The adoption of cloud services has wide appeal across the boardroom, promising reduced operational complexities, enhanced customer experience and a range of new revenue opportunities. One of the most common expectations among C-level executives is that the cloud will serve to reduce the cost of IT operations, replacing a CapEx-intensive on-premises environment with an agile, consumption-based approach to IT services.
Pitfall 1: Only considering a proportion of the costs, overlooking the additional outlay required to operate cloud services.
In practice, however, cloud services aren’t always the nirvana that business leaders anticipate. Without clear cost insight, businesses may adopt the wrong solutions for their environment and find themselves faced with unanticipated expenses.
Operating a cloud environment requires an entirely different approach. IT leaders must think beyond simple cloud service costs, and consider the Total Cost of Operations (TCO). This is the sum of all direct and indirect costs incurred by operating cloud services. By avoiding these three common pitfalls, you can have a clear view of TCO, helping you to find the right path for your business to realise the full benefit of cloud services.
In a traditional IT setup, calculating the lifetime cost of the environment was relatively straightforward as setup and maintenance costs could be scoped with a high degree of clarity and predictability. This is because many of the costs would be agreed up front, including servers, storage, off-the-shelf software, user licensing, support and maintenance, and regular upgrade cycles.
Pitfall 2: Underestimating or lacking clarity on cloud service usage across the enterprise.
In a cloud environment, the cost model is completely different. Shifting from a capital investment model to operational expenditure allows the enterprise to scale up or down based on actual usage, and walk away from the service should it no longer be required.
While there’s a clear opportunity for better allocation of IT budgets, this isn’t always a guarantee. Your cloud provider may be transparent with service costs, but you also have to consider operational expenses such as extra storage, networking, security, access controls, backups, and disaster recovery. These costs are not always visible at the outset and risk spiralling if not properly managed. Without full visibility, it’s difficult to create realistic cost forecasts.
Pitfall 3: Failing to properly educate and inform the wider business on how to consume services.
The cloud needs of different departments can vary greatly. According to Symantec the average enterprise uses 1,232 cloud apps, often spread out over several hundred employees. This presents a challenge for IT to accurately forecast their organisation’s requirements.
Conventionally, IT decision makers have been used to ‘overspeccing’ their operations to allow redundancy without additional costs. Cloud pricing models vary vendor to vendor, meaning that there is greater necessity for businesses to fit their cloud subscription model to specific usage requirements. IT may not have full visibility of everyone using a cloud service, and consequently opt for the wrong subscriptions incurring additional costs.
It can also be difficult for IT to properly split and divide these costs between departments due to uncertainty over which line item relates to which user or department used which service.
A major challenge many enterprises face is in integrating IT operations with the wider business. In many organisations, IT is increasingly becoming the driver of business operations. Yet, IT can often operate in silo, resulting in an education gap over what cloud services the business has, how they work, and how staff should be using them.
In the cloud, costs aren’t fixed up front; they are consumption- based. If staff aren’t aware of this or don’t know how to properly use service, they may break through usage thresholds. Such inefficient and unnecessary usage can inflate costs by as much as 70 per cent across the enterprise.
IT therefore needs to be better able to communicate the full breadth of the cloud’s functionalities and its cost implications across the business. This will help staff to understand cost structures, and how they can be more efficient in their personal usage.
Creating an effective cost structure
These three common pitfalls can have huge cost implications, making the total cost of operating a cloud environment far more costly than it needs to be. There is however an opportunity for IT leaders to put in place a framework that makes the cost of cloud services more transparent, predictable, and manageable.
Having a cost management structure built into IT architecture can help IT to work more effectively with finance and procurement to lay out the full range of costs, and put in place a more fluid and usage-based costing structure. It also helps to provide visibility of where the greatest cloud demands are arising across the business, allowing IT to make sure that the right usage plans are in place, that staff are aware of just how much they are consuming, and that an internal billing structure is in place to separate costs between departments.
Ultimately, without insights you can’t manage costs effectively. Using a cost management structure can help you to align the total cost of cloud operation with your projections, while also helping the whole business to make better and more practical decisions about how they use cloud services. Not only does this avoid bill shock, it helps lay the foundation for more transparent and collaborative operations that sets the entire business up for cloud success.
