Ankur Mandal

Azure Cost Management Ultimate Guide


Ankur Mandal

5 min read

Azure, one of the top three cloud service providers in the market, has become an essential part of the IT infrastructure for many companies. However, its growing adoption has brought forth specific concerns, such as high costs.

While increasing costs may not be problematic when accompanied by revenue growth, cost escalation that fails to contribute value to the revenue raises significant concerns. This is where Azure cost optimization steps in. 

Azure cost management involves reducing expenses while maintaining or enhancing business outcomes. By optimizing Azure for cost, businesses can unlock numerous benefits and maximize their outcomes. In this blog, we will provide you with the ultimate guide for Azure cost management.

Going by its popularity and numerous benefits, it is no surprise that organizations are quick to adopt Azure as their cloud service provider. However, without proper oversight, they may struggle to control costs. This is where Azure cost management and optimization comes into play.

Azure cost management ​is an ongoing effort that demands vigilant monitoring and adaptation to changing usage patterns and requirements. It calls for proactive management, including routine assessments of usage trends and prompt adjustments to optimize costs effectively.

It is important to clarify beforehand that Azure cost management is not just about reducing costs. It involves understanding the trade-offs, setting priorities, and pinpointing areas for strategic investments to optimize ROI.

Before delving into Azure cost management strategies, it's crucial to understand the significance of cost optimization and recognize signals indicating its necessity.

Why Is Azure Cost Management Important?

Managing Azure cost empowers businesses to gain better control over their overall spending. Beyond cost reduction, it facilitates predicting future spending, which proves beneficial in financial planning and budgeting.

Let's delve into t the reasons for optimizing and managing Azure cost.

  • Cost efficiency: Azure cost management ensures you avoid overspending on unnecessary or over-provisioned resources.
  • Maximized ROI: It helps you identify the areas where cost savings can be achieved, thus helping reallocate the resources to areas that can offer a higher return on investment.
  • Enhanced scalability: Azure cost management ensures that your setup can scale, enabling you to adjust resources according to the changing demands without any unnecessary expenditure.
  • Strategic advantage: Effective Azure cots management and optimization strategies release funds that can be used for innovation and strategic endeavors, giving your business a competitive advantage in the market.
  • Regulatory compliance: By implementing Azure cost optimization practices, you can guarantee that your utilization of Azure services aligns with your company's policies and applicable industry standards and regulations.

Need For Azure Cost Optimization

While we have established what makes Azure cost management important, how do we know the red flags pointing toward an urgent need? Below are some signs indicating that you should focus on Azure cost optimization.

  • Fluctuating workload: Does your performance period rapidly change between highs and lows? Do you always allocate the precise resources and use what you need? If you struggle with fluctuating workloads, implement Aure cost optimization strategies. 
  • Struggle in redistributing Azure budget: Are you looking for new ways to redistribute your cloud spending but don't know where to begin? By utilizing cost optimization strategies in Azure, your organization can establish clear cost guidelines, analyze usage patterns, and efficiently mitigate potential risks associated with cloud expenditure.
  • Long-term Azure use: If you have been using Azure for a long time, chances are your project has grown significantly since its adoption. Long-term usage without optimization can pose challenges in resource management and allocation. By utilizing cost optimization strategies in Azure, your organization can establish clear cost guidelines, analyze usage patterns, and efficiently mitigate potential risks associated with cloud expenditure.
  • Unpredictable cloud spending: If your monthly cloud expenses regularly exceed your budget, it is essential to address the issue proactively. Recognizing the value that each cloud service provides to your business is critical. If you are uncertain about this, you need to implement Azure cost optimization strategies to enhance the efficiency of your cloud utilization and expenses.

Azure Cost Management Strategies

Now that you understand the importance of Azure cost management and the signs that prompt implementation, let’s explore some of the most effective strategies for Azure cost optimization.

1. Understand Where The Cost Comes From

Understanding the sources of expenses is crucial when optimizing Azure for cost. It allows organizations to make informed decisions, prioritize optimization efforts effectively, and implement focused strategies to manage costs and enhance the value obtained from Azure services.

Several aspects contribute to Azure's overall cost, such as

  • Resource usage costs in Azure: Utilizing virtual machines (VMs), containers, and other computing resources is the critical determinant of Azure costs. Expenses will vary depending on the size and performance characteristics of the instances utilized.
  • Data storage expenses: Fees are accrued for data storage in Azure Blob, Azure Files, Azure Disks, and other storage services. The total expenses are influenced by the volume of data stored and data transfer costs.
  • Networking charges: Charges are linked to data transfer between Azure services, regions, and the Internet. This encompasses the costs of inbound and outbound data transfer and network egress expenses.
  • Costs for database services: Using Azure SQL Database, Cosmos DB, Azure Database for MySQL/PostgreSQL, etc., costs are based on factors like storage, compute resources, and transactions.
  • Data transfer: Expenses are generated for exchanging data among different Azure regions, from Azure to the Internet and within Azure services.
  • Backup and disaster recovery: Deploying backup, disaster recovery, and high availability mechanisms in Azure generates charges for storage, replication, and data transfer.

2. Tagging Azure resources

Tagging is a technique for assigning metadata to cloud resources, typically in the form of key-value pairs. This allows for efficient organization and categorization of resources based on attributes like environment (e.g., production, development), department, project, owner, or purpose.

Tagging Azure resources is instrumental in reducing Azure costs by enabling enhanced tracking, management, and cost allocation within your Azure environment. It enhances the visibility of cloud usage patterns through appropriate tagging and accurate cost distribution across departments or projects.

Following are the benefits of tagging Azure resources.

  • Cost allocation: Tagging enables more accurate expense allocation to specific projects, promoting transparency and fostering a culture of accountability within the organization.
  • Resource group management: Tags can be used to logically group resources across resource groups based on common denominators or attributes. This simplifies the management and tracking of costs for related resource groups.
  • Budgeting and forecasting: Tags provide insights into how costs are distributed across different dimensions, aiding in establishing budgets and forecasts.
  • Cost analysis: Azure cost management and billing can help analyze costs based on tags. This allows for creating custom reports and dashboards to monitor spending trends, identify cost outliers, and optimize resource usage based on priorities.

3. Use Built-In Tools To Gain Visibility On End-to-End Cloud Costs

Azure offers several built-in cloud cost tools to see where the money is going comprehensively. Listed below are some of those tools.

  • Azure VM Insights: It offers insights into infrastructure issues using metrics and logs.
  • Azure Log Analytics: It offers insight into log data to fix the issues at a relatively faster rate
  • Azure Dashboard: This is a single platform on which you can check the health of your infrastructure, app, and networking areas.
  • Azure Monitor Metrics: This tool gathers and analyzes the metrics from different Azure resources, IoT Edge, and Aure Backup.
  • Azure Application Insights: The system identifies and evaluates occurrences occurring in various applications and their interconnections.
  • Azure Advisor: It offers recommendations to enhance cost savings by evaluating metrics, such as resource setting, usage metrics, and logs. 
  • Azure Reservations: With Azure's pay-as-you-go model, you can save a significant cost by reserving the capacity 1-3 years in advance.
  • Azure Savings Plan: You can save significantly off your pay-as-you-go model by committing 1-3 years to a fixed hourly rate on compute services.

4. Use Azure Hybrid Benefit

The Azure Hybrid Benefit is a beneficial license feature that enables eligible customers to utilize their current on-premises licenses to operate specific Microsoft software in Azure, ultimately reducing cloud workload expenses.

The Azure Hybrid Benefit provides cost optimization in multiple ways:

  • License reuse: Organizations can deploy specific Microsoft software in Azure without incurring additional licensing expenses by utilizing existing on-premises licenses with active Software Assurance (SA) coverage. This eliminates the need to acquire separate licenses for Windows Server or SQL Server, leading to substantial cost savings.
  • Reduced cloud costs: Leveraging the Azure Hybrid Benefit allows organizations to decrease their overall Azure expenses by eliminating or reducing the licensing fees associated with running workloads in the cloud. This cost reduction directly impacts the total cost of ownership (TCO) for Azure deployments.
  • Budget optimization: Utilizing the Azure Hybrid Benefit allows organizations to maximize their cloud budgets by cutting costs on licensing fees. This enables more budget flexibility to invest in other strategic initiatives or projects within the organization.

5. Choose A Suitable Pricing Model

Azure offers different pricing models based on other use cases. After forecasting their usage pattern, customers should choose the one that best fits their requirements. You can check out the different pricing models here.

6. Use Azure Cost Management Tools

Among the different Azure cost optimization strategies, one of the most instrumental ones is using Azure cost management tools. There is a wide range of Azure cost management tools that you can implement based on your requirements. Different tools have different benefits:

  • Tools focus on computing resource optimization.
  • Tools offer granular visibility and reporting.
  • Tools provide storage resource optimization.

Azure Cost Management tools help efficiently control and enhance their cloud expenses, leading to improved cost management, resource allocation, and financial oversight within the cloud environment. You can read about 17 such Azure cost management tools in our blog.

7. Use Azure Spot Virtual Machines

Azure Spot Virtual Machines offer a cost-effective option for deploying virtual machine workloads in Azure. Unlike regular Azure VMs, which are charged at standard rates, Azure Spot VMs utilize excess capacity in Azure data centers, potentially leading to cost savings.

These VMsoffers a cost-efficient solution for workloads that can tolerate interruptions or occasional downtime. They are available at a discounted price due to their utilization of surplus capacity in Azure data centers.

The pricing of Azure Spot VMs is dynamic and varies based on supply and demand factors in the data centers. When the price falls below the user's bid, the Spot VMs are provisioned and operational.

By incorporating Azure Spot VMs into their infrastructure, you can save significantly on costs compared to running workloads on regular VMs. The extent of savings depends on factors like bidding strategy, workload characteristics, and the availability of surplus capacity.

8. Use Real-Time Cost Anomaly Detection And Alerts

Utilizing a real-time tool for detecting cost anomalies can prevent costly failures by identifying potential issues early on. Real-time cost anomaly detection and alerts are essential for optimizing cloud costs, offering numerous advantages:

  • Instant visibility: Detecting unexpected spikes or deviations in cloud spending as they happen allows organizations to swiftly respond and intervene to address cost anomalies before they become more significant.
  • Expense management: Organizations can actively monitor and manage cloud costs by identifying real-time anomalies to prevent overspending or exceeding budget limits. Immediate alerts prompt stakeholders to take timely actions to optimize resource utilization and minimize excessive expenses.
  • Cost forecasting: Utilizing real-time cost anomaly detection offers valuable insights for predicting future trends and patterns in cloud spending. By examining past anomalies and trends, businesses can more effectively forecast and prepare for future expenses, improving budgeting and financial planning strategies.

With Azure's Anomaly Detector, you can have near real-time univariate detection (up to 20,000 transactions per month free) or multivariate detection ($0.314 per 1,000 transactions).

9. Accurately Assign Cost To Crucial Business Factors

Gaining a comprehensive understanding of how Azure costs align with your business operations is crucial. By delving into the factors influencing fluctuations in Azure expenses, including personnel, workflows, and offerings, you can strategically identify opportunities for cost savings. Leveraging unit costs, rather than focusing solely on overall averages, enables a targeted approach to identify where to allocate resources for optimal returns.

Precisely attributing Azure costs to key business metrics is essential for efficient cost optimization for several reasons:

  • Enhanced visibility: Aligning Azure costs with specific business metrics provides a deeper understanding of how cloud spending impacts essential aspects of your business. This increased visibility helps pinpoint areas of inefficiency or excessive spending more accurately.
  • Detailed cost analysis: Assigning costs to relevant business metrics allows for more detailed cost analysis. This enables a closer examination of specific areas of your business to identify factors driving cloud costs and uncover opportunities for cost optimization.
  • Accountability for costs: Allocating costs to business metrics encourages accountability within your organization. By assigning responsibility to teams or departments for specific business metrics, they can take ownership of their cloud spending and work towards optimizing costs in their respective areas.
  • Efficient resource allocation: By connecting Azure expenses with key business indicators, you can enhance resource allocation to match business goals closely. This guarantees that cloud resources are utilized effectively, increasing their impact on accomplishing business targets.

10. Monitor Idle/Unused And Overprovisioned Resources

The financial repercussions of idle or unused resources in the cloud can be substantial, resulting in unnecessary expenses for organizations. Here are a few ways in which idle resources can affect costs in the cloud:

  • Wasted spending: Idle resources continue to accrue costs even when not actively used. This leads to wasteful spending as organizations pay for resources that do not contribute value or benefit to their operations.
  • Underutilization: Idle resources indicate underutilized capacity within the cloud environment. This means that organizations need to leverage their cloud investments fully and are paying for resources that could be better utilized elsewhere.
  • Inefficient resource allocation: Idle resources occupy valuable cloud resources that could be assigned to other workloads or projects. This inefficient resource allocation can impede scalability, performance, and agility within the cloud environment.

Along the same line, overprovisioning resources also has severe financial repercussions, such as

  • Excessive spending: Overprovisioning can lead to unnecessary expenditures as organizations procure more resources than necessary. Consequently, this results in inflated bills from cloud services and higher operational costs.
  • Resource wastage: Overprovisioned resources often sit idle or are not utilized efficiently, leading to wasted capacity and resources. This inefficiency translates to lost value and decreased effectiveness for the organization.
  • Ineffective operations: Overprovisioned resources necessitate extra management and maintenance efforts, adding to operational overhead and complexity. This inefficiency in operations contributes to increased costs and diminished productivity.

This prevalence of idle/unused resources and overprovisioned resources necessitated cloud cost automation to monitor these resources. 

Why cloud cost automation, you ask?

Using manual methods or traditional monitoring tools hinders the effectiveness of DevOps activities and can result in higher deployment costs. As storage systems become more intricate, manual management becomes tougher and may cause problems to escalate quickly.

This is where Lucidity Storage Audit comes into the picture.

The Lucidity Storage Audit streamlines the monitoring process with a user-friendly, pre-configured tool, automating disk health analysis and usage analysis to facilitate cost optimization and minimize downtime. This comprehensive solution offers valuable insights at the click of a button:

  • Cost analysis: Easily compare current disk spending with projected optimized billing to uncover potential savings of up to 70% on storage costs.
  • Space optimization: Efficiently identify and eliminate unused or overprovisioned disk space to ensure optimal resource allocation and reduce waste.
  • Risk mitigation: Proactively avoid disk downtime to prevent financial setbacks and protect the organization's reputation.

The Lucidity Storage Audit tool offers advanced features for monitoring storage usage data, providing the following benefits:

  • Automated auditing: Eliminate the need for manual efforts and complex monitoring tools. Lucidity Storage Audit simplifies the auditing of idle/unused and overprovisioned resources with an easy-to-use, pre-configured platform.
  • Comprehensive insights: Easily understand disk health and usage deeply. Receive valuable insights to optimize spending and prevent downtime proactively, ensuring optimal performance across your storage environment.
  • Efficient analysis: Make informed decisions on resource allocation and efficiency improvements. With Lucidity Audit, storage usage percentages, and disk sizes can be analyzed to drive efficiency and maximize resource utilization effectively.
  • Integrity maintenance: Safeguard the integrity of your cloud environment and assets effortlessly. The Lucidity Storage Audit conducts audits seamlessly to ensure uninterrupted operations without causing disruptions. Uphold top-tier security and reliability standards while preserving system efficiency effectively.

After identifying the idle/unused and overprovisioned resources, you can do either of the three things:

  • Remove unused resources.
  • Shut down idle and unused resources.
  • Rightsize overprovisioned resources

11. Auto-Scaling Resources

The next step in reducing hidden cloud costs is to auto-scale the storage resources to prevent the possibility of overprovisioning or underprovisioning the resources.

Auto-scaling is the automatic adjustment of resources for an application or service in response to fluctuating demand. This functionality enables users to scale their infrastructure up or down seamlessly as needed, without manual intervention. Auto-scaling ensures that applications maintain optimal performance and responsiveness by automatically adjusting resources to match demand, minimizing operational overhead and costs.

Auto-Scaling Compute Resources

In Azure, two main approaches exist for enhancing an application's functionality by auto-scaling VMs:

  • Vertical Scaling: This method entails modifying the capabilities of a particular resource, such as relocating a workload to a more robust compute instance with greater CPU power and memory.
  • Horizontal Scaling: With this strategy, you can increase or decrease the number of resource instances a workload uses. For example, you may grow an application from operating on a single compute instance to five compute instances.

Microsoft Azure Cloud offers automated horizontal scaling for compute instances, which are virtual machines (VMs).

To auto-scale compute resources in Azure, you can explore Azure Monitor and create your first auto-scaling setting by following the steps mentioned here.

Auto-Scaling Storage Resources

While you will find numerous tools and resources focusing on auto-scaling computing resources, there is a concerning shortage of tools for auto-scaling storage resources. This is even though storage contributes heavily to the overall cloud costs. 

Yes, as per a study done by Virtana, titled, "State of Hybrid Cloud Storage: January 2023", out of over 350 IT personnel, 94% reported that their cloud storage cost was increasing, and 54% said that their storage cost was increasing at a faster rate than the overall cloud cost.

Our independent study delved deeper into the impact of storage on cloud expenditures. Analyzing data from over 100 clients across leading cloud service providers, we uncovered key insights:

  • Block Storage, including AWS EBS, Azure Managed Disk, and GCP Persistent Disk, significantly contributes to overall cloud spending.
  • The usage of block disks for primary volumes and internally hosted databases is surprisingly low.
  • Organizations tend to overprovision storage, leading to unnecessary costs.
  • Despite overprovisioning, organizations experience downtime at least once every quarter.

These findings underscore the importance of a cloud cost optimization strategy that addresses storage usage and waste. Our study also highlights why organizations often overlook storage optimization:

  • Custom tool development: CSPs offer limited features, necessitating the development of bespoke tools for storage optimization. However, this approach increases DevOps effort and time.
  • Limitations of CSP tools: Relying solely on CSP-provided tools can result in inefficient and cumbersome processes, requiring significant manual intervention and resource allocation.
  • Lack of live shrinkage: Major CSPs lack live shrinkage functionality for storage processes, necessitating manual methods such as creating new volumes and snapshots, potentially causing downtime.

Moreover, ensuring a consistent supply of resources in the cloud requires organizations to bolster their buffer extensively. However, enhancing the buffer entails several challenges:

  • Manual Intervention: Improving buffer performance involves various tasks such as deployment, alerting, and monitoring, each requiring different tools and dedicated efforts from the DevOps team.
  • Inefficiency in Time: Certain activities in certain cloud providers, like reducing disk space or upgrading disks, mandate extended downtime imposed by CSPs. For instance, reducing 1 TB disk space can take at least 4 hours, while disk upgrades require a minimum of 3 hours, posing significant challenges to maintaining uninterrupted operations.
  • Latency Growth: Disk upgrades can lead to increased latency, directly affecting the responsiveness of networked applications and services and hindering overall performance and user experience.
  • Expansion Setbacks: Subsequent expansion phases often experience considerable delays lasting at least 6 hours. These interruptions impede the application'sapplication's ability to adapt promptly to changing demands, negatively impacting overall performance and responsiveness.

This is why organizations prefer overprovisioning. While the intent may be to ensure sufficient resources are available to meet demand, overprovisioning often leads to unnecessary costs. By allocating more resources than necessary, organizations end up paying for unused capacity, resulting in inflated cloud bills. Therefore, rather than optimizing storage resources, overprovisioning can exacerbate cost inefficiencies and undermine effective cloud cost management strategies.

Tackling both lack of storage optimization and overprovisioning head-on, Lucidity has designed the industry's first autonomous storage orchestration solution that automates shrinkage and expands storage resources without downtime or performance degradation - Lucidity Block Storage Auto-Scaler. 

Lucidity is a seamless intermediary between your cloud storage and applications, providing a discreet intelligence layer atop any block storage database, application server disks, or Kubernetes. It offers the following key features:

  • Seamless integration: Lucidity Block Storage Auto-Scaler integrates effortlessly into your storage management system with just three clicks, significantly streamlining the storage handling process.
  • Optimized storage: Instantly enhance storage capacity and achieve 70-80% utilization rates, reducing costs and enabling more cost-effective storage management practices.
  • Swift responsiveness: Effortlessly respond to sudden spikes/downfall in traffic or workload demands using the Block Storage Auto-Scaler's automated shrinkage and expansion capabilities, allowing for prompt availability of storage resources as needed.
  • Reduced performance impact: Lucidity is expertly engineered to minimize its impact on system resources. The highly optimized agent consumes less than 2% of CPU and RAM during onboarding, ensuring your workload remains unaffected. This feature enables you to focus on tasks without disruptions.

Lucidity Block Storage Auto-Scaler offers the following benefits:

  • Automated shrinkage and expansion: Lucidity Auto-Scaler is meticulously crafted to adjust disk scaling autonomously within a brief 90-second timeframe, ensuring seamless management of large volumes of data. Unlike conventional block storage volumes constrained by throughput limits, our Auto-Scaler strategically maintains a robust buffer to navigate unexpected spikes in data, avoiding breaches of imposed limits.
  • Storage cost savings by 70%: Our dynamic resource allocation feature helps you avoid excessive expenses, potentially saving up to 70% on storage costs. Utilize our ROI Calculator to input Azure spending details, disk usage, and growth rate for a personalized assessment and potential savings.
  • Zero downtime: Lucidity ensures continuous operation by swiftly adapting to fluctuating storage needs, guaranteeing uninterrupted functionality while mitigating the complexity and downtime associated with traditional provisioning methods.

Our user-friendly "Create Policy" function empowers users to tailor policies to specific scenarios and performance requirements. Lucidity Block Storage Auto-Scaler adjusts storage capacities automatically based on predefined policies, maximizing efficiency and customization.

Build A Cost-Efficient Azure-Enabled Organization

Achieving cost optimization in Azure goes beyond mere cost reduction; it entails maximizing the efficacy and performance of your cloud infrastructure. Adopting the ten strategies outlined in this blog post can lower expenses while enhancing your organization's scalability, resilience, and agility.

If you’re grappling with escalating cloud costs and struggling to identify the root cause, it is time to assess your storage usage. Reach out to Lucidity for a demo, and let us help you understand how automation can help you save on storage-related costs and maintain a cost-efficient cloud infrastructure.

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