refers to the processing power, memory, and temporary storage you need to run your cloud workloads. You pay for computing capacity depending on how many and what types of instances you use during a given period.
Network connectivity refers to the network capacity you use for your applications. This means that you are charged for the volume of data you transfer out of a cloud service (egress), into a cloud service (ingress), or both, in gigabytes (GB), terabytes (TB), or petabytes (PB). Low-latency, high-bandwidth network connectivity can incur extra costs, as well as Static IP addresses, gateways, and load balancers.
Storage capacity costs will depend on the type of storage you choose. For instance, the elastic storage service is priced on a per GB per month basis. Alternatively, you can pay for the whole storage volume, regardless of how much capacity you use in it, if you choose a managed storage service.
To set up a comprehensive cloud environment, you will also likely want to leverage cloud-based application services, integration connectors and API management, data services, monitoring and analytics, and security solutions. These could incur costs related to, for example, API calls per month, users per month requiring access governance, and resources and events per hour that require monitoring.
Cloud operational expenses are also affected by software licensing and different licensing models. Some vendors can charge based on the number of users, while others—based on the computing resources used.
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Hidden cloud costs
Cloud offerings are diverse and appealing, with cost-effectiveness being the most anticipated promise of the cloud. But what about the traps of cloud migration? Here are the most common factors that can lead to unexpected costs:
Improper cloud storage management
Mismanaging your cloud storage can lead to multiple copies of the same data, accumulation stale data, losing track of how much storage is being used and what by, and storage overuse. Inefficient cloud storage management leads to additional costs, such as using high-performance (and more expensive) storage for archived or backup data or paying for unused storage capacity.
Choosing the wrong data center location
When you decide to move to a cloud-based virtual infrastructure, you might think it’s enough to choose a cloud data center location in the same area as your company or most of your users. However, the fact that the data is easily accessible through the cloud doesn’t mean the location of the data center doesn’t really matter.
Choosing the wrong data center location option can lead to higher data transfer costs, as transferring data between different geographical regions (for example, from a data center in Europe to one in Asia) is often more expensive than within the same area.
Inefficient planning of data transfers
Data transfer occurs when you are moving data across cloud regions and zones, to and from the cloud and to and from on-premises networks. Cloud providers typically allow free data ingress. However, when data is transferred out of the cloud, data egress fees can vary significantly depending on the provider and the amount of data being transferred. So if you do not plan your data transfers carefully, the costs can go up quickly.
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Strategies for optimizing cloud costs
You can’t just think about optimizing cloud costs in terms of simply reducing them. Rather, consider it as a strategic technique for ensuring that your cloud costs are in line with the goals and objectives of your business. It would be reasonable to pay more for certain cloud services if you believe that they can considerably enhance your revenue.
Here, we provide some practical tips for optimizing your cloud expenses and avoiding hidden charges:
- Review pricing plans offered by several cloud providers and choose a simplified pricing model with no hidden fees so you can make informed decisions about how to use these resources and how to control costs.
- Always employ specialized tools to examine and monitor costs linked to the cloud. These tools detect anomalous cost spikes and dips in real time so you can further investigate and minimize unexpected variations in your cloud spending.
- Conduct continuous monitoring of your cloud resources utilization and set Key performance indicators (KPIs). With usage metrics at hand, you can identify any unused resources or redundant instances, scale up during peak demand times, or scale down when the workload decreases and thus avoid unnecessary costs.
- Modify computing resources dynamically based on actual needs. Here, you can benefit from autoscaling because it helps reduce the number of active servers during minimal activity and launches many new ones when activity is high. Most major public cloud providers have tools and services to ensure cloud scalability for their customers.
- Use discounts and savings programs from cloud providers. For instance, if you have predictable workloads, consider using reserved instances instead of on-demand ones.
- Optimize your data routing by determining the most efficient path for the data transfer. For example, use the least expensive regions for data transfer—when it comes to AWS for instance, the United States and Canada are usually the cheapest, while Singapore, India, and South America are usually more expensive.
- Consider opting for a multi-cloud or hybrid cloud infrastructure. With a multi-cloud approach, you will be able to compare solutions from different providers and choose the most cost-effective combination of cloud services that align with your budget. Hybrid solutions, in turn, provide a means for integrating on-premises storage with cloud resources as necessary.
Conclusion
Cloud technology keeps advancing with new services, pricing models, and capabilities that are introduced regularly. This changing environment calls for a holistic approach to how companies use cloud resources.
There are various costs to consider when adopting the cloud, including initial setup, ongoing operations, and resource expansion as needed. Businesses must be aware of these expenses to budget and prepare for cloud expenditures properly. Additionally, they should use best practices for cloud cost optimization to fully realize the benefits of the cloud.
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