Top 5 Cloud Cost Optimization Mistakes

Here’s a drilldown on common cloud cost optimization mistakes or oversights that separate desires from reality when it comes to reducing cloud spending.

Willy Sennott, EVP of FinOps, Vega Cloud

March 13, 2023

5 Min Read
dollars leading to cloud
Wavebreakmedia_Ltd_FUS1503 via Alamy Stock

Everyone wants to save money in the cloud. There's no CFO or CTO who wouldn't like to optimize cloud spending.

Where organizations struggle, however, is figuring out how to save on their cloud computing bills. As many as 94% of enterprises overspend on cloud resources, and it's certainly not because they like throwing money away. It's because they run into a variety of roadblocks that make it hard to get started on cloud cost optimization initiatives, or to see them through fully.

To understand what those roadblocks are and how to avoid them, here’s a drilldown on five common cloud cost optimization mistakes or oversights that separate desires from reality when it comes to reducing cloud spending:

1. Waiting too long to make changes

One common cloud spending mistake that businesses make is assuming that they don't need to -- or can't -- act immediately to start saving money on their cloud workloads. They might decide that they'll wait until the next financial year to undertake a cloud spending overhaul, for example, or that they'll leave existing workloads in place and only apply cost-optimization changes to new workloads.

Unfortunately, because most cloud resources are billed continuously, every minute that businesses wait to start saving money leads to financial waste. The difference between making a change today and making it three or six months from now could be tens of thousands of dollars for just a single workload. Across an enterprise cloud environment as a whole, delayed change could easily cost millions.

The point is that cloud cost optimization should begin immediately, not at some future point that may seem more convenient.

2. Being afraid of cancellation fees

One of the reasons why organizations are sometimes slow to begin cost-optimizing their cloud is that, in some cases, there are fees associated with making changes. If you've purchased a Reserved Instance type from a VM hosting service, for example, you might have to pay a penalty if you stop using it before the contractual period ends. Or you might pay a fee to move data out of cold storage on an object storage service if you haven't been storing it for a present length of time.

No one likes early cancellation fees. But if making changes saves you money even with the fees factored in, it should be a no-brainer to go ahead to make the changes, even if it means paying the fee.

With every type of cloud resource that comes with cancellation fees attached, there's a break-even period where you can cancel the resource without losing money. You should know when that period is, and when it makes sense to cancel a resource to make a change that reduces your overall spending. There's no shame in paying cancellation fees if it lowers your cloud bill.

3. Not tracking cloud spending

IT teams are good at tracking technical metrics, like workload CPU and memory utilization. Unfortunately, they're not always so good about tracking spending metrics and determining whether the performance of cloud resources justifies their cost.

To avoid that mistake, IT organizations should be just as conscientious about tracking cloud spending on a resource-by-resource basis as they are about monitoring other aspects of their workloads. Just because workloads meet performance goals doesn't mean they meet spending goals, but you won't know the difference unless you track spending systematically.

4. Being too risk-averse

Making the types of changes that deliver cost savings in the cloud -- such as rightsizing cloud workloads, switching to new types of cloud services, or even migrating to a different cloud provider -- comes with a certain level of risk. Businesses are usually conditioned to try to mitigate risk, and so it can be easy to fall into the trap of deciding not to make changes designed to save money because you're afraid something will go wrong.

That's a mistake, of course, because it means you end up overpaying -- which is a greater risk over the long term than any of the short-term disruptions that could occur if you do things like adopt a new cloud provider. To be sure, making changes is risky, but those risks can be managed, and they are well worth it in the long term if they save the company millions of dollars a year.

5. Going into cloud pricing negotiations blindly

Negotiating discounted prices with cloud providers is a great way to slash cloud spending across the board. If your cloud resource consumption is high enough, cloud providers will usually be happy to negotiate pricing discounts with you.

But just because they negotiate doesn't mean they are eager to hand you the best possible deal. Cloud providers are out to make money, too, and no matter how large your consumption rates are, they'll keep as much money on the table for themselves as they can.

The way to counteract this challenge is to make sure you have a partner on your side who understands cloud cost negotiations and knows how to get the very most that cloud providers are willing to give away. After all, cloud providers routinely negotiate pricing with high-volume customers, but most IT and financial leaders have little, if any, experience negotiating cloud pricing contracts. It's well worth bringing in an expert who can represent your business and make sure you don't leave money on the table.

A Bold Approach to Cloud Cost Optimization

You could sum up the lessons above as follows: When it comes to saving money in the cloud, you must act now, act boldly and act strategically. It helps, too, to track your spending so you don't miss any opportunities to save money.

This approach is the only way to close the gap between what you could be saving in the cloud and what you actually save -- a gap that is much larger than it needs to be for many businesses today.

About the Author(s)

Willy Sennott

EVP of FinOps, Vega Cloud

WillySennott is the EVP of FinOps at Vega Cloud. He has 25+ years' experience in the financial, marketing and business analytics data, helping clients and companies drive revenue growth, improve cost efficiencies, and effectively allocate capital. At Vega Cloud, Sennott leads the FinOps practice and helps drive overall company strategy and product roadmap. 

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