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Cost Optimization vs. Cost Cutting

By Heather Robinette

In our recent blog called 4 Myths about Cloud Cost Optimization, we touched on the difference between cost optimization and cost-cutting. While most people believe the two can be synonymous, they are actually quite different and generate different results. Do you know if your organization has tried cost-cutting and/or cost optimization?

Cost Cutting

Let’s start with cost-cutting. This can be a useful measure if your organization needs to cut costs fast. But always remember that it is a one-time action, so the results may help reduce expenses at the point in time, but it is still possible for additional costs to come, so it is not sustainable. When it comes to cost-cutting, typically, an organization will identify a specific amount of money that needs to be cut, which is a great way to know which tactic you should be following.

Some examples of cost-cutting when it comes to the cloud are:

• Moving any remaining applications or data to the cloud to cut hardware costs

• Reducing license count for users who don’t use the product

• Canceling add-on applications or technology that isn’t used

• Hopefully a last resort, but reducing pay or laying off staff responsible for managing the company’s cloud

Cost Optimization

Now, let’s talk about cost optimization. As mentioned last week in our blog, “cost optimization is the proactive strategy of driving spending and cost reduction while also maximizing business value.” In other words, your organization isn’t focused on cutting costs by a specific dollar amount but instead trying to get the most out of what they are spending.

Some examples of cost optimization when it comes to the cloud are:

• Automating processes to reduce the number of hours someone needs to complete a task (i.e. setting up a deployment or remote desktop)

• Always consider long-term pricing options when it makes sense because it could offer a significant discount

• Continuously and proactively reviewing what is available (i.e. keeping an eye on the new virtual machine sizes to ensure your users are always running on the most cost-effective size)

• Understanding and classifying data correctly when it comes to storage needs so you aren’t paying higher prices for historical data you only access once a year


Conclusion

Hopefully this helped provide a better understanding of the two techniques. While we focused on the differences between them, keep in mind there isn’t a right or wrong answer, it is whatever option works better for your organization. There may be cases when cost-cutting does make more sense than cost optimization and vise versa. Just keep in mind what you are trying to accomplish and try to plan out how you are going to get there to help make the best decision.

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Tags: Cost Optimization

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