Accounting for cloud computing costs requires a new approach

Organizations plan to spend more on cloud computing in the coming year, but much of that money will be wasted.

Enterprises continue to expand their use of public cloud IaaS. Among those whose 2018 budgets will increase, 54% percent of respondents to TechTarget's 2018 IT Priorities survey said they'd invest more in cloud services. However, many organizations have a hard time accounting for cloud computing costs and fail to anticipate the true price tag of new cloud projects, IDC analyst Stephen Elliot said.

"We're finding more of these companies didn't forecast their usage properly and end up paying more than they expect," Elliot said.

Some of the highest unexpected costs come from Shadow IT and failure to hold business users accountable for what they spend in the cloud, Elliot said. Cloud services are easier to deploy compared to purchasing and deploying hardware, which makes it harder to predict and track cloud spending and makes accounting for cloud computing costs a challenge. As a result, some companies' cloud bills soar, with nothing to show for it.

"We'd been around for about a year, and our AWS costs had stayed relatively low. And then, all of a sudden, it started doubling every month," said Bill Gullicksen, director of information technology at Qcentive, a Boston-based healthcare startup. "As a startup, $50,000 to $60,000 a month for AWS costs made a big dent."

Gullicksen pored over AWS accounts to find ways to trim costs. He started with native AWS tools to clean up his company's usage a bit, such as identifying unneeded instances or prototypes that were never deleted.

"But it felt like I was just scratching the surface," he said. "Through all those exercises, the thing you learn is: You pay for every minute [instances] are up and running. So, your biggest cost savings come from turning them off."

While AWS allowed Qcentive to avoid hardware investments, the company inadvertently paid for a lot more cloud infrastructure than it needed. Development environments only need to run when developers work, for example. It was easy to turn off unused instances, but there was no easy method to turn them back on when needed, Gullicksen said. Ultimately, Qcentive turned to a third-party cost management tool, ParkMyCloud, which helps schedule and automate the shutdown and startup of cloud instances.

I've heard horror stories of … thousands of dollars for instances that aren't doing anything but don't get turned off.

Qcentive's story is not unique among cloud customers. Many organizations struggle with accounting for cloud computing costs, said Brian Kirsch, IT architect and instructor at Milwaukee Area Technical College.

"I've heard horror stories of … thousands of dollars for instances that aren't doing anything but don't get turned off," he said.

The problem of orphaned instances isn't new to cloud environments. IT administrators are familiar with the term zombie VM, a virtual machine that continues to run and consume server resources after it has outlived its intended purpose.

"The difference is it doesn't cost you anything when it's in your data center. You only realize it after that first month when you see your cloud bill," Kirsch said. "With the cloud, there's a greater impact when you make a mistake. That mistake has real consequences in terms of dollars and can scale up quickly."

As cloud spending increases, more organizations consider third-party management tools to help address these challenges. In fact, 43% of respondents to TechTarget's 2018 IT Priorities survey said they also plan to invest in a cloud management tool this year. Software from vendors such as RightScale, Scalr, CloudCheckr, Morpheus and CloudBolt can help customers find unneeded cloud instances and right-size the ones they do need. However, a successful cloud transition will also demand that IT pros rethink how they provision and manage cloud resources, Qcentive's Gullicksen said.

"The reality is: You're taking people who've worked with physical infrastructure for most of their career, and now, you have to start thinking in terms of cloud," Gullicksen said.

IT admins must not only think about cloud provisioning differently; they'll also need to build budget management skills.

"We're all budget-conscious when it comes to our own spending, but we've always looked at the company as having unlimited resources," Kirsch said. "You have to change your mentality. Bring out that inner accountant."