In 1747 Lord Chesterfield used the immortal line ‘Take care of the pence; for the pounds will take care of themselves’ in a letter to a friend.  It still holds true today. The cost of a cappuccino and avocado on sourdough every morning on the way into the office soon adds up.

But however lax we are with our pennies, none of us would continue to pay the barista for that early morning caffeine hit if we decide to give up coffee. Oddly, though, that is what many large businesses do every day – albeit not for undrunk coffee but for unnecessary and unwieldy technology contracts.

Ghost spending and a spider’s web of contracts

Getting a firm hold on this ghost spending is vital as enterprises look to migrate to the cloud to boost agility and cut costs. If you don’t have full visibility of all IT costs at the start, then any cost savings identified as part of a cloud migration business case are going to be ‘finger in the air’ estimates. Furthermore, it will be hard to determine whether it makes financial sense to move specific workloads to the cloud, or leave them where they are.

Costs are rarely the sole motivation for moving to the cloud with the operating model, agility and saleability also influential. Despite this, the financial arguments tend to sway the board.

There are various reasons for the lack of a single, holistic view of IT expenditure. Sometimes the people who set up long-term contracts with suppliers have moved to new positions and no one has since thought to check the details. In other cases, individual business units may be merrily spinning up their own marketing apps in the cloud without the knowledge of IT teams, leaving trails of multiple cloud service charges in their wake.

Unravelling this spider’s web of contracts and other unnecessary overheads is made more difficult by the headcount cuts that have lacerated many IT departments over the last 15 or so years.  

During this time, cost optimisation has often taken a back seat but now it is coming back in vogue as organisations realise they need a digital clean up to ensure the commercial structure and cost base are fully aligned ahead of a drive to the cloud.

Digital feather dusters

While it makes financial sense to deploy new applications in the cloud, the decision for existing workloads is often less clear-cut. If you have a Technology Business Management (TBM) function, then the first step in any digital spring clean is to engage with them; if not, consider setting up at TBM with the help of a specialist third party.

Begin by undertaking a cost transparency exercise to establish a baseline. By breaking down the total IT bill into chunks – for example payroll services or email services – you can identify the share of these costs across the relevant IT towers e.g. networks or compute – making it easier to sniff out areas where savings can be made. Doing this, one global company managed to cut its annual network run costs by more than a third.

Another area that would benefit from a pre-cloud spring clean is technology demand. As business priorities evolve over time you will find you have unwanted services that can be ditched and low priority services that can be scaled back. Once this demand optimisation has been achieved the cloud journey can commence in earnest.

All technology expenses need to be reviewed. We find that organisations typically overpay their telecoms provider by up to 15%, often because they are being charged for services that they no longer use or have been decommissioned. In the cloud environment, the billing tends to be accurate but does not include a single view of resource consumption. Without this, it’s hard to maximise the true economic benefits of the cloud and it’s easy to end up paying for capacity you no longer need.

Modelling the cost savings

Once these baseline costs have been reviewed and adjusted, cost transformation can begin. A ‘before and after’ cost analysis lets organisations model different cloud options (e.g. IaaS, PaaS and SaaS), as well as single versus multi-cloud, and determine the most cost-effective approach.

We typically find that large organisations can cut IT costs by about 15% by migrating to the cloud or outsourcing alongside the benefits of agility, flexibility and scalability. In one example, a client made a saving of over £10 million a year on their run costs by moving test environments to the cloud. Mindful of the move away from sunk to variable costs, the team were also far more aware of the cost of spinning up every test environment and worked smarter as a result.

Watertight governance

Despite the positive steps taken by this particular test team to regulate usage, it’s essential to put in place watertight governance procedures. Only then can you ensure that everyone in the organisation is aware of the rules surrounding the use of cloud services and prevent money leaks.

Fine-tuning costs

As well as keeping an up to date record of all the software/hardware owned, it’s good practice to have a single view of all cloud service contracts. This becomes even more important in a multi-cloud model. With intuitive dashboards you can see what cloud services are being used where, and by whom at any time.

From here it’s a natural step to fine-tune the costs based on usage. In an IaaS scenario, for example, swapping out a 4-processor server for the same configuration in the cloud will deliver substantial savings as you tend to move from a fixed cost model to a variable cost model. By monitoring the peaks and troughs in resource usage, further cost savings can be identified – and an optimal profile agreed with your cloud provider.

Turning on a dime

There’s no denying the many benefits of moving to the cloud. But it’s impossible to evaluate the true cost implications without first having a single, granular view of all current expenditure. To gain the agility from the cloud that allows your business to turn on a sixpence, you first need to count your pennies.

Read more: Why organisations need 'reality check' on cloud costs