Maximize Cloud Savings: Advanced Cost Reduction Strategies

Strategies for Organizations

Cloud migration can be a powerful way for organizations to reduce costs and improve efficiency. However, simply moving to the cloud is not enough - there are a number of tactics that teams can adopt to maximize cost savings.

In this article, I will first explore some common tactics that cloud migration teams use to reduce costs, then share advanced strategies that our most successful customers use to truly take advantage of the cloud for all of its far-reaching benefits. These strategies are not easy to execute and can require a significant commitment from the organization, but when executed properly, they can lead to dramatic cost savings (97% in some cases) and unlock new business opportunities.

Let’s start with the common tactics cloud migration teams can adopt to reduce costs:

Common Cost Reduction Strategies

1. Right-size instances

   One of the biggest advantages of the cloud is the ability to scale resources up or down as needed. By right-sizing your instances and choosing the appropriate pricing model (such as on-demand or reserved instances), you can ensure that you’re only paying for the resources you actually need.

   A customer recently discovered that moving a CMDB application from an on-premise environment to use m5a.large and db.m5.8xlarge on AWS would eliminate their Oracle licensing costs and reduce annual operating costs by 77%. They didn’t eventually choose to, which I will explain later on.

2. Optimize storage

   In the cloud, storage costs can add up quickly. By optimizing storage (for example, by compressing files or using more cost-effective storage tiers) and regularly reviewing and deleting unnecessary files, you can keep costs under control. One customer was able to achieve a 98% reduction in storage costs by de-duplicating and removing log data from their database, which reduced their data footprint in block storage from 1TB to less than 20GB.

3. Automate the mundane

   Scaling, backups, patching - most of these tasks and processes can be automated so cloud teams can reduce time spent on manual tasks. Automation drives maintenance efficiencies and increases developer productivity. For example, using infrastructure as code by creating landing zone automation with terraform, or enabling runbook automation to test data migration and cut-over processes iteratively.

4. Increase visibility on your cloud costs

   FinOps tools can help you track and optimize your cloud spend, identify and eliminate idle or underutilized resources, and set custom budgets and alerts. The cost reporting and management tools from cloud service providers are usually sufficient for what most companies need.

   A simple tactic for increasing visibility is to give read-only access to related IT and business teams, allowing them to see cost allocations and promoting transparency within the organization.

Such steps are straightforward and relatively easy to execute. The process and results are demonstrable and palatable with the Senior Executives - it’s fairly easy to quantify the benefits of rightsizing, optimizing storage, and automating processes. Cloud VPs do not need to delegate swaths of people to complete these tasks.

You will see savings, but such actions alone are probably not enough if you want to see large and sustained cost savings that supports new business generation and revenue growth.

Advanced Cost Reduction Strategies

These are several advanced strategies that companies should strive for to maximize cost savings when migrating to the cloud. They require more strategic commitment, typically incur larger upfront costs, and have greater success when part of a top-down mandate. Their impact of unlocking business agility and enabling new revenue opportunities mean that leaders find it difficult to ignore these strategies, once they find a way to get started.

1. Modernize applications

   Refactoring apps to take advantage of cloud-native services can reduce the need for expensive and complex infrastructure. Cloud-native apps can be more granularly monitored and controlled with auto-scaling and cost-optimization techniques. I have seen how modernizing application portfolios can lower costs dramatically for our customers - tens of millions of dollars per year.

   Remember the customer that could have saved 77% by rightsizing after migrating but didn’t? That’s because they chose to refactor their JSP/Tomcat 8.5 stack to AWS Lambda using the Serverless Java container pattern, bumping savings up to an almost unbelievable 97%.

   It’s important to remember that app modernization is an ongoing process, and not a one-time effort. The methods and approaches used will vary depending on the current state of the application, and can yield incremental improvements over time.

   To achieve maximum benefits and cost savings, it’s recommended to take a comprehensive approach to cloud migration, including cloud readiness assessment, identifying appropriate transition strategies per application, prioritizing migrations based on business value, and adopting cloud-native technologies where applicable.

2. Implement a charge-back model for cloud applications

   Implementing a charge-back or show-back model for cloud applications can effectively align IT costs with the business value of each application. This is achieved by getting buy-in from the business to implement this model and ensuring that IT costs are in line with the business benefit of each application. A cloud account strategy that allows for easy cost control, such as using fine-grained accounts, is the simplest way to implement this model. Our most successful customers are those who have adopted this strategy, eliminating the need for complex tagging and cost reporting.

3. Improve security

   The average total cost of a data breach in 2022 was USD 4.35 million¹. Every CFO should be concerned about Security. By reducing the risk of breaches, the direct and indirect costs associated with responding to security incidents and the breach’s impact are minimized.

   One of the ways to improve security is by identifying security vulnerabilities by analyzing application source code and inventorying the libraries and components in use. Knowing which vulnerabilities exist and which applications they relate to is very helpful when creating a plan for meeting security standards and requirements.

4. Upskill and train people in cloud technologies

   Creating the talent you need from within that is aligned to the overall migration strategy can maximize a company’s cost savings in various ways. (1) Lower reliance on third party vendors for support and maintenance, (2) Faster adoption and implementation of cloud solutions (3) Better understanding of security risks across the workforce, which lowers the risk of breaches (4) Improve organization flexibility to match the best technology resources to the highest business value (5) Increase adaptability within the organization to adopt new technologies and workflows.

Implementing advanced strategies for cloud migration can be challenging. The business cases required to justify these projects are often complex and difficult to develop, and the resources needed to implement them often extend beyond the Cloud team, requiring involvement from various departments and stakeholders. It is common for organizations to encounter setbacks before they can achieve the necessary momentum to fully implement these strategies.

Despite these challenges, the benefits of these strategies are significant and far-reaching. They can enable organizations to experiment more without incurring costly consequences, leading to increased innovation and the development of new features and revenue streams.

Harness the Power of Continuous Improvement for Cost Savings and Innovation

Cloud migration should not just be a one-time event, but a step towards improving the operating model of IT. Utilizing the cloud enables a journey of continuous improvement at a faster pace and lower cost than on-premise environments. To fully take advantage of the cloud, organizations should adopt a variety of tactics and strategies. Basic tactics such as right-sizing instances, optimizing storage, and automating tasks are relatively easy to implement, while advanced strategies such as modernizing applications, implementing charge-back models, improving security, and upskilling talent require more commitment and investment but offer greater returns in terms of cost savings and new business opportunities.

With the right approach, organizations can not only save money but also become more agile, flexible, and better equipped to adapt to rapidly changing technologies.

To learn more about effective cloud adoption methodologies, see Tidal Experts

Krystle Khoo is the Chief Strategy Officer at Tidal. Follow on LinkedIn.