We are witnessing cloud transformation moving beyond technology to change the way businesses operate and innovate. As the cloud becomes the operating model for a company, effective cloud cost management becomes critical for the organization’s health.

However, before organizations can begin cloud transformation, they should develop and align the technical and financial strategies required for the journey. This will allow them to set measurable goals for their cloud shift, optimize resource utilization and ensure smooth cloud transformation.

In this article, Itransition’s cloud consultants, skilled in developing cost-effective cloud transformation strategies, will guide you through common cloud migration expenses, potential financial pitfalls on your cloud journey and cost optimization strategies.

Cloud Adoption Costs

While cloud transformation can lead to long-term savings, the initial stages of the cloud journey and ongoing cloud usage can be costly if budgeted irresponsibly. Here are the main costs associated with each consecutive stage of cloud migration.

Cloud Readiness Assessment

Any cloud journey requires a strategy. To develop the optimal cloud adoption plan for your company, you must do a cloud migration assessment. This is done by evaluating your existing IT infrastructure, the business software and applications you use, and the data gathered and processed to determine your cloud infrastructure needs, such as computing, storage and networking resources. For example, assessing your apps enables you to find the best method to migrate or modernize them for the cloud.

Cloud migration assessment is a project on its own, requiring time and effort. Sometimes, you need to hire cloud consultants to perform a thorough cloud readiness assessment and buy specialized assessment tools, such as application portfolio management or performance and dependency mapping tools.

Cloud Strategy Development

After assessing your cloud readiness, you must develop an effective cloud strategy that outlines a clear path to maximize the benefits of the cloud, while avoiding costly mistakes and pitfalls along the way.

The cost of designing a cloud adoption strategy depends on factors like organization size and complexity, the scope of cloud adoption plans, the amount of customization required and the expertise of the cloud consultants involved.

Migration and Deployment

Once the assessment and planning are completed, organizations move on to the migration and deployment stage, which involves moving applications, data and workloads to the cloud environment by the established plan or strategy.

When deciding on a cloud deployment strategy (single cloud, multi-cloud or hybrid cloud), keep in mind that multi-cloud and hybrid cloud deployments are more expensive.

Depending on the scope, the migration process may involve rehosting (lift and shift), refactoring, re-platforming, rearchitecting or redesigning your existing solutions for the cloud.

The lift and shift method is the fastest and least expensive way of cloud migration, as applications are moved as-is from your on-premises infrastructure to cloud infrastructure, which doesn’t require a large team.

However, rehosting is suitable for moving workloads that are cloud-ready to some extent (for example, apps built on microservices architecture) or as a first step to rearchitecting a monolithic application for the cloud. In other cases, preparing your applications for the cloud requires refactoring, re-platforming, rearchitecting or redesigning, which are more expensive, labor-intensive and time-consuming.

At the end of the cloud migration process, there are costs associated with testing the performance of the migrated applications, penetration testing of the new environment and regulatory compliance assessment.

To sum up, estimating the cost of the actual migration is a challenging task since it greatly depends on the expertise of the team performing the migration. Hiring a consulting partner with a proven track record of managing cloud migrations can accelerate the project and reduce the risk of downtime.

Change Management and Training

Moving to the cloud will change how your teams work, requiring new skill development and technical training. The expected skill gaps arise in areas such as security management, cloud app development and cloud infrastructure management and administration.

Ongoing Management

Cloud operational expenses consist mostly of cloud infrastructure costs for the three core areas: Compute, storage and network.

Computing is the processing power, memory and temporary storage needed to run cloud workloads. You pay for computing capacity depending on how many and what types of instances you use during a given period.

Network connectivity refers to the network capacity you use for your applications. This means that you are charged for the volume of data you transfer out of a cloud service (egress), into a cloud service (ingress) or both, in gigabytes (GB), terabytes (TB) or petabytes (PB). Low-latency, high-bandwidth network connectivity can incur extra costs, as well as static IP addresses, gateways and load balancers.

Storage capacity costs will depend on the type of storage you choose. For instance, the elastic storage service is priced on a per GB per month basis. Alternatively, if you choose a managed storage service you must pay for the whole storage volume, regardless of how much capacity you use.

To set up a comprehensive cloud environment, you would want to leverage cloud-based application services, integration connectors and API management, data services, monitoring and analytics and security solutions. These could incur costs related to, for example, API calls per month, users per month requiring access governance and resources and events per hour which require monitoring.

Cloud operational expenses are also affected by software licensing and different licensing models. Some vendors can charge based on the number of users, while others are based on the computing resources used.

Hidden Cloud Costs

Cloud offerings are diverse and appealing, with cost-effectiveness being the most anticipated promise of the cloud. But what about the traps of cloud migration? Here are the most common factors that can lead to unexpected costs:

Improper Cloud Storage Management

Mismanaging your cloud storage can lead to multiple copies of the same data, accumulation of stale data, losing track of how much storage is being used and what by and overuse of storage. Inefficient cloud storage management leads to additional costs, such as using high-performance (and more expensive) storage for archived or backup data or paying for unused storage capacity.

Choosing the Wrong Data Center Location

When you decide to move to a cloud-based virtual infrastructure, you might think it is enough to choose a cloud data center location in the same area as your company or the majority of your users. However, the fact that the data is easily accessible through the cloud doesn’t mean the location of the data center doesn’t matter.

Choosing the wrong data center location option can lead to higher data transfer costs, as transferring data between different geographical regions (for example, from a data center in Europe to one in Asia) is often more expensive than within the same area.

Inefficient Planning of Data Transfers

Data transfer occurs when you are moving data across cloud regions and zones, to and from the cloud and to and from on-premises networks. Cloud providers typically allow free data ingress. However, when data is transferred out of the cloud, data egress fees can vary significantly depending on the provider and the amount of data being transferred. So, if you do not plan your data transfers carefully, the costs can rise quickly.

Strategies for Optimizing Cloud Costs

You can’t think about optimizing cloud costs only in terms of simply reducing them. Rather, consider it as a strategic technique to ensure your cloud costs are in line with the goals and objectives of your business. It would be reasonable to pay more for certain cloud services if you believe that they can considerably enhance revenue.

Here are some practical tips for optimizing your cloud expenses and avoiding hidden charges:

• Review pricing plans offered by several cloud providers and chose a simplified pricing model with no hidden fees in order to make informed decisions about how to use these resources and control costs.
• Always employ specialized tools to examine and monitor costs linked to the cloud. These tools detect anomalous cost spikes and dips in real-time so that you can further investigate and minimize unexpected variations in your cloud spending.
• Conduct continuous monitoring of your cloud resources utilization and set key performance indicators (KPIs). With usage metrics in hand you can identify any unused resources or redundant instances, scale up during peak demand times or scale down when the workload decreases and thus avoid unnecessary costs.
• Modify computing resources dynamically based on actual needs. Here, you can benefit from autoscaling as it helps reduce the number of active servers during minimal activity and launches many new ones when activity is high. Most major public cloud providers have tools and services to ensure cloud scalability for their customers.
• Use discounts and savings programs from cloud providers. For instance, if you have predictable workloads, consider using reserved instances instead of on-demand ones.
• Optimize your data routing by determining the most efficient path for data transfer. For example, use the least expensive regions for data transfer — when it comes to AWS, the U.S. and Canada are usually the cheapest, while Singapore, India and South America are usually more expensive.
• Consider opting for a multi-cloud or hybrid cloud infrastructure. With a multi-cloud approach, you will be able to compare solutions from different providers and choose the most cost-effective combination of cloud services that align with your budget. Hybrid solutions, in turn, provide a means for integrating on-premises storage with cloud resources as necessary.

Conclusion

Cloud technology keeps advancing with new services, pricing models and capabilities that are introduced regularly. This changing environment calls for a holistic approach to how companies use cloud resources.

There are various costs to consider when adopting the cloud, including initial setup, ongoing operations and resource expansion, as needed. Businesses must be aware of these expenses to budget and prepare for cloud expenditures appropriately. Additionally, they should use best practices for cloud cost optimization to fully realize the benefits of the cloud.