By Beth Stackpole
5m read time
There’s a common perception that moving workloads to the cloud can reduce IT costs by eliminating investments in on-premises infrastructure and adopting pay-per-use models. When properly governed, that’s certainly the case. However, left unchecked, cloud costs can rise unexpectedly, compromising ROI and consuming constrained IT budgets.
Measuring return on cloud investments is a rising concern as organizations actively ramp up cloud migration. According to IDG’s 2020 Cloud Computing research, 81% of organizations have shifted at least one application or some element of their computing infrastructure to the cloud, up from 73% in 2018. More than half of cloud-based applications (54%) were migrated from an on-premises environment, while 46% were purpose-built for the platform, the IDG research found.
There’s good reason for the mass migration. Among the myriad functionality, agility and ease of deployment benefits associated with a cloud architecture, a report from Nucleus Research found cloud deployments delivered four times the ROI vs. on-premises workloads over the period from January 2018 to November 2020. What’s more, organizations were able to recover the cost of their initial investments 2.5 times faster than for on-premises deployments, Nucleus found.
Challenges remain, however, with optimizing cloud costs. As organizations extend their investments across multiple public clouds — the IDG cloud survey found more than half (55%) of organizations employ multiple public clouds, with 21% relying on at least three — IT leaders are dealing with greater complexity in how they manage multi-cloud and hybrid cloud environments. More complexity can lead to hidden costs, and, more specifically, struggles with maintaining a hybrid environment within the promised constructs of a predictable cost structure.
“A well-managed, cost-optimized cloud can be cheaper for most clients than on-premises, but if you skip that step of establishing good cost governance and optimization of cloud architecture, you’re not going to achieve good results,” says Tim Rehac, a principal in Ernst & Young LLP’s Technology Consulting practice and EY Americas Cloud Infrastructure & Strategy Leader. “An unmanaged cloud is an opportunity to have runaway costs.”
Hidden trouble spots
The proven cost governance models that chief information officers (CIOs) have long used for on-premises IT are largely tied to capital appropriation and project portfolio selection. Managing capital expenses against a quarterly or annual budget makes it relatively easy to manage costs. But this model doesn’t translate well to the cloud, with its pay-per-use mechanisms and elastic demand. As a result, several factors can contribute to hidden costs, including:
Cloud services require a governance structure whereby companies not only set a budget and track spending against it, but also establish alerts when true costs exceed predicted costs.
Leading practices for optimization
The good news for CIOs struggling to rein in cloud costs is that a number of leading practices have emerged to help IT organizations establish proper governance controls that lay the groundwork for cloud cost optimization. Among them:
There is no “easy” button to maximize cloud ROI. With the proper governance and controls, however, CIOs can find new ways to optimize costs as the pace and scope of their cloud migration efforts increase.
For more information about how Ernst & Young LLP can help you unlock long-term value for your stakeholders and thought-provoking content for technology professionals visit ey.com/CIO.
Disclaimer: The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization.
Explore Collection
Explore Collection
Explore Collection