Executive summary
Tech firms often enter cloud contracts with clear goals for value, but over time their costs start to outpace their returns. Data volumes, new capabilities and outdated resources expand unchecked. To regain control of cloud costs, tech firms need to ensure appropriate cost allocation, adjust their service tiers and review the KPIs that are meant to justify the cloud contract ROI.
Through regular reviews, ongoing governance and detailed cost data insight, companies can ensure their cloud strategies remain right-sized and cost-effective. While companies might consider cloud migrations and implementations to be one-time modernizations, they need ongoing review to ensure that platforms continue to justify their costs and support evolving business needs.
Get ready for the data
When a tech firm begins a new cloud contract, it finds the perfect fit for its needs and costs. Over time, the firm’s focus turns to other issues … and cloud costs can grow out of control.
“One of the most overlooked factors is the data volume that the cloud can introduce,” said Grant Thornton Technology Industry Head Andrea Schulz. “There is so much data being retained now, and you could still be sitting on data that doesn't have quality or usefulness.”
“Analytics is a classic example,” said Grant Thornton Technology Modernization Managing Director Supreet Singh. “We put a lot of data in the cloud along with the applications in the cloud. Now, we add an analytics platform and suddenly it’s collecting even more data.”
Firms might even be paying for outdated and dormant environments. “What we often see is that there are cloud development machines or quality assurance testing machines that are just sitting out there without modernization,” Singh said. “They should be evaluated against a retention policy and deprecated, but they continue to proliferate. One client had a ghost virtual machine just sitting out there collecting costs.”
“Many companies do a good job of analyzing costs for year one, and the ROI savings for years two and three,” Singh said. “But in the future, what could your costs be? AI involves a lot of consumption. ROI can be upside down. With an increase in AI and analytics, you’re going to continue to increase your cloud costs.”
To realign cloud costs with business value, companies need to update their cost allocations, cloud service tiers and contract reviews.
Charge the functions
The agreements for cloud contracts are often defined at an enterprise level, and finer details might never get tracked.
“A lot of cloud decisions are made holistically for the company,” said Grant Thornton Business Consulting Partner Ronald Gothelf. “So, you might have a case where the decision makes sense in certain functional areas, but it doesn’t make sense in other functional areas. A cost allocation mechanism is frequently not adequately applied to manage those cloud costs.”
The needs that justify cloud capabilities, including the level of storage, performance, availability and other requirements, never get charged back — or even tagged — to the business functions that required them. “You need to make sure that your cloud infrastructure is tagged appropriately,” Singh said. “Then, you're able to allocate those costs appropriately and decide if continued improvements to a feature or application are worth it. The low-hanging fruit is to complete your tagging.”
Gothelf added, “Even if that isn’t for the first migration, it’s for an ongoing basis when you look at how cloud costs are allocated back to the various tools and applications that are supporting a particular function. Then, you can evaluate the ROI based on that cost.”
A company’s needs and cloud solutions will continue to change, so it also needs to adjust its service tier.
Adjust the tier
When companies evaluate their cloud contracts, it’s important to understand the interplay among line items, service levels and business needs at every tier.
Typical cloud tier line items
| Line item | Typical options for tiers |
|---|---|
| Compute resources: Virtual machines or containers that provide CPU cores, memory and sometimes GPUs for running applications | Number of CPU cores, clock speed, memory size and access to specialized processors |
| Storage space: Disk or object storage for data and files, often offered in tiers such as HDD or SSD | Capacity limits, redundancy options, and performance speed of access (SSD vs HDD, IOPS, latency) |
| Network bandwidth: Data transfer capacity between cloud and external systems | Throughput limits, latency guarantees, and regional availability |
| Backup and recovery: Services for data protection and restoration | Frequency of backups, retention period, and recovery time objectives |
| Security features: Tools for encryption, identity management and threat detection | Advanced threat monitoring, compliance certifications and audit logs |
| Support services: Assistance for troubleshooting and guidance | Response time, availability (24/7 vs business hours) and expertise |
| Monitoring and alerts: Performance and health tracking of resources | Granularity of metrics, real-time alerts and custom dashboards |
| API access: Interfaces for integrating applications with the platform | Rate limits, advanced endpoints, and priority access |
| Compliance tools: Features for meeting regulatory requirements | Industry-specific certifications and automated reporting capabilities |
| Scalability options: Ability to increase or decrease resources dynamically | Auto-scaling thresholds and speed of provisioning |
“When you ask a business user about tiered storage, everybody wants the most premium solid-state device,” Singh said. “That’s also the most expensive, and that’s generally not the correct idea. Be a little frugal about what you need from premium SSDs, to consider a lower tier and even some cold storage for data that's just sitting there. If you could make a data request and get it in 24 hours, maybe look at something like a retention storage.”
“Also look at CPU consumption, maybe over a 30-day period,” Singh said. “If you have a reserve instance, or CPUs allocated to an instance that’s used less than 25% of the time, re-evaluate that.”
While cloud providers can offer important guidance about your tiers, they might encourage you to choose tiers with high performance and cost. “They’ll push the greatest and fastest, and not every company needs the greatest and fastest,” Gothelf said. “You don't need more than what the function that’s being supported demands.” That’s another reason to tag cloud services to the business functions they support.
Once a company has tagged cloud services to business functions, cloud platform dashboards can show those services, usage and other details. However, many companies don’t analyze those details or scrutinize the costs.
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Review the numbers
Tech firms need to maintain a periodic review of their cloud costs and the value those costs should be providing. To do that, they might need to unpack the numbers.
“Sometimes, the cloud invoice — even with fair tagging — can still be hard to interpret. That makes it hard to attribute all of the various costs back to the various functions,” Gothelf said. “There are even tools on the market that help you understand your cloud invoice.”
Usually, companies have a baseline cost justification that can provide a template for evaluating cloud invoices, because they can start from the KPIs in the initial business case. “If you look at any application or infrastructure roll-out, you’ll have KPIs,” Singh said.
Costs can outgrow those initial KPIs due to cloud service changes, data storage expansion or even business decisions. “Sometimes, companies get this notion of, ‘Let's just continue to keep a backlog of features pushed into an application,’” Singh said. “But that doesn't make sense. You'll see your cost curve outpace your value curve.”
“Let's get back to the MVP,” Singh said. “The MVP is solid and your ROI is there — that's why it’s an MVP. Your value curve is pretty steep, and your cost curve is equally steep. But as you continue to add those nominal marginal features, your cost curve just starts to take off. That's where we get lost. Go back to the KPIs and understand how to keep your cost and your feature curve aligned.”
Over time, companies might want more detail than they find in the initial business case KPIs. With more detail, analysts can better understand how to break down costs, assess value and even inform future decisions. “If you can get down to the transaction level, that will help you understand where you need to scale up, scale down, and make better decisions than just at a broad cloud level,” Singh said.
To assess cloud cost ROI and drive cost-conscious decisions, tech firms need ongoing governance.
Control the decisions
“If your cloud costs go unchecked and unmanaged, they will undoubtedly increase,” Gothelf said.
“A governance structure is usually set up for the initial decision, but that same governance should apply even after the environment is set up,” Gothelf said. “It's not a one-and-done. It’s really critical to continue to evaluate the cloud costs and charge back for the functions that are being supported, to make sure it provides value and to ensure accountability.”
“An on-prem environment had a whole team of people supporting it,” Gothelf said. “Just because it's in the cloud doesn’t mean it can be ignored. There needs to be a cross-functional group that is responsible for the governance of the environment, not just from a technical perspective but from an ongoing investment perspective.”
This governance can be overseen by IT, but it should include representatives from the supported business functions. “Then, people are actually evaluating if they’re getting the ROI for their functions that are being supported. They're the stakeholders that are driving IT to take action to actually maintain an efficient environment,” Gothelf said.
Future decisions
Future decisions about cloud platforms can take many forms, and the cost implications should be clear.
“There is competition among cloud providers, and you can actually take advantage of those differences,” Gothelf said, “but there are also costs for moving from one cloud provider to another.”
Singh added, “It’s about optimization. Maybe there are even better strategies for using some on-prem and cloud combination. We also do a lot of calculators to help understand depreciation. If you’re depreciating, when is a good time to start migrating your workload? Maybe there's a legacy OSS that is not cloud-supported, and you continue to use it on-prem because you're not going to get in the cloud.”
Tech firms have an ongoing list of decisions to make about their cloud platforms. To ensure that those decisions are cost-informed, firms need an ongoing review of cloud costs.
“Almost every time companies implement a cloud application or set up cloud infrastructure, the modernization project is complete,” Singh said. “It's not complete. You’re going to have cheaper, better alternatives in the future. You're going to find out what areas you can right-size. You're not going to have all of the right answers off the bat. Your modernization is going to need to be optimized.”
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Grant Thornton Advisors LLC
Ron is a Partner in the Grant Thornton Finance Modernization Practice leading the U. S. Finance Transformation Capability and the Central Region Finance Transformation Practice.
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Managing Director, Technology Modernization Services
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Supreet Singh is a seasoned Managing Director with extensive expertise in technology strategy and management.
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