Migrating to the cloud and spending more than you thought?

It’s no question that migrating to the cloud isn’t just a trend – it’s here to stay. Today, many businesses have either already begun the process of a cloud migration or are feeling the pressure to do so. With this transition, however, many are discovering unexpected expenses and are exceeding their budget.

Does this sound familiar? If so, don’t worry – it’s practically a given when it comes to the typical cloud migration. With a little expert guidance, your budget could be back on track in no time.

Here we explore the ins and outs of cloud migration, identify some of the reasons for these unexpected expenses, and detail how Cloud Financial Management (FinOps) not only helps you get your cloud spending under control, but creates a culture of accountability – ultimately ensuring ROI on your cloud spend.

What cloud migration is & how it works

To better understand how cloud migration leads to unexpected costs, it’s important to first understand what this migration entails and how it differs from the traditional data center. The cloud itself is a collection of computing services accessed through the internet. Instead of hosting all of your company’s computing needs on-premise, the cloud provides access to a wide variety of tools and resources in a way that enables easy scaling and flexibility. This is great for speed and innovation, but has completely changed the roles finance and procurement play. The checks and balances with traditional capital expenses often don’t exist with cloud services, as it impacts the benefits of cloud.

Cloud migration is the process of moving your company’s data, workloads, IT resources, and applications from an on-premise environment to the cloud. Some of the migration strategies include the following:

• Rehosting: This simplest form of migration is a “lift and shift” that moves your current digital assets directly to the cloud unchanged. This may not be possible with all assets as some may require re-architecting for compatibility with the new environment. Keeping everything as-is during the migration can also mean forgoing additional cloud functionality. That said, this method is great for moving straightforward assets that don’t need any alterations.
• Replatforming: This method is essentially rehosting with a boost – some additional rearchitecting is undertaken in order to optimize the assets in the new cloud environment. This can include things like adding scaling and automation or updating infrastructure.
• Refactoring: This method requires rebuilding digital assets from scratch in the cloud and essentially replacing the old assets with new cloud-native ones. While refactoring is labor-intensive, it is very thorough when done by an expert.

Some legacy applications may not be supported in the cloud and need to be replaced during the migration process. Other legacy applications may be eliminated entirely during the process as they are no longer needed. Still, other applications may simply need upgrading for a successful migration. Clearly, migrating to the cloud is not one-size-fits-all.

When faced with this complexity and the speed with which it happens (along with fewer checks and balances as to total cost) organizations often end up with inaccurate forecasting and no simple way to resolve it. 

Cloud migration risks & benefits

Companies are realizing that the benefits of cloud migration increasingly outweigh the risks for most use cases. However, understanding the risks and benefits in more detail allows companies to make more informed decisions in regard to their cloud migration strategies. With a proper cloud operating model, these decisions can be made with more accurate forecasting and business cases to show ROI.

The benefits of cloud migration include the following:

• Scalability: The cloud allows users to scale up workloads automatically in real-time instead of having to provide additional infrastructure to do so.
• Elasticity: The cloud also provides the ability to scale back down when services are not needed. This can net you significant cost savings.
• Flexibility: A multitude of tools exist on the cloud marketplace, which enables users to quickly develop and test new applications, try out different services without commitment, and more. It’s essentially a bottomless IT playground with lots of possibilities.
• Reliability: Top cloud providers today offer extremely reliable service that far exceeds what most companies are able to create in an on-premise environment.
• Security: Cloud providers invest heavily in security as they are responsible for protecting data from many big-name companies. That said, it’s possible to end up with security holes if you misunderstand which components of security fall to the cloud provider and which ones the end-user is still responsible for.
• Maintenance: Since all of the computing power is located at the cloud provider’s data centers, the end-user is not responsible for general maintenance. Many services offered by cloud providers are also available in a managed form, taking even more pressure off of the company making use of them.

Risks associated with cloud migration include the following:

• Incompatibility: If a company’s current IT infrastructure is complex or dated, it can be difficult to migrate successfully. Some data assets may not be compatible with a cloud environment while others may require skilled professionals in order to adapt appropriately.
• Data loss: Any time data is moved, there is a risk of data loss due to corrupt, incomplete, or missing files. This can usually be mitigated by backing up all data prior to migration.
• Lack of visibility and control: Once data assets are in the cloud and not on-premise, the company’s IT team needs a different set of tools to gain visibility and control over them. Additionally, you must trust the cloud provider’s ability to keep your assets safe and running as they should.
• Security: While many cloud providers take significant security measures, gaps in a company’s security due to improper cloud migration strategies are also common. Hence, security can be a potential drawback as well as a benefit of cloud migration.
• Unauthorized use of services: Cloud providers make it easy for users to try out new services and spin up new instances, and many users within a company may end up engaging in shadow IT, where they use cloud solutions or functionalities without approval from IT or budget considerations.
• Increased complexity: The cloud environment may be more complex than a company’s legacy set up, stretching in-house IT teams thin and requiring upskilling.

And of course one of the biggest risks of cloud migration is unexpected cost. An article recently published in the Journal of Cloud Computing titled, “Cloudy transaction costs: a dive into cloud computing economics” by Rasha Makhlouf determined that more than 70% of companies that moved to the cloud were not aware of many of the associated hidden costs of cloud migration.

Is it more expensive than you thought?

If you have migrated to the cloud recently and the price tag is more than you planned for, you aren’t alone. As mentioned above, many businesses that migrate to the cloud end up spending far more than they intended either during the migration process or on an ongoing basis.

Reasons that companies overspend are numerous, and include the following:

• Lack of collaboration between finance and IT: Without a cloud operating model that facilitates open lines of communication, accurate real time reporting, and processes for decision making – the result is nearly always overspending.
• Lack of planning or preparedness for migration: By not taking the time to thoroughly plan a coherent cloud migration strategy, many companies face unexpected problems and inefficiencies during the process which can cause costs to pile up.
• Unanticipated need for re-architecting: Companies that enter into cloud migration believing they can simply transfer their digital assets to the cloud without any changes are often in for a surprise when it turns out many of their applications require significant rearchitecting.
• Lack of internal skills: A company’s in-house IT team is likely skilled in handling the on-premise workload but may be less skilled when it comes to cloud environments. The company may need to hire additional employees, pay for training, or invest in additional services and expertise from outside the organization.
• Failure to optimize cloud use: Scaling up instances when needed but not scaling them back down when not in use leads to additional costs. When users provision additional instances or applications without approval or make use of more expensive services, cloud costs can add up quickly.
• Failure to identify appropriate service tiers: Cloud providers often have different service tiers depending upon customer needs. You can end up paying far more than you need by storing data that only needs to be accessed infrequently at the most expensive storage tier instead of utilizing more budget-friendly options.

According to Flexera’s 2020 State of the Cloud Report, organizational spend on the public cloud is currently 23% over budget and expected to grow 47% in a year. In fact, 73% of survey respondents stated that their top cloud initiatives for 2020 included trying to optimize their existing use of the cloud for cost savings.

Maximizing savings

Migrating to the cloud is an important step for many businesses in the modern world. As overwhelming as the process may seem, it is becoming a necessity. However, costs are piling up for many companies as they struggle to keep expenditures under control.

Fortunately, SoftwareOne’s Cloud FinOps Diagnostic can help your company take control of spiraling costs and enable the cultural shift in how your organization views cloud spend. Cloud FinOps Diagnostic establishes a baseline across your business on cloud maturity and shares best practices along the way that inform cost-saving measures while enabling innovation. It allows you to see the cloud as a money-making measure – instead of an expense.

What’s next?

After completing an assessment, the next steps are to use the insights obtained to improve your company’s cloud use and spending. SoftwareOne can additionally assist your company’s IT team with the following next steps:

• Review: Identify process and communication disconnects, align with best practices, and identify benchmarks and assessment strategies.
• Implementation: Set tasks and assign resources, collaborate with teams, improve processes, monitor tasks, and track improvement.
• Optimization: Regularly reassess tasks and resource use, adjust best-practice alignment as needed, continue to monitor and track progress.