Cloud Cost Rescuer
In the on-demand world of cloud service providers, you are billed for what is used. Perfect on the one hand to increase costs in relation to business success, on the other hand it harbors a great danger. Without appropriate monitoring and governance guidelines, enormous costs can be incurred in a very short time.
Status Quo
Before the cloud age, IT operational expenses were always an upfront investment. For example, by purchasing servers or long-term leases with data centers. Today, thanks to the many cloud offerings, exactly the type of service that best suits the problem can always be used. If services are no longer required, they can be switched off completely and therefore do not incur any further costs.
Today, Developers/SREs/DevOps decide what costs to incur. This is done simply by using the necessary resources. Usually, neither traditional procurement nor the finance department are involved in these decisions, which can lead to negative surprises.
A real-life situation
- 16.03. 1000€/day additional service usage
- 05.04. Invoicing by the cloud service provider
- 11.04. Invoice processing with subsequent panic in the finance department (>15,000€ additional costs)
- 13.04. Escalation to management in a regular meeting
- 15.04. Realization that the daily costs have increased to €1,500 per day
- April 19th Grapevine communications happens to reach the right tech team and the issue is resolved.
In this example, additional costs of >€50,000 were incurred, which were billed by the cloud provider.
Can such problems be prevented?
The monthly invoice statement is not a suitable tool for financial planning in the cloud context. The formulation of clear responsibilities in connection with continuous visibility of the actual costs are a basic requirement for successful operation in the cloud. If you are not allowed or unable to see something, you cannot act proactively. The procedural integration of financial planning into the product development process creates mutual understanding and trust and evolves common goals.
It's happening right now, what to do
When cloud costs suddenly explode, quick action is required and the cause must be identified and contained.
The monthly invoice does is not detailed enough to clearly determine the problem. It is important to find the right technical contact person as quickly as possible and to inform them about the observation. Typically, the IT on-call service is the best point of contact. Alternatively, if there is no on-call service or if you don't know how to reach them, inform the IT manager.
TIP
We are happy to accompany the processes in order to prevent further damage as quickly as possible and to avoid future problems in the long term.
After the emergency stabilization measures, the situation will be analyzed.
- Post-mortem analysis provides clarity on what led to this situation and which security mechanisms and communication channels need to be adjusted to avoid this situation in the future.
- The open communication with the cloud service provider can lead to a goodwill arrangement where the additional costs will be waived.
Preventing causes instead of fighting symptoms
The causes of large changes in costs usually fall into three categories accepted, planned, unplanned.
Accepted cost increase
A new release, feature or marketing measure leads to more usage of your own product. This is one of the strengths of the cloud, since no upfront investments are necessary, but the resource requirements are automatically covered with use and thus lead to higher costs. The problem here is often the lack of transparency about the trigger and the added value for the customer. The cost increases in this category are usually accompanied by an increase in revenue and are therefore not a problem. If the additional costs are not covered by additional revenue, the product pricing and the selected technological implementation must be checked.
Planned cost increase
All public cloud providers offer various usage discount mechanisms. You agree to use a minimum of specific resources and pay for them regardless of whether they are actually used. You will receive a lower hourly rate for the loss of your flexibility. Potential savings range from 20% to 70%. The discounts are granted for a defined period of time. In certain cases it can make sense not to extend a discount and thus pay a higher hourly price. The most common case is a planned or ongoing migration to different technology.
Unplanned cost increase
These cost anomalies can jeopardize business success in the long term. This risk not only affects the financial level, but also the trust within the company. Not all can be prevented, but mechanisms can be implemented to allow for a quick response.
Cloud Strategy
An explicitly defined cloud strategy creates clarity about the degrees of freedom and responsibilities at all levels. The establishment of real-time cost monitoring leads to continuous monitoring and optimization. Through process-integrated stress tests, simulations and forecasts, development teams are able to formulate clear expectations regarding the operating costs and thus enable a financial forecast. These cost projections form an important data source for determining product pricing and technology strategy.
