CLOUD COST MANAGEMENT: CREATING BUDGETS & ALERTS FOR NEW AND EXISTING CLOUD WORKLOADS

By: Shannon Kuehn, Managed Solutions Architect

While creating a cloud budget may require a significant amount of work upfront, the benefits of enhanced spend visibility make it demonstrably worthwhile. Generating an IT budget for cloud is crucial because it helps organizations effectively manage their cloud resources and expenses—an invaluable capability, particularly as cloud becomes intertwined with an increasing number of business functions. In this article, we’ll explore the implications of—and considerations for—using an OpEx model for cloud budgeting and discuss the key metrics related to alerting on cloud spend.

The Impact of OpEx

With the advent of cloud, the vast majority of organizations switched from a Capital Expenditures (CapEx) model to an Operating Expenses (OpEx) model. CapEx refers to the money a company invests in acquiring, upgrading, or maintaining physical assets like equipment or infrastructure. These assets are expected to provide long-term value and are not usually deducted from the company’s earnings for tax purposes. Instead, they are capitalized and depreciated over their useful life. CapEx represents significant investments aimed at enhancing a company’s future capabilities and productivity. OpEx represents ongoing costs that a company incurs as part of its day-to-day operations. Operating expenses cover things like salaries, rent, utilities, marketing, etc. – basically, the costs to keep a business operational and functioning. This switch proved challenging for a number of different reasons:

Accounting & Reporting Changes – Capital expenditures are typically treated as long-term investments that depreciate over time, while operating expenses are recognized immediately in financial statements. This change in accounting treatment can affect financial ratios, tax implications, and overall financial reporting, requiring adjustments and adaptations in financial systems and processes.
Impact on Profitability – Moving certain expenses from being capitalized (which can be spread out over several years) to being expensed upfront can impact an organization’s profitability and financial performance in the short term.
Budgeting & Planning – Shifting from CapEx to OpEx can alter the budgeting and planning process for a company. OpEx is often more predictable, as it involves regular, recurring expenses, while CapEx might involve large, irregular investments.
Investment Evaluation – Capital expenditure usually involves significant investments in assets or projects that can provide long-term benefits. By classifying these as OpEx, the evaluation of investment decisions may change.
Impact on Financial Metrics – As a result of the change, financial metrics such as Return on Assets (ROA) and Return on Investment (ROI) may be affected, which can impact how the company is evaluated by investors and analysts.

With a cloud budget in place, organizations can achieve better cost control, resource optimization, and forecasting—all of which is music to the ears of senior leadership. The ability to set spending limits and allocate resources wisely allows organizations to prevent unexpected overages by using a governance framework or standardization process. Additionally, organizations can prioritize essential cloud services, avoid wasteful spending on unnecessary resources, power off unused environments when not needed, and delete unnecessary environments completely. Being able to predict cloud spend enables you to forecast for future growth and predict expenses, which facilitates better financial planning.

Using Alerts to Manage OpEx Costs

In conjunction with having a budget, you also need to ensure alerts exist related to your overall cloud budget. Setting up budget alerts for cloud costs helps organizations stay within their financial limits, prevents overspending, optimizes resource usage, and enables timely decisions to successfully control cloud expenses. To effectively manage these OpEx costs, consider the following key metrics:

Spending Thresholds – Set alerts for when your total cloud spend exceeds predefined thresholds. This helps the organization monitor and control unexpected cost spikes.
Resource Utilization – Monitor the utilization of your cloud resources (e.g., CPU, memory, storage). Set alerts for unusually high or low utilization levels that might indicate inefficiencies.
Idle Resources – Identify and set alerts for idle or underutilized resources. This allows you to take action and optimize resource allocation.
Data Transfer Costs – Keep track of data transfer costs between different regions and services. Set alerts to identify unexpected data transfer patterns.
Service Quotas – Monitor service quotas to ensure you don’t hit any limits that might impact your applications’ performance.
Reserved Instances – Track your Reserved Instances usage to optimize cost savings effectively.
Anomalies – Set up anomaly detection alerts to be notified about any unusual cost patterns or sudden spikes in your cloud spending.
Tagging Compliance – Ensure all resources are appropriately tagged, and set alerts for untagged resources to maintain proper cost allocation.

Leveraging Harness’ Cloud Cost Management

In the first article in our series on cloud cost management, we discussed how careful planning and strategy took a backseat for organizations as they rushed to adopt the cloud—but it’s never too late to start. How can enterprises remedy the situation now? Harness’ Cloud Cost Management (CCM) helps create budgets, alerts, tracks anomalies, and identify resources owned or consumed by different business units. In the following how-to video, we demonstrate how to set up a budget, enable alerting, create a perspective, and analyze an anomaly in your monthly cloud spend.

To learn more, stay tuned for the next article in our cloud cost management series or get in touch with AHEAD today.