Article Cost Management July 22, 2021

4 Strategies to Use End-of-Fiscal-Year Public Sector IT Funds

The U.S. federal government fiscal year ends on September 30. As government agencies prepare for the next fiscal year, they may find that they have surplus funds, including unspent IT budget allocations. Additionally, while finalizing next fiscal year’s budget, they’ll want to find ways to get more out of their technology investments. 
How can they achieve both tasks when it comes to their cloud investment? By planning ahead and looking at the resources available to public cloud users. In particular, finding ways to reduce cloud costs is a top priority for agencies of all types.
One of the challenges for agencies, however, is using their budget to the fullest extent. The “use-it-or-lose-it” approach to public sector IT budgets means that agencies need to use their funds or else they disappear. Further, when departments or agencies don’t show that they’re using their entire budget, that can mean reduced funds for the following year. At the same time, they need to use the funds they do have in the most efficient way possible.
Cloud computing has provided organizations of all kinds with more flexibility when it comes to their IT expenditures. That means that there are several ways that agencies can use their budgets all while proving that they are effectively managing cloud costs.

Here are four steps your government agency can take to use your end-of-fiscal-year public sector IT budgets:

 

1. Build a Cloud Task Force

Managing a cloud environment is no easy feat. Delegating cloud-related decisions and tasks across an organization, however, makes it simpler to manage day-to-day operations and get the most from an investment in public cloud.
Agencies should collaborate across teams to make the best decisions on spending their end-of-year public sector IT budgets. By bringing together leaders and experts from IT, finance, and the executive team, agencies can ensure that they make the most of their resources while staying on budget.
In most organizations, this collaboration is called a Cloud Center of Excellence, or CCoE. This may have been a team formed before the move to the cloud, when weighing which government cloud services to purchase. However, any time is the right time to identify and involve key stakeholders in your cloud decisions.
Who should be included in your Cloud Center of Excellence? IT managers, systems and cloud architects, engineers, and administrators are all ideal decision makers to include in discussions about cost optimization. In addition to IT stakeholders, this cross-functional team could also include personnel from legal, security, budget, compliance, and procurement departments.
If your IT team is staffed adequately, creating a CCoE shouldn’t be an expenditure for your agency. However, if you don’t have the right stakeholders in the room to influence your cloud cost optimization plans, then this is an opportune time to set aside a budget for hiring in the following year.

Form a Cloud Center of Excellence at any stage of your cloud journey. Download our guide: How to Build a Cloud Center of Excellence

 

2. Take Advantage of Reserved Instances (RIs) and Other Savings Plans

Once you know who will be making purchasing decisions, you’ll want to explore your options. Public cloud platforms offer many options to save on computing instances. One of the best methods is to make a commitment to purchasing Reserved Instances.

Amazon Web Services (AWS) offers Amazon Elastic Compute Cloud (Amazon EC2) Reserved Instances (RIs) as a way of providing discounts to customers who are prepared to make a long-term, prepaid commitment for computing instances. 
AWS treats the specified RI as a credit line on the customer’s AWS billing account. When a machine is launched that matches the RI specifications, the credit is applied to the running instance instead of the regular on-demand rate. With one- or three-year contracts and several pre-purchasing options, RIs can provide a discount of around 70%.
In November 2019, AWS launched Savings Plans (SPs). SPs allow enterprises to commit to an hourly dollar spend instead of an hourly commitment to a specific EC2 instance type. This provides greater flexibility and may be a better match for some use cases. However, you give up the option to resell Standard RIs on the AWS RI Marketplace, so you don’t have a way to “crawl back” your commitment.
Remember, with both RIs and SPs, the commitment is for every hour of the 1-year or 3-year timeframe. They are not savings accounts that you can spend periodically, like a Healthcare Flexible Spending Account (FSA) that you might scramble to use at the end of the year to buy prescription glasses. You are committing to AWS to spend that amount every hour.
Listening carefully to their customers, AWS keeps improving the flexibility of their RIs and Savings Plans.

Examples of AWS product improvement resulting from client comment include:

  • Convertible RIs: With convertible RIs, you can dynamically change the pre-specified attributes of the RI as long as the exchange results in the creation of RIs of equal or greater value
  • Regional RIs: Regional RIs enable customers to waive the capacity reservation and receive the RI discount on any matching instance running in any given region’s Availability Zone (AZ).
  • Instance size flexibility: This feature makes a regional RI’s discounted rate automatically apply to usage of any size in the instance family and in any Availability Zone.
  • Advance Pay: In July 2021, AWS announced Advance Pay capabilities to help customers pre-pay their future invoices automatically.

Microsoft Azure and Google Cloud also have similar functionality for discounts. For Azure, RIs are referred to as Azure Reserved Virtual Machine Instances, which have similar one- and three-year contract terms and provide comparable savings. There is no marketplace but Azure has a mechanism for prorated refunds if you overcommitted. Google Cloud offers Committed Use Discounts, which vary in terms of price and savings depending on computing resources (CPU, RAM, etc.) selected.
Despite the many advantages of RIs, it’s not always easy to understand their true impact on a consolidated monthly bill. As a result, this can expose organizations to the risk of not realizing the full value of their RIs. Agencies should use their internal cloud experts to think strategically about their RI purchases and overall cost savings opportunities.
 

3. Be Strategic About Cost Savings

As noted above, surplus end-of-fiscal-year public sector IT funds can be a great opportunity to purchase RIs. This strategy can help lower their cloud spend throughout the coming year. However, agencies must examine a number of issues carefully before determining the correct strategy.
Some of the issues to address include:
 

Knowing the color of your money and contract type

Having a firm grasp of your agency’s finances can make all the difference as you plan ahead. You should be able to answer questions such as:

  • Are you using Operations & Maintenance money, or can you use CapEx money to buy Fully Paid RIs?
  • Do you have a Firm Fixed Price contract with an MSP, or on a cost-plus contract where you keep your savings?
  • Are you using sweep up funds that must be spent before the end of the fiscal year, or can you extend the surplus funds throughout the next fiscal year?

 

Understanding your agency’s goals for the cloud

The RI strategy requires close teamwork between the technical and finance teams. Ask questions such as:

  • Which action steps will your technical team take to generate the savings mandated by the OMB?
  • What impact do you expect those plans will have on the issuance of next year’s cloud contract?
  • How stable is your cloud environment?
  • Are things constantly going up and down, or are things moving in and costs are constantly increasing?

 

Developing a forward thinking RI strategy

Finally, think ahead to the next year, so that you don’t run into the same questions again. Question to ask include:

  • What can you do to begin contemplating a strategy for next fiscal year?
  • Within the limitations imposed by the FAR (Federal Acquisition Regulation), how can you plan proactively to keep cloud spend savings in the agency?

 

4. Use Tools for Public Sector IT Cost Management

Cloud cost optimization is an ongoing process. Reserved Instances and Savings Plans are just part of the cloud spend equation. 
icon for cloud investments paying offNative tools in AWS, Azure, and Google Cloud all have cost monitoring capabilities. But they often don’t go far enough for growing organizations, and these tools may be spread out across multiple accounts. For agencies that use multiple clouds, accessing cloud cost data is a more complex challenge.
CloudCheckr can help government agencies assess quickly and proactively the feasibility of leveraging surplus public sector IT budget funds — including and beyond the purchase of Reserved Instances and Savings Plans.
With CloudCheckr CMx, you can generate the largest possible savings using a combination of predictive analytics and actionable cloud resource purchasing recommendations and discount analysis. The CloudCheckr CMx platform includes cost saving tools and best practices all in a single dashboard, making it easier to reduce cloud expenses.
 

Gain a Better Understanding of Public Sector IT Cloud Costs

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