McKinsey: 5 Key Tips to Reduce Cloud Spending

According to Gartner, CFOs around the world are likely to increase their cloud spending to $592 billion next year, a year-over-year increase of 20.7%. While moving infrastructure and applications off-premise has resulted in greater resiliency, flexibility, and scalability, a survey of 753 executives by Flexera revealed that respondents estimated they spent 32% more than they needed on cloud services in 2022, up from 30% in 2021.

Luckily, consulting firm McKinsey & Company recently published a new report offering five key ways CFOs can reduce cloud spending waste in the new year.

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McKinsey recommends beginning by upping oversight of how cloud services are utilized, ensuring that increased spending is a result of healthy growth and not waste. Spending for applications that have been decommissioned or contracting for more computing power than necessary can add to wasteful spending. The firm recommends that companies consider putting financial controls and automated tracking in place to keep a tighter rein on spending, and promoting accountability by targeting allocations to the leaders of the various business divisions that utilize cloud services.

Launching auto-scaling capabilities and eliminating unused capacity are another easy, “no-regret,” way companies can reduce costs, along with better aligning services with the actual needs of the application.

“Cloud elasticity” can also help companies spend more efficiently by scaling cloud computing power up or down depending on immediate needs, and the firm recommends that CFOs collaborate with their engineering teams to take a harder look at applications that were “lifted and shifted” to the cloud to address applications that lack flexibility.

Reviewing agreements with vendors is another important step, as companies often set overly optimistic timelines for cloud migrations and commit to too much spending with their providers. McKinsey recommends that companies attempt to renegotiate their contracts in light of the looming recession, which is likely to result in lower cloud spending.

Lastly, companies can work to extract maximum value out of cloud migrations by prioritizing moving their highest value workloads to the cloud, instead of slowing down the shift to the cloud, which would only prolong the use of labor, utilities, leases, licenses, and other legacy costs.

While the global economic outlook remains gloomy, companies can still realize tremendous value by making efficient use of cloud services, and by taking steps to keep closer control of costs, CFOs can continue to reap the benefits of the cloud without breaking the bank.