4 Key Mindset Shifts to Make When Managing Cloud Budgets

When businesses transition from on-premises to the cloud, they cannot take the same approach to budgeting that they’ve always used. Cloud services have a fundamentally different cost structure and require a very different mindset to optimize spending (and prevent overspending). Unfortunately, many businesses struggle to make this transition seamlessly. Every year, businesses estimate that they waste 32% of all the money they spend on their cloud services, according to 2022 industry research from Flexera. To prevent overspending on cloud services, it’s important to understand how different budgeting works for cloud vs. on-premises infrastructure. Let’s explore four key mindset shifts that every organization that is accustomed to managing on-premises budgets will need to make to effectively manage a cloud budget:

1. Cloud spending is driven by consumption, not subscriptions: Most organizations use subscription-based models for their on-premises infrastructure, where costs are generally fixed for unlimited use. Cloud services turn this model on its head, enabling businesses to pay based on their consumption. By requiring them to pay for only what they use, cloud services give businesses much more control and flexibility over spending. At the same time, businesses must learn how to be vigilant about only paying for the cloud services they need, as paying for anything more than that would be a waste of money. For example, if a cloud resource is only being used eight hours a day during regular working hours, the business shouldn’t be paying for this resource 24/7. However, if the business isn’t paying attention, it may be needlessly paying for this cloud resource 24/7 – even though it would be easy to scale down this service and pay a fraction of the cost.
2. Cloud spending doesn’t require choosing faster vs. cheaper: With traditional on-premises infrastructure, businesses must decide upfront if they want smaller servers and less processing power vs. larger servers and more processing power. Although either option will get the same outcome, one option is cheaper, while the other option is faster and more powerful. Cloud spending doesn’t require making a singular choice between faster vs. cheaper. With cloud services, businesses get to choose on a day-to-day basis – and even an hour-to-hour basis – what services they need. Moreover, processing power and server size can be dialed up or down in real-time, based on business needs, and the business will never have to pay for more than what it needs at any given moment.
3. Cloud spending doesn’t require budgeting for servers and maintenance: Building on-premises infrastructure requires extensive investments in servers, maintenance, and in-house expertise and capacity. These investments require businesses to engage in comprehensive planning so that they do not end up experiencing compatibility issues, redundancies, and other unanticipated consequences. Not so with cloud services. Because cloud services are serverless and require almost no setup and maintenance, the upfront costs associated with building cloud services are almost nonexistent. Rather, cloud services require the business to stay laser-focused on right sizing and optimizing all of its pay-as-you-go services.
4. Cloud spending should be based on a much shorter time-to-value: Businesses typically don’t make quick spending decisions for their on-premises infrastructure. These investments often require years of careful planning and analysis, with financial value realized over multiple years. By contrast, cloud services have a much faster innovation lifecycle. Indeed, cloud services can be approved, procured, and deployed in a matter of months, if not weeks. Thus, budgeting for cloud services needs to be based on much shorter time-to-value assumptions. What this means is that businesses can and should start measuring ROI for cloud services immediately. And if this ROI doesn’t materialize in short order, the business can and should pivot or adjust its cloud strategy; there’s no reason to wait.

Businesses that are accustomed to managing budgeting for on-premises infrastructure cannot effectively manage their cloud budgets without a fundamental mindset shift. This mindset shift includes recognizing that cloud spending is driven by consumption, not subscriptions; does not require making upfront decisions about choosing faster vs. cheaper options; does not require budgeting for in-house servers or maintenance; and can and should be based on much shorter time-to-value assumptions than on-premises budgeting.

To learn more about how to effectively manage budgeting for cloud services, download our in-depth white paper, “Assessing the Maturity of Your Cloud Strategy.” For more personalized support and guidance, contact us.