Cloud & IT Infrastructure

Navigating Cloud Spend Forecasting: Overcoming Challenges for Optimal Cost Management


As IT organizations embark on ambitious cloud migration and development initiatives, the need to set accurate financial expectations becomes paramount. Cloud cost savings are often the primary driver of the business case and a crucial factor in achieving strategic objectives. Cloud migration business cases must forecast three critical elements: the cost of the migration project, the expected run cost of the current deployment mode, and the anticipated run cost in the cloud. The credibility of any cloud program hinges on the accuracy of these cloud spending forecasts, made during the business case exercise and repeated throughout each year after deployment. In this blog post, we will demystify the fine art of cloud spend forecasting, addressing multiple timeframes and exploring challenges faced by IT organizations at different levels.

I. Mastering Cloud Spend Forecasting

Forecasting cloud spend is a complex endeavor that necessitates a strategic and agile approach. Unlike traditional on-premises spending, cloud spending drivers differ significantly in three fundamental ways:

  1. Real-time Scalability: While on-premises spending is based on long-term capacity plans, cloud capacity is scalable in real-time, directly tied to demand. Cloud spending depends on current usage and needs, making it more adaptable to changing business requirements.
  2. Subscription-Based Model: Unlike on-premises investments, cloud spending involves subscribing to services, which can vary based on usage (e.g., per minute or per use). This dynamic nature of spending presents challenges in accurately predicting future costs.
  3. Rapid Pace of Change: Cloud environments experience constant change, from new migrations to ongoing developments and changes in existing infrastructure. Accurate forecasting and budgeting require staying ahead of these changes.

II. Addressing Challenges in Cloud Spend Forecasting

A. Application-Specific Forecasting:

To achieve accurate forecasts at the application-specific level, IT organizations must embrace new thinking and consider multiple dimensions:

  1. Architectural Changes: Migration to the cloud may require adjustments to application architectures to ensure equivalent performance as on-premises. Simply "lift and shift" migrations may overlook necessary infrastructure configurations, leading to significant variances in projected and actual cloud run costs.
  2. Leveraging Commercial Options: Cloud forecasting must incorporate potential benefits from cloud commercial options, such as savings plans, reserved instances, and software license plans. Evaluating these options can yield cost optimizations and long-term savings.
  3. Forecast Models: IT analysts must assess potential drivers of demand and determine the most suitable forecast model for each application, whether it's constant usage, linear growth, or demand correlated to external factors. Forecast models must evolve as experience provides better insights into demand patterns.

Accurate measurement of application-specific spending necessitates meticulous tagging of environments and resources. Additionally, the ability to attribute reserved instance and savings plan usage and allocate shared resource usage to individual applications is crucial.

B. Portfolio-Level Forecasting:

Executive oversight of cloud spending occurs at the portfolio level, where cloud spending is aggregated by business units or functions. Effective cloud portfolio forecasts require considering the following:

  1. Allocation of Shared Resource Spending: Cloud options have enabled a transition from cost allocation to consumption-based charging, but some applications and resources may still be shared across organizations, necessitating cost allocation. Minimizing the percentage of spend that requires allocation and choosing allocation variables aligned with actual resource consumption improves forecast accuracy.
  2. Layers of Spend: Organizational cloud portfolios can benefit from adopting a "layers of spend" approach. This involves forecasting all operational cloud applications, adding run-rate forecasts for new applications approved for migration or development, and budgeting for applications not yet approved. This layered approach facilitates dynamic budget adjustments throughout the fiscal year.
  3. Variance Analysis: Regularly analyzing the variance between actual spend and budget or forecast at the application level and managing it at the portfolio level enables real-time budget adjustments. Throttling demand for non-critical applications, reallocating budgets between applications, and approving new applications as they arise are vital aspects of variance management.

C. Forecasting Governance:

Forecasting governance plays a crucial role in managing cloud spend effectively. It involves close collaboration between business users, application teams, and the infrastructure organization. A robust governance model should:

  1. Define Roles and Accountabilities: Clearly define roles and responsibilities across organizations involved in cloud spending decisions to optimize resource allocation while meeting application performance requirements.
  2. Establish Communication Protocols: Specify effective communication protocols between groups to ensure a seamless flow of information and decision-making processes.
  3. Provide Management Reporting and Dashboards: Implement management reporting and dashboards that raise visibility into how business decisions translate into cloud spend, improving accountability and transparency.


Accurate cloud spend forecasting is an essential aspect of successful cloud programs, enabling organizations to achieve optimal cost management and performance improvements. As cloud spending drivers differ from traditional on-premises models, addressing the unique challenges associated with cloud spend forecasting is crucial. By mastering application-specific forecasting, optimizing portfolio-level forecasts, and implementing effective forecasting governance, IT organizations can maintain executive support and harness the full potential of cloud technology for their business success. Embrace these strategies and navigate the art of cloud spend forecasting with confidence, unlocking the true value of your cloud investments.