Dreamlike picture capturing clouds with glass pot.

Essential steps to reach effective cloud cost management

Here’s how IT leaders can control and reduce cloud costs without sacrificing value.

In brief
  • Cloud costs consisting of compute and data, monitoring and operational expenditures can fluctuate over time if left ungoverned.
  • Companies that take proactive steps to gain visibility, set budgets, optimize architecture and measure success will dramatically reduce cloud costs.
  • Keeping cloud costs low helps CIOs accomplish more with less IT budget and pass savings on to the business.

Often, companies migrate to the cloud expecting to reduce overall IT costs, but public cloud spend continues to rise. Many enterprises and their technology leaders can be caught off-guard when cloud costs spike. Without a detailed plan in place, these same cloud costs can be very challenging to keep under control. So, if cloud services are designed to help companies save money, why does it appear to be costing more?

Common costs of cloud services

An ungoverned cloud can rain money. When an organization sets up its cloud programs, much of the budget focus is predicated on what fixed costs it will take to run over time, but cloud environments are fluid, and there are many factors that cause costs to fluctuate, like data transference, redundancies, organizational misalignment, talent and lack of automated controls. Additionally, EY teams often notice that some expenses, like shared services, information security and test environments, were left out of initial business cases and budgets. These miscalculations eventually lead to cost overruns. IT leaders need to ask, “How can we proactively prevent cloud costs from spiralling out of control?”

While everyone knows that there will be hard costs associated with cloud management, these costs can rise and fall depending on maturity.

Cloud spending trends:
of companies have already surpassed their cloud budgets this year.¹

Here are three examples of common cloud costs and repercussions:

  1. Compute and data costs: These costs can include processing, memory and storage, and they could be billed hourly or on a per-second basis. Certain costs related to data can quickly or exponentially increase. For example, transferring data down from the cloud or across different cloud environments can come with sliding egress fees. These egress costs can be applied by providers when data is retrieved from the cloud.
  2. Monitoring costs: Improper or reactive resource monitoring can lead to sprawl, where organizations fail to manage individual clouds. This can result in redundant services and applications left running after hours, both of which drive up costs. Companies that bring huge log files back on-prem for analysis, or move from cloud to cloud, increase costs. Even monitoring tools can be left unmonitored and run up a six-figure cloud bill in a matter of days. However, automated controls will help prevent this.
  3. Operational and maintenance costs: The cloud architecture community within a company’s IT team needs to be aware of the organization’s cloud goals. Otherwise, cost implications can occur when team members are not coordinated on decision-making. One way to ensure this is through a change management strategy, not only for the IT team, but for the entire company. This will create “buy-in” on the benefits of cloud and will better account for cost line items across departments.

Four steps to reach effective cloud cost management

So, how do companies control cloud costs? Successfully governed cloud programs keep costs in check by identifying where to focus efforts to optimize cloud spend and limit internal cloud resources or usage to only what is necessary. EY Consulting practice aims to help organizations manage costs by creating a well-governed cloud program with a financial operations model, commonly referred to as “FinOps.”

These are the four most effective steps to gain governance over cloud environments:

1. Gain visibility

The first step is to aggregate, socialize and normalize all cloud usage and cost data for the required teams. IT teams can gain visibility by focusing on a few key tasks:

  • Define and enforce a tagging strategy – A cloud tagging strategy formulates precise rules and practices that an organization agrees to follow and implement. This strategy helps users understand how to create and use tags, and how to make tagging decisions. These policies then need to be enforced through automation to maintain compliance.
  • Organizational alignment – It’s critical that CIOs speak with each department that touches the cloud, particularly, procurement, finance and IT to align and define cloud governance models. Comprehensive cost reduction strategies are similar to change management programs, wherein IT teams need to communicate clearly and often with other business units to maintain alignment and work toward a shared goal.

2. Formulate budget

The next step is to define usage and budgets:

  • Create consumption models – How much does a company expect an application or platform to consume? How will that affect demand and capacity? Creating consumption models will help set benchmarks and control overspending. Deciding which tasks can be automated will avoid overlap and repetition. Also, auto-scaling features may be available to dynamically adjust resources based on demand.
  • Communicate budget – All team members should understand the budget and expected consumption models to avoid costly pitfalls and should elicit cross-department feedback.
  • Create alerts – Alerts provide timely awareness of incurred cloud application costs so that they can be addressed or resolved quickly.
  • Discounts – Appropriately utilize reserved instances and spot instances. Reserved instances are a specified level of cloud usage from a vendor that has been committed at a discounted rate compared to on-demand resources. Spot instances are unused computing space offered by suppliers at largely discounted rates. Low-performance storage options will discount costs as well. Any of these discount methods can help optimize a cloud budget.

3. Focus on cost implications of architecture decisions

The third step is to account for design and run time when selecting or changing cloud architectures:

  • Perform an in-depth analysis of application services – This process will provide a clearer picture of usage and resource peaks to understand whether each application is cost-effective within the cloud. Based on the results, consider eliminating or resizing unused or underutilized resources.
  • Cloud environment – Another way of optimizing the environment is to use the type of cloud or clouds that work best for the overall IT strategy. Distributed and industry clouds are becoming more widely used models:
    • Distributed cloud: A distributed cloud helps organizations connect applications and data from various geographical locations. It optimizes performance by taking the best of public cloud, hybrid cloud and edge computing. 
    • Industry cloud: Many large business conglomerates are building sector-specific cloud solutions, or industry clouds. Because of their deep sectorial knowledge, these solutions are customized and address hard-to-tackle vertical challenges. Many companies are building these solutions not only for in-house usage, but also as potential future income sources.
  • Contracts – Avoid vendor lock-ins by using a hybrid approach or cloud management tool that allows for data and application mobility within contracts. It’s important to maintain flexibility as business and data needs evolve.

distributed cloud helps organizations connect applications and data from various geographical locations. It optimizes performance by taking the best of public cloud, hybrid cloud and edge computing.

4. Measure success

The final step is ongoing measurement against an established baseline. Continually analyze cloud costs and make improvements. Ways to measure expenditure include:

  • Tie organizational KPIs to cloud KPIs – Many organizations fail to look at the overall business strategy and decide how their cloud strategy aligns. Proper measuring will show what an organization is spending on cloud, mitigate overspending risks and optimize current cloud spend.
  • Establish a FinOps team – As more of a company’s IT budget is spent in the cloud, they should have a dedicated team that is focusing on optimizing this cost. This FinOps team can start small but grow as overall cloud expenditures rise. For example, product owners need to understand that their design decisions drive costs up. Engineers need to proactively confirm budget and adjust as needed. Overall, cloud managers should help oversee cloud budget and empower their team to continually look for ways to optimize. The FinOps team can help drive a culture of cloud cost-optimization awareness through concerted efforts to remind everyone that they play a crucial role in cutting cloud costs.


CIOs today are often tasked to do more with shrinking budgets and still deliver value. So, it comes as no surprise that IT infrastructure cost, including cloud, is seen as the top obstacle to digital transformation, according to 35% of EY Tech Horizon survey respondents. With a proactive management approach, companies can account for cloud incurred data, compute, monitoring and operational costs. With these expenditures in mind, established visibility and budget models, coupled with optimal architectures and benchmarking, will control costs over time. Ultimately, a well-governed cloud environment allows for next-gen cloud creation capabilities and drives future business innovations.

Related articles

Are you driving your cloud strategy or is it driving you?

Read our latest report to learn how to maximize your cloud strategy for cost, speed and end-to-end integration.

What elements make a successful cloud program?

Foundational strategies for cloud implementation, migration and adoption. Read now.

Increase your limits: how to capture value from the industry cloud

Reimagine the “hyperplexed” future with the industry cloud. Learn more.