Detailed guide: Managing your spending in the cloud

Government Digital Service

February 10
12:14 2020

In most circumstances the public cloud provides better value for money than on-premise technology, but the way youre charged is different. Your bills will change according to your usage and though long-term costs are often lower, monthly costs could increase or decrease significantly as your demand fluctuates.

This means you need to be flexible in how you budget for cloud services, put in place systems and processes to monitor your spending, and design your applications to take advantage of the cloud cost model.

Building up a comprehensive picture of your ongoing cloud spend will help you avoid unexpected bill shock and make it easier to continually carry out cost optimisation so that your cloud infrastructure remains as efficient as possible.

The benefits of the cloud cost model

Moving to public cloud often requires a shift in mindset for organisations that are used to the static hosting costs of traditional data centres and software delivery models. However, accepting greater uncertainty in expenditure can offer significant flexibility and, when managed properly, better value for money. With the pay-as-you-go cost model, you can:

  • make use of the latest technology and services as soon as they are available
  • alter your technical architecture quickly if your strategy changes
  • take advantage of world-class managed services and security capabilities
  • continually optimise costs for your services
  • avoid up-front costs
  • host non-production environments in less resilient or cheaper places
  • experiment and test different approaches to the same problem without commitment
  • avoid extensive future capacity planning exercises
  • check your spending at any time, and set alerts to find out if it changes
  • stop your spending immediately if business priorities change
  • automate disaster recovery at a much lower cost

Adapting your business, finance and technical operations to take advantage of these benefits will mean that your technology infrastructure is more flexible and more responsive to the needs of your organisation.

Setting up your organisation to take advantage of the cloud

To get the most value out of your cloud infrastructure, you may need to change the composition and practices of your delivery teams.

On their own, commercial and technical teams do not normally have the right oversight and capability to properly optimise cloud costs. For example, commercial teams may be responsible for managing the bill but do not have the technical skills to reduce costs, while technical teams have the ability to reduce costs but not the commercial experience to manage the bill.

It can help to create a central cloud operations team in your organisation. This multidisciplinary, cross-functional team should include technical and commercial specialists, and would normally be made up of a mix of architects, analysts, economists and technical accountants. It should also include people from operational delivery teams who use your services on a daily basis.

A cloud operations team can set policy and create guidance for all the cloud teams within your organisation and can take responsibility for:

  • monitoring usage
  • billing
  • identifying areas where savings can be made

These can be reported back to delivery teams to encourage them to bring down costs, or used to set rules for the entire organisation to help control spending.

Since its easy to create an account with a cloud provider and quick to start building a project, you can end up spending more than you intend. Individual services might prioritise speed of delivery over coordinated, longer term savings, but it can lead to a greater consumption of cloud services overall for an organisation.

Your central cloud operations team can work with existing technical design authorities to prevent this behaviour.

You should also try to encourage users, such as architects and developers, to consider the financial impact of the services they build. The decisions they make every day will directly affect the amount you spend on the cloud.

Small decisions, such as whether to store data on a volume attached to the server or in a dedicated managed service, will affect what you pay. This means that to get the most efficient cloud services, developers and architects should work with commercial colleagues and economists to understand the financial impact of their technical decisions. Including cost considerations in architectural planning decisions is the best way to make sure you have the most efficient cloud bill.

This approach can have a big impact, such as when the Home Office reduced their cloud bill by 40%.

How the cloud changes your technology budgets

A private data centre typically requires up-front investment and regular maintenance that is budgeted as capital expenditure (this is often called capex or CDEL). But with cloud, the low initial investment and changeable nature of the billing means it is normally counted as operational expenditure (opex or RDEL). This means when you migrate to the cloud you might also need to reassign your capital expenditure to operational in your hosting budgets.

Many cloud providers offer buying mechanisms that can help to make spending patterns more closely reflect typical capital budgets. These can include large up-front payments or pre-committing to usage for several years in advance.

You might find mechanisms like these helpful for budgeting, but be aware that they can limit your technical flexibility and prevent you from using some of the more innovative features of the cloud. They can also make it difficult to cost optimise later on as you have already committed to a spend level which cannot be reduced.

It might be a better long term decision to work with your finance team to reassign the expenditure as operational. This will help you take full advantage of the flexibility of the cloud billing model.

Make sure you engage with them early so you do not reduce the options available to you. You can find more information on budgetary control and departmental expenditure limits (DELs) for both capital and revenue (capex and opex) in the Government Functional Standard - Finance.

Use spending information for better forecasting

Public cloud services are normally billed by usage. Cost is often calculated by time (usually seconds) or by number of transactions. The way that you store your logs, the database technology you choose, the type of encryption you use and even the country you host in will affect the price. This means it is harder to accurately forecast the short-term costs of cloud than in a private data centre or in older types of software.

However, the advantages of cloud technology are so significant that organisations should accept the extra effort needed for accurate forecasting and take the necessary steps to accommodate more uncertainty in their short-term spending.

Understanding whats running in your cloud infrastructure will make forecasting much easier and more accurate. Everything you do and build on the cloud is tracked and all large cloud providers have built in tools that help you monitor and forecast your cloud spend.

Many of these suppliers will recommend optimisation techniques which you can apply to your service. There are also a large number of third-party vendors and open source products that can provide detailed dashboards and automated reporting on your cloud spend. Bear in mind that this kind of logging and analysis usually costs extra, so make sure to include it in your organisations cloud spending budget.

One of the most powerful ways to get detailed spending information is for your central cloud operations team to create and implement a metadata tagging policy. Good tagging practices enable your organisation to attribute and charge back cloud spending to the right teams, cost centres, projects and programmes.

Understanding who is responsible for each part of your cloud bill is crucial for both forecasting and optimisation techniques to work. Providing teams with the right data will also help them identify unnecessary or excessive usage. This will help teams to optimise their cloud services.

Even though it may be harder to forecast your usage ahead of time, over a longer period you should start to be able to identify trends in the demand for your cloud services that will affect your spending. For example, if you usually have a big spike in activity at the end of the year, you would expect to see a higher bill for December and a lower bill for the rest of the year. Once a service has be

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