Inflation will impact your cloud budget – how CIOs can ease the pressure quickly through optimisation
CIOs are entering a new landscape and challenge not seen for decades, and the rules of the game have changed.
Modern CIOs are entering territory where there is minimal to no corporate memory. Worse, the last time similar conditions existed was four decades ago when IT was in its infancy.
For many CIOs, this will be another new challenge to navigate and one where a greater focus on managing budgets. potentially making sacrifices if they cannot find efficiencies, will be required whilst operating in a complex digital landscape.
The Bank of England predicts that inflation will rise above 13%, and a period of prolonged recession is upon us, not just in the UK but also globally. As such, for CIOs it is important to understand the macro-economic pressures of inflation and its impact on the business of IT and Cloud as well as the broader organisation.
Macro-economic factors are and will play a significant part – from rising energy prices on the cost of running data centres and manufacture of hardware to the risk of the supply chain of super-conductor chips from Taiwan due to Chinese territorial claims driving hardware prices up to the cost of recruiting and maintaining talent.
The reality is that higher energy costs would be responsible for half the 13.3% annual inflation rate in October 2022, with global supply chain bottlenecks accounting for much of the rest. These factors are rippling down to the budgets CIOs have to manage and forecast.
Recessions significantly impact
the Operational Expenditure of any business, so those that have shifted to more consumption-based services for their IT (SaaS, Cloud, etc.) must now look to optimising these to maintain delivering value as much as possible.
There are few places of refuge for the CIO. However, one area can create a significant effect in a short period to ease the pressure - Cloud Cost Optimisation.
Cloud Cost Optimisation is the quick win.
The demand for efficiency is not new, but the old mechanisms do not do enough. It requires a new discipline and methods. This discipline has many names – Cloud Cost Optimisation, Cloud Cost Management, Cloud Economics, or the more fashionable term of FinOps; its name is largely irrelevant. It is the effect it can bring that is key.
To address the risks presented by inflation, executives must now seek ways to cut costs across the business, and they’re also looking to CIOs to find them.
On average, 32% of all public cloud spend is wasted; regaining that money will help release some of the inflationary pressures on the budget. By optimising cloud costs, CIOs can get insight to understand their cloud costs and usage more so that, in turn, they can reduce their use (i.e. cloud footprint and rightsize) and lower the rates they pay.
The CIOs that will be most successful are the ones that drive these efficiencies in a physical setting by leading their teams to do the work a
nd align their cloud operating model to maintain discipline so waste is controlled in the future.
Further, optimisation of cloud spend will also aid CIOs in creating the conditions for competitive advantage beyond the recession by preserving some budget for innovation in areas such as analytics, machine learning, and automation.
These areas, if executed well, will also deliver the additional benefit of reducing the pressure of increasing demand for a broad range of skilled talent.
The biggest challenge for CIOs to drive Cloud Cost Optimisation is accessing the right skilled people to drive this initiative. It is not enough to
instruct Heads of Engineering to cut costs. This discipline demands a variety of specialist skills found in Cost Optimisation Practitioners.
In summary, the macro-economic factors of inflation demand that CIOs have renewed focus on budget management, driving efficiencies to offset its effects and re-prioritising initiatives whilst operating in unfamiliar territory.
To create effect quickly, the first and obvious answer is to seek a reduction in unit cost and
spend through Cloud Cost Optimisation by leveraging trained professionals to drive this value at pace.
“Bank of England hikes rates as it predicts 13% inflation and long recession”, The Guardian, 4 Aug 22