The 6 Pillars of Cloud Cost Optimization

Let me start by painting the picture: You’re the CFO. Or the manager of a department, group, or team, and you’re ultimately responsible for any and all financial costs incurred by your team/group/department. Or maybe you’re in IT and you’ve been told to keep a handle on the costs generated by application use and code development resources. Your company has moved some or all of your projects and apps to the public cloud, and since things seem to be running pretty smoothly from a production standpoint, most of the company is feeling pretty good about the transition.

Except you.

The promise of moving to cloud to cut costs hasn’t matriculated and attempting to figure out the monthly bill from your cloud provider has you shaking your head.

cloud cost optimization best practices

Source: Amazon Web Services (AWS). “Understanding Consolidated Bills – AWS Billing and Cost Management”. (2017). Retrieved from https://docs.aws.amazon.com/awsaccountbilling/latest/aboutv2/con-bill-blended-rates.html

From Reserved Instances and on-demand costs, to the “unblended” and “blended” rates, attempting to even make sense of the bill has you no closer to understanding where you can optimize your spend.

It’s not even just the pricing structure that requires an entire department of accountants to make sense of, the breakdown of the services themselves is just as mind boggling. In fact, there are at least 500,000 SKUs and price combinations in AWS alone! In addition, your team likely has no limitation on who can spin up any specific resource at any time, intrinsically compounding the problem—especially when staff leave them running, the proverbial meter racking up the $$ in the background.

Addressing this complex and ever-moving problem is not, in fact, a simple matter, and requires a comprehensive and intimate approach that starts with understanding the variety of opportunities available for cost and performance optimization. This where 2nd Watch and our Six Pillars of Cloud Optimization come in.

The Six Pillars of Cloud Cost Optimization

1. Reserved Instances (RIs)

AWS Reserved Instances, Azure Reserved VM Instances, and Google Cloud Committed Use Discounts take the ephemeral out of cloud resources, allowing you to estimate up front what you’re going to use. This also entitles you to steep discounts for pre-planning, which ends up as a great financial incentive.

Most cloud cost optimizations, erroneously, begin and end here—providing you and your organization with a less than optimal solution. Resources to estimate RI purchases are available through cloud providers directly and through 3rd party optimization tools. For example, CloudHealth by VMware provides a clear picture into where to purchase RI’s based on your current cloud use over a number of months and will help you manage your RI lifecycle over time.

Two of the major factors to consider with cloud cost optimization are Risk Tolerance and Centralized RI Management portfolios.

  • Risk Tolerance refers to identifying how much you’re willing to spend up front in order to increase the possibility of future gains or recovered profits. For example, can your organization take a risk and cover 70% of your workloads with RIs? Or do you worry about consumption, and will therefore want to limit that to around 20-30%? Also, how long, in years, are you able to project ahead? One year is the least risky, sure, but three years, while also a larger financial commitment, comes with larger cost savings.
  • Centralized RI Management portfolios allow for deeper RI coverage across organizational units, resulting in even greater savings opportunities. For instance, a single application team might have a limited pool of cash in which to purchase RIs. Alternatively, a centralized, whole organization approach would cover all departments and teams for all workloads, based on corporate goals. This approach, of course, also requires ongoing communication with the separate groups to understand current and future resources needed to create and execute a successful RI management program.

Once you identify your risk tolerance and centralize your approach to RI’s you can take advantage of this optimization option. Though, an RI-only optimization strategy is short-sighted. It only allows you to take advantage of pricing options that your cloud vendor offers. It is important to overlay RI purchases with the 5 other optimization pillars to achieve the most effective cloud cost optimization.

2. Auto-Parking

One of the benefits of the cloud is the ability to spin up (and down) resources as you need them. However, the downside of this instant technology is that there is very little incentive for individual team members to terminate these processes when they are finished with them. Auto-Parking refers to scheduling resources to shut down during off hours—an especially useful tool for development and test environments. Identifying your idle resources via a robust tagging strategy is the first step; this allows you to pinpoint resources that can be parked more efficiently. The second step involves automating the spin-up/spin-down process. Tools like ParkMyCloud, AWS Instance Scheduler, Azure Automation, and Google Cloud Scheduler can help you manage the entire auto-parking process.

3. Right-Sizing

Ah, right-sizing, the best way to ensure you’re using exactly what you need and not too little or too much. It seems like a no-brainer to just “enable right-sizing” immediately when you start using a cloud environment. However, without the ability to analyze resource consumption or enable chargebacks, right-sizing becomes a meaningless concept. Performance and capacity requirements for cloud applications often change over time, and this inevitably results in underused and idle resources.

Many cloud providers share best practices in right-sizing, though they spend more time explaining the right-sizing options that exist prior to a cloud migration. This is unfortunate as right-sizing is an ongoing activity that requires implementing policies and guardrails to reduce overprovisioning, tagging resources to enable department level chargebacks, and properly monitoring CPU, Memory and I/O, in order to be truly effective.

Right-sizing must also take into account auto-parked resources and RIs available. Do you see a trend here with the optimization pillars?

4. Family Refresh

Instance types, VM-series and “Instance Families” all describe methods by which cloud providers package up their instances according to the hardware used. Each instance/series/family offers different varieties of compute, memory, and storage parameters. Instance types within their set groupings are often retired as a unit when the hardware required to keep them running is replaced by newer technology. Cloud pricing changes directly in relationship to this changing of the guard, as newer systems replace the old. This is called Family Refresh.

Up-to-date knowledge of the instance types/families being used within your organization is a vital component to estimating when your costs will fluctuate. Truth be told, though, with over 500,000 SKU and price combinations for any single cloud provider, that task seems downright impossible.

Some tools exist, however, that can help monitor/estimate Family Refresh, though they often don’t take into account the overlap that occurs with RIs—or upon application of any of the other pillars of optimization. As a result, for many organizations, Family Refresh is the manual, laborious task it sounds like. Thankfully, we’ve found ways to automate the suggestions through our optimization service offering.

5. Waste

Related to the issue of instances running long past their usefulness, waste is prevalent in cloud. Waste may seem like an abstract concept when it comes to virtual resources, but each wasted unit in this case = $$ spent for no purpose. And, when there is no limit to the amount of resources you can use, there is also no incentive to individuals using the resources to self-regulate their unused/under-utilized instances. Some examples of waste in the cloud include:

  • AWS RDSs or Azure SQL DBs without a connection
  • Unutilized AWS EC2s
  • Azure VMs that were spun up for training or testing
  • Dated snapshots that are holding storage space that will never be useful
  • Idle load balancers
  • Unattached volumes

Identifying waste takes time and accurate reporting. It is a great reason to invest the time and energy in developing a proper tagging strategy, however, since waste will be instantly traceable to the organizational unit that incurred it, and therefore, easily marked for review and/or removal. We’ve often seen companies buy RIs before they eliminate waste, which, without fail, causes them to overspend in cloud – for at least a year.

6. Storage

Storage in the cloud is a great way to reduce on-premises hardware spend. That said, though, because it is so effortless to use, cloud storage can, in a very short matter of time, expand exponentially, making it nearly impossible to predict accurate cloud spend. Cloud storage is usually charged by four characteristics:

  • Size – How much storage do you need?
  • Data Transfer (bandwidth) – How often does your data need to move from one location to another?
  • Retrieval Time – How quickly do you need to access your data?
  • Retrieval Requests – How often do you need to access your data?

There are a variety of options for different use cases including using more file storage, databases, data backup and/or data archives. Having a solid data lifecycle policy will help you estimate these numbers, and ensure you are both right-sizing and using your storage quantity and bandwidth to its greatest potential at all times.

So, you see, each of these six pillars of cloud cost optimization houses many moving parts, and what with public cloud providers constantly modifying their service offerings and pricing, it seems wrangling in your wayward cloud is unlikely. Plus, optimizing only one of the pillars without considering the others offers little to no improvement, and can, in fact, unintentionally cost you more money over time. An efficacious optimization process must take all pillars and the way they overlap into account, institute the right policies and guardrails to ensure cloud sprawl doesn’t continue, and implement the right tools to allow your team regularly to make informed decisions.

The good news is that the future is bright! Once you have completely assessed your current environment, taken the pillars into account, made the changes required to optimize your cloud, and found a method by which to make this process continuous, you can investigate optimization through application refactoring, ephemeral instances, spot instances and serverless architecture.

The promised cost savings of public cloud is reachable, if only you know where to look.

2nd Watch offers a Cloud Cost Optimization service that can help guide you through this process. Our Cloud Cost Optimization service is guaranteed to reduce your cloud computing costs by 20%,* increasing efficiency and performance. Our proven methodology empowers you to make data driven decisions in context, not relying on tools alone. Cloud cost optimization doesn’t have to be time consuming and challenging. Start your cloud cost optimization plan with our proven method for success at https://offers.2ndwatch.com/download-cloud-cost-optimization-datasheet

*To qualify for guaranteed 20% savings, must have at least $50,000/month cloud usage.

Stefana Muller, Sr. Product Manager

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How to Choose the Right Hyperscale Managed Service Provider (MSP)

One of the challenges that many businesses struggle to overcome is how to keep up with the massive (and on-going) changes in technology and implement best practices for managing them.  The Public Cloud­—in particular, Hyperscale Cloud providers like AWS—has ushered in a new era of IT technology. This technology changes rapidly and is designed to provide businesses with the building blocks that allow IT organizations to focus on innovation and growth, rather than mess with things that don’t differentiate their business.

A Hyperscale Managed Services Provider (MSP) can help address a very important gap for many businesses that struggle to:

  • Keep up with the frenetic pace of change in Public Cloud
  • Define and use best practices to achieve superior results
  • Manage their infrastructure the most efficient way possible

 

In most cases, Hyperscale MSPs have deep expertise, technology, and automated capabilities to deliver high-quality managed service on a hyperscale platform. And because Hyperscale MSPs are solely focused to deliver capabilities on the cloud IaaS and PaaS that today’s enterprises are using, they are well versed in the best practices and standards to achieve the right results for their clients.

So, how do you go about selecting the right MSP?  The answer to this question is critical because we believe choosing the right MSP is one of the most important decisions you will make when consuming the public cloud.  It is also important to note that some of the qualifications to look for when selecting a Hyperscale MSP for your business needs are obvious, while others are more elusive.  I’ve included a few suggestions below to keep in mind when evaluating and selecting the right Hyperscale MSP.

Expertise on the Platform of Your Choice

First and foremost, no two public cloud providers are the same.  Each provider implements MSP strategies differently—from infrastructure and redundancy, to automation and billing concepts.  Secondly, it isn’t enough for a provider to tell you they have a few applications running on the platform.  When looking to entrust someone with your most valuable assets, expertise is key!  An important KPI for measuring the capabilities of a MSP that many businesses overlook is the provider’s depth and breadth of experience. A qualified Hyperscale MSP will have the right certifications, accreditations, and certified engineer-to-customer ratios.  You may feel good about signing with a large provider because they claim a higher number of certified engineers than the smaller firms, until…you realize their certified engineer-to-customer ratio is out of whack.  Having 200 certified engineers means nothing if you have 5,000+ customers.  At 2nd Watch, we have more certified engineers than we do customers, and we like it that way.

The Focus is on Customer Value

This is an obvious recommendation, but it does have some nuances.  Many MSPs will simply take the “Your mess for less” approach to managing your infrastructure.  Our customers tell us that one of the reasons they chose 2nd Watch was our focus on the things that matter to them.  There are many MSPs that have technical capabilities to manage Cloud infrastructure but not all are able to focus in on how an enterprise wants to use the Public Cloud.  MSPs with the ability to understand their client’s needs and goals tailor their approach to work for the enterprise vs. making them snap to some preconceived notion of how these things should work or function.  Find an MSP that is willing to make the Public Cloud work the way you want it to and your overall experience, and the outcome, will be game changing.

Optimize, Optimize, Optimize

Moving to the Public Cloud is just the first step in the journey to realizing business value and transforming IT.  The Cloud is dynamic in nature, and due to that fact, it is important that you don’t rest on just a migration once you are using it.  New instance types, new services, or just optimizing what you are running today are great ways to ensure your infrastructure is running at top notch.  It is important to make sure your MSP has a strong, ongoing story about optimization and how they will provide it.  At 2nd Watch, we break optimization into 3 categories:  Financial Optimization, Technical Optimization and Operations Optimization.  It is a good idea to ask your MSP how they handle these three facets of optimization and at what cadence.  Keep in mind that some providers’ pricing structures can act as a disincentive for optimization.  For example, if your MSP’s billing structure is based on a percentage of your total cloud spend, and they reduce that bill by 30% through optimization efforts, that means they are now getting paid less, proportionately, and are likely not motivated to do this type of optimization on a regular basis as it hurts their revenue.  Alternatively, we have also seen MSPs charge extra for these types of services, so the key is to make sure you ask if it’s included and get details about the services that would be considered an extra charge.

Full Service

The final qualification to look for in a Hyperscale MSP is whether they are a full-service provider.  Too often, pure play MSPs are not able to provide a full service offering under their umbrella.  The most common reason is that they lack professional services to assess and migrate workloads or cloud architects to build out new functionality.

Our enterprise clients tell us that one of their major frustrations is having to work with multiple vendors on a project.  With multiple vendors, it is difficult to keep track of who is accountable and for what they are accountable.  Why would the vendor that is migrating be motivated to make sure the application is optimized for support if they aren’t providing the support?  I have heard horror stories of businesses trying to move to the cloud and becoming frustrated that multiple vendors are involved on the same workload, because the vendors blame each other for missing deadlines or not delivering key milestones or technical content.  Your business will be better served by hiring an MSP who can run the full cloud-migration process—from workload assessment and migration to managing and optimizing your cloud infrastructure on an ongoing basis.

In addition to the tips I have listed above, 2nd Watch recommends utilizing Gartner’s Magic Quadrant to help evaluate the various public cloud managed service providers available to you. Gartner positioned 2nd Watch in the Leaders quadrant of the 2017 Gartner Magic Quadrant for Public Cloud Infrastructure Managed Service Providers, Worldwide for our completeness of vision and ability to execute.  You can download and read the full report here.

 

-Kris Bliesner, CTO

 

 

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. This graphic was published by Gartner, Inc. as part of a larger research document and should be evaluated in the context of the entire document.

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Cloud Cost Complexity: Bringing the unknown unknowns to light

When first speaking to mid-size and large enterprises considering embracing the Amazon Web Services (AWS) cloud, the same themes come up consistently.  Sometimes it comes out explicitly and sometimes it is just implied, but one item that nearly all are apprehensive about is their discomfort with “unknown unknowns” (the stuff you don’t even know that you don’t know). They recognize that AWS represents a paradigm shift in how IT services are provisioned, operated, and paid for, but they don’t know where that shift might trip them up or where it will create gaps in their existing processes.  This is a great reason to work with an AWS Premier Partner, but that is a story for another day.

Let’s talk about one of the truly unknown unknowns – AWS Cost Accounting.  The pricing for Amazon Web Services is incredibly transparent.  The price for each service is clearly labeled online and publicly available.  Amazon’s list prices are the same for all customers, and the only discounts come in the form of volume discounts based on usage, or Reserved Instances (RIs).  So if all of this is so transparent, how can this be an unknown unknown?  The devil is in the details.

The scenario nearly always plays out the same way.  An enterprise starts by dipping a toe into the AWS waters.  It starts with one account, then two or three. Six months later they have 10 or 20 AWS accounts.  This is a good thing. AWS is designed to be easy to consume – Nothing more than a credit card is required to get started.  The challenge comes when your organization moves to consolidated invoice billing.  Your organization may be doing this because you want central procurement to manage the payments, you want to pool your volume for discounts, or it may be as simple as wanting it off your credit card. Either way, you now have an AWS bill that might not be what was expected (the unknown unknown).

If you have ever seen an AWS bill, you know they contain a phenomenal amount of useful information.  Amazon provides a spreadsheet monthly with every line item that was billed for the period with amazing detail and precision.  The down side of this wealth of information is that once you start accumulating several AWS accounts on the same consolidated bill, the bill becomes exponentially more difficult to rationalize and track your costs.

In contrast to the unknown unknown, the ability to accurately attribute per-workload costs is one of AWS’ best features and a strong attractor to AWS.  For many organizations, the ability to provide showback or chargeback bills to business units is extraordinarily valuable.  Once a business unit can see the direct costs of their IT resources they can make more informed business decisions.  It is amazing how often HA and DR requirements get adjusted when a business unit can calculate the cost / benefit of each option.

Along with the apprehension of unknown unknowns, many organizations are both excited and a little scared of going to a truly variable cost model.  They are used to knowing what their costs are (even if they are over provisioned).  The idea that they won’t know what the workload will cost until it is up and running on AWS can be a scary one.  This fear can be flipped into a virtue – try it!  Run a quick POC and the workload for performance, cost etc.  See if it works for your use case.  If it does, great; if not, it didn’t cost much to find out.

Managing your costs in AWS means more than just deciphering your bill this month.  It also means the ability to track historical spend by service and interpret the results.  Business units need to understand why their portion of the bill is going up or down and what is driving the change.

The solution to the cost accounting challenge is to use a cost accounting tool specific to AWS.  As Amazon is quick to point out, the pricing model, while transparent, is also fluid.  They have dropped pricing on various services more than 50 times in the last few years.  To effectively manage AWS costs, users want a comprehensive solution that can take a consolidated bill and make it easy to generate real insights.  Most on-premise or co-located solutions cannot match the granularity and accuracy of AWS with a properly implemented cost accounting tool.  With the right tool you can take one of the unknown unknowns and make it a powerful advantage for your journey to the public cloud!

2nd Watch offers software and services that simplify your cloud billing as part of our Managed Billing solution.  This solution expands upon our industry-leading cloud accounting platform with a trained concierge to help facilitate billing questions, making analyzing, budgeting, tracking, forecasting and invoicing the cost of the public cloud easier. Our Managed Billing Service lets you accurately allocate deployment expenses to your financial reporting structure and provides business insights through detailed usage analytics and budget reporting. We offer these services for free to our Managed Services customers.  Find out more at www.2ndwatch.com/Managed-Cloud.

-By Marc Kagan, Managed Cloud Specialist

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Introducing the Scheduled Reserved Instance

Amazon Web Services will continue to lower its prices for IaaS (Infrastructure as a Service) and PaaS (Platforms as a Service) for a number of different reasons. But that doesn’t mean that your public cloud costs will go down over time. Over the past 2 years I’ve seen SMB’s and Enterprise firms surprised by rising cloud costs despite the falling rates. How does this happen? And how can your business get ahead of the problem?

How AWS can lower its rates over and over again

First is the concept of capacity planning, which is much different in the public cloud when compared to the traditional days of voice and data infrastructure. In the “ole days” we used the 40-60-80 rule. Due to the lengthy lead times to order circuits, rack equipment, run cables and go-live, enterprise IT organizations used 40-60-80 as triggers for when to act on new capacity building activities.

At 40% utilization, the business would begin planning for capacity expansion. At 60% utilization, new capacity would be ordered. At 80% utilization, the new capacity would be turned up and ready for go-live. All this time, IT planners would run around from Business Unit to Business Unit trying to gather their usage forecasts and growth plans for the next 12-24 months. It was a never ending cycle. Wow – that was exhausting!

Second is the well-known concept of Economies of Scale, which affords AWS cost advantages due to the sheer size, scale and output of its operations globally. Simply put, more customers will lead to more usage, and Amazon’s fixed costs will be spread over more customers. As a result, the cost per unit (EC2 usage hour, Mbps of Data Transfer, or Gigabyte of S3 storage) will decrease. A lower cost per unit allows Amazon to safely lower its prices and lead the market in public cloud adoption.

In the public cloud world, Amazon can gauge customer commitment, capacity planning and growth estimates by offering reservations for its infrastructure – otherwise known as Reserved Instances. Historically Reserved Instances come in six different types – No Upfront, Partial Upfront and Full Upfront (referring to the initial down payment amount) and offered in a 1-year or 3-year commitment.

No Upfront RI’s have the lowest discount factor over the commitment term, and Full Upfront RI’s have the highest discount factor. With the help of Reserved Instances, AWS has been able to plan its capacity in each region by offering customers a discount for their extended commitment. Genius!

New Reserved Instances

But it gets better. In January, AWS released a new type of Reserved Instance that gives the customer more time control and also provides Amazon with more insight into what time of day the AWS resource will be used. Why is this new “Scheduled Reserved Instance” important?

Well, a traditional RI is most effective when the instance runs all day and all year. There is a breakeven point for each RI type, but for simplicity let’s assume that the resource should be always-on to achieve the maximum savings.

However a Scheduled Reserved Instance allows the customer to designate which hours of which day the resource will run. Common use cases include month-end reporting, daily financial risk calculations, nightly genome sequencing, or any regularly scheduled batch job.

Standard Reserved Instances

Before the Scheduled RI, the customer had 3 options – (1) run the compute on-demand and pay the highest price, (2) reserve the compute with a Standard Reserved Instances (SRI) and waste the time when the job’s not running (known as spoilage), or (3) try to run it on Spot Instances and hope their bid is met with available capacity.

Now there’s a fourth option – The Scheduled Reserved Instance. Savings are lower, typically in the 5-10% range compared to on-demand rates, but the customer has incredible flexibility in scheduling hours and recurrence. Oh yeah – and did I mention that AWS can now sell even more excess capacity at a discount?

With so many options available to AWS customers, it’s important to find an AWS Premier Partner that can analyze each cloud workload and recommend the right mix of cost-reducing techniques. Whether the application usage pattern is steady state, spiky predictable, or uncertain-unpredictable, there is a combination of AWS solutions designed to save money and still maintain performance. Contact 2nd Watch today to learn more about Cloud Cost Optimization Reports.

Zach Bonugli, Managed Cloud Specialist

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