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Track the cost of cloud-based services with better financial management

Companies that don't monitor the cost of cloud-based services could be in for a nasty surprise, warns Gartner analyst Mindy Cancila.

It begins, at least, as the same old story. Company meets cloud. Company starts to move IT operations into cloud provider Amazon Web Services. Cloud services provide attractive cost savings to company for six months. Company gets a bill for $170,000.

This romance-turned-horror story was an actual case study presented by Mindy Cancila, a Gartner analyst, at the company's recent Gartner Catalyst Conference in San Diego.

Mindy Cancila , analyst, GartnerMindy Cancila

"They had no idea why," Cancila said of the client, whose name can't be disclosed because of Gartner's confidentiality policy. "They had no idea if it was accurate. They were unable to attribute it to any specific projects or users. And most importantly, they were terrified of what month eight might return."

The sticker shock was an example -- albeit an extreme one -- of what can go wrong when a company with IT assets in the public cloud doesn't properly manage the services it's paying for. The trouble is a symptom, Cancila said, of the rapidly growing popularity of cloud-based services. Companies looking for cloud benefits like flexibility and savings are not just testing anymore -- they're deploying cloud services company-wide. But they're finding that handing over IT operations to a third party isn't as easy as they had hoped.

Start the learning process, Cancila said, by following a four-pronged strategy for managing and tracking the cost of cloud-based services.

Create financial management procedures

There was a lot that the company in Cancila's case study didn't do: It didn't budget for a number of new IT projects it had started. It didn't shut down cloud instances that weren't needed. And it didn't adequately monitor the cloud-based services it was using -- partly because it couldn't make sense of the bill AWS sent every month. Cancila displayed a sample showing 27 out of 1,300 lines: Every transaction or service -- data transfers, storage, alerts -- gets a line item.

Tag resources. The first step in drafting a financial management process for the public cloud is tagging resources, or categorizing those line items by assigning metadata to them. Most cloud providers support tagging, Cancila said, but tags aren't set by default, so you need to determine what needs to be tagged.

"I would recommend things like cost center, user reach, project -- any of the things that you're going to be deploying that you're going to want to have that level of visibility across the organization," Cancila said.

If you're using AWS, you can create tags using the AWS Billing and Cost Management console. The tags will then be listed next to line items in your bill, and users can query or organize items using the tags as filters.

Create a forecast. That will help track the cost of cloud-based services. A good start is using a cost calculator, which most cloud providers offer, but that's sometimes not enough, Cancila said.

"These are only going to be as accurate as the data that you provide, and in some cases clients don't know what they're consumption is going to look like."

The biggest thing I find for organizations is developer swipes credit card, spins up a resource and doesn't really pay any attention to shutting it down or taking it offline.
Mindy Cancilaanalyst, Gartner

Pilot workloads in the cloud and monitor your use, she said, and then set up alerts. Cancila said if the company in the case study got a heads-up before spending exceeded $20,000, it would have made all the difference. "Had you had an alert and it happened on day five, you would have known you have a real problem."

Optimize cloud use. Do this first by matching the workload you want to put in the cloud with the right instance type, or mix of CPU, memory, storage and networking resources. Often, companies pick an instance type that has more capacity than they need, Cancila said. And don't forget to turn off the instances you're not using.

"The biggest thing I find for organizations is developer swipes credit card, spins up a resource and doesn't really pay any attention to shutting it down or taking it offline -- and it's still attributing it to your bill," Cancila said. "Shut down things that are not returning value to the business."

Build a multiprovider ecosystem

Cancila said most organizations using the public cloud start small, using just one provider. They become familiar with those services and then bring on a second provider or yet another. But more problems bubble up as soon as you start shopping for cloud management tools: Do they work with all of your providers' services?

After the company in the case study saw its bill jump nearly ninefold, it hired a financial management vendor from the AWS Provider Network. The vendor helped the company tidy up its environment and gain control of its spending.

When the company subscribed to a second cloud-based service, Microsoft Azure, it had one management tool and two providers -- but the tool worked with only one of them. Had it chosen spend optimization software CloudCheckr, which plugs into AWS and Azure, it could have stopped there. 

There are lots of tools on the market that can help you manage and monitor spending, track cloud usage and set alerts, but many don't work with multiple providers, or if they do, they don't offer everything you might need or integrate with other tools. Cancila expects this will change as the tools develop.

"You may not know today what providers are going to use in the future," she said. "But plan for providers and solutions that are going to expand for your cloud journey."

Read part two of this tip for more on managing the cost of cloud-based services. In it, Mindy Cancila discusses how traditional data center best practices are adapted for the cloud.

Let us know what you think of the story; email Jason Sparapani, features writer, or find him on Twitter @jmsparapani.

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