money, costs, budget, expense

Financial management of cloud computing initiatives has emerged as a critical factor with cloud spending poised to consume more than half of IT budgets.

This spending trend is projected to intensify as organizations adopt generative AI (GenAI) technologies, according to the results of a Vanson Bourne study of 500 IT and finance decision makers.

Survey respondents looked to outsourcing of IT expense management (ITEM) software and services, for example software licenses, hardware purchases, telecommunications expenses and other IT-related expenditures.

The complexity of managing IT services and expenses is on the rise, with organizations juggling an average of 39 IT service providers, overseen by 60-80 employees, while late payments emerged as a persistent challenge, contributing to outages in cloud, mobile and telecom services for 85% of organizations.

The survey suggested data analytics poses significant hurdles for in-house ITEM programs, hindering companies from advancing beyond rudimentary phases and harnessing actionable insights from their data.

The study also found infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS) were the leading causes of tech sprawl, outpacing new investments in mobile devices and telecom services.

Mark Troller, CIO of Tangoe, which commissioned the study, said tech sprawl is the primary reason for increased IT spending and budget changes.

“The study finds that the key benefits of an ITEM fully managed service are faster time to business insights and faster time to cost savings,” he explained.

He notes in-house programs are often inferior to outsourced services because they lack the right tools including AI automation and integration but also experience in knowing how to normalize and crunch all the data.

“Then there’s also the matter of automating the responses and action needed to implement service changes quickly so you can capitalize on the savings opportunities without delay,” he said.

Kris Bliesner, founder and CEO of Vega Cloud said among the risks with new AI cloud infrastructure spend were costs that are “dramatically higher” than normal computing environments.

“We have seen surprise bills for normal compute consumers of a few hundred or a few thousand dollars an hour, which can get expensive quickly,” he said.

He explained AI is much more akin to High Performance Computing (HPC) in which mistakes in consumption can be exponentially higher – tens of thousands of dollars in just a few hours.

“Unfamiliarity with cost drivers is another risk factor,” Bliesner said. “AI infrastructure consumes multiple services from cloud providers and can even cross over vendors in the cloud service provider space.”

This leads to a challenge with end users to truly understand what is driving spend and how to best control it.

Troller cautioned that taking appropriate action on cost-saving recommendations often involves a painstakingly manual process.

It requires time and effort to make changes to services, reclaim and reallocate unused SaaS licenses, recover old mobile devices, renegotiate contracts, and even switch to new providers.

“How quickly you can act on the insights determines how fast you can put dollars back in the budget, and there is an opportunity cost associated with speed,” Troller said. “Administrative support is crucial.”

From Bliesner’s perspective, there are pros and cons to both utilizing a fully managed service for ITEM or an in-house program.

“In our experience, outsourced programs can be helpful in getting organizations to quick wins and fast cost savings, though it does take some time to learn an organization’s internal applications and dependencies, which is crucial to managing costs,” he said.

He explained in-house teams are typically better informed in terms of the organization’s applications and business use-cases, so they can drive deeper results.

“We have also found that in-house teams can be ignored and even if a third-party is saying the same thing as an in-house team, the third-party can get better success rates and follow-through due to the more distance and formal relationship,” he added.

Troller explained the key stakeholders responsible for developing an outsourced ITEM strategy include IT and finance leaders and often procurement leaders are involved.

“Those involved in ITEM programs must address critical issues to ensure program success,” he said.

These include uncovering IT waste and cost-saving opportunities, building and analyzing an accurate inventory of IT assets, utilizing analytics and AI for insights and savings recommendations, and identifying individuals responsible for translating opportunities into tangible budgetary savings.

Bliesner said among the key roles for developing an outsourced ITEM strategy are cloud budget owners – folks that are responsible for spend are in the best position to effect change—as well as financial analysts.

“For expense management to work, organizations need to have all of their resources singing from the same song sheet,” he said. “Analysts can make sure that whenever costs are discussed, there is continuity in the way costs are displayed and prioritized.”

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