Compliance risk and cost explosion - recognising and minimising the  cloud sprawl

Identify an invisible phenomenon and reducing the risks

The greater a company's need for up-to-date and quickly available software solutions, the more vulnerable it is to an increasingly common problem: cloud sprawl. This is hardly surprising, because the number of cloud or SaaS providers with their diverse offers and services has long since taken on a dimension that can no longer be understood without the use of analysis and management tools. Software is available to everyone at all times. The high development dynamics, for example in the area of almost without exception cloud-based AI applications, provide an additional boost. The uncoordinated spread of cloud software within a company is usually only recognised when a legally or financially problematic dimension is reached. 

In this blog post, we explain the phenomenon of cloud sprawl and address the biggest risk factors of compliance, exploding costs and lack of efficiency. In addition, you will learn which companies are particularly vulnerable to cloud sprawl, how the risk can be minimised preventively and why the use of used software licences is a popular and safe alternative.

Risk factors compliance, cost explosion and inefficiency

Cloud sprawl refers to the uncontrolled, uncoordinated and often unsupervised and therefore in many cases initially invisible spread of cloud resources within a company. The risk factors should not be underestimated:

1. Compliance risk

Cloud sprawl can become a compliance risk if corporate or divisional managers do not have an overview of all existing cloud resources, the respective providers and the associated licensing agreements. Unwitting or negligent breaches of existing legal requirements in the areas of procurement and data security are open.

2. Cost explosion 

When different areas, departments or teams independently procure cloud resources and provide them to employees, this is usually to meet current requirements or solve problems. The consequences: The same or similar resources are procured several times. Existing resources are insufficiently updated and adapted to changing needs. Licences to use idle resources continue to cause costs and are not transferred or terminated. Without central control over resource use and cost allocation, cloud sprawl leads to a silent cost explosion that strains budgets and inhibits investment. Many employees are not aware of the term-related licence costs including the associated follow-up costs in the form of maintenance and service contracts as well as included price increases due to a lack of transparency.

Lack of efficiency 

When managers deploy resources independently in different cloud environments, this usually leads to inefficient use. The same or similar services are provided and used in different cloud platforms by various providers. This leads to redundancies, increased ordering and administration efforts and a non-transparent licensing structure. As a result, the costs for continuously licensed services increase, which are hardly used or often not used at all.

To minimise the risk factors for cloud sprawl, clear compliance requirements and effective cloud cost management are indispensable. Lack of transparencies are dissolved and dynamic cost increases become visible. In addition, the view opens up for licensing alternatives that are more in line with demand and requirements and with which companies can save many times over. For example, up to 70 per cent of the current licensing costs can be saved by using used software licences in comparison to the respective new version as a cloud offer.

Does that sound interesting? The PREO licensing experts will be happy to advise you personally and provide you with a non-binding offer based on your current needs.

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These companies are particularly vulnerable to cloud sprawl

From our experience, the following four types of companies tend to have a higher risk potential for cloud sprawl:

1. A Company with many departments, several locations and a decentralised organisational structure
   
   
2. Companies with decentralised and fully or partially outsourced IT structures 
   
   
3. Fast-growing companies, such as start-ups
   
   
4. Small and medium-sized enterprises with lower IT or cloud management skills
   

Reduce compliance risk and avoid cost explosion - here's how it works

More and more companies are now aware of the phenomenon of cloud sprawl, but are still far from being armed against it. PREO has therefore compiled seven promising measures with which affected companies can minimise or preventively avoid their cloud sprawl risks:

1. Implement clear compliance policies for the use of cloud services and resources.
    
   
2. Definition of responsibilities with central control function and standardised approval processes.
   
   
3. Introduction of a management tool for transparent monitoring and management of cloud resources and cloud costs based on defined budgets per location, department, team or area of responsibility.
   
   
4. Fixed inventory cycles and internal audits on user behaviour.
   
   
5. Developing business awareness of direct and indirect costs of cloud resources, such as licensing fees, contractual terms, scope of services and included cost-driving agreements, such as term-based price adjustments.
    
6. Education and training to increase cloud skills and raise awareness of existing risk factors.
   
   
7. Communication and collaboration across locations, departments and teams.
       
   
   

Identify and effectively avoid cloud sprawl in the company with FinOps

FinOps (short for Financial Operations) offers IT managers or SA managers a methodical approach for efficient cloud cost management.

With FinOps, existing overcapacities can be systematically identified and adjusted to the actual business needs. Once existing cost drivers in individual areas are visible and recognised, it is possible to look for alternatives that are more in line with demand and thus usually also cheaper.

These include, for example, hybrid cloud models that combine cloud services and on-premise software within the IT infrastructure. In addition, many decision-makers are realising that the current cloud licences, especially for widely used standard software such as Windows or MS Office, are often oversized and do not meet the needs of the workplace. Especially in stationary work environments with uniform or similar IT requirements, the legally unobjectionable and audit-proof licensing of used software offers a cost-effective alternative. Especially since further indirect costs are saved, for example through a reduction in internal support requests or lower training costs.

Why it can be worthwhile to do without cloud solutions, at least in parts of the company, and instead rely on used software, is shown by the following example of a hotel chain known throughout Europe.

Why the new Dorint GmbH relies primarily on PREO's used software

For the IT equipment of its 38 Dorint Hotels & Resorts across Europe in Germany, the Netherlands, Austria and Switzerland, the responsible E&P Service GmbH has been relying on second-hand solutions for both hardware and software replacement for several years. The main reason is clearly the financial savings, especially in the case of limited IT budgets for smaller and less profitable hotels. For example, in the case of the hardware and software equipment of the Dorint Hotel Bad Brückenau, the investment budget could be reduced by more than 70 percent by using second-hand software as well as corresponding hardware compared to new equipment. To the complete customer case.

Several advantages - that's why used software from PREO is worthwhile

We are one of the pioneers in the European trade with used software licences and market leader in Germany. We offer companies, organisations and public administrations a large selection of used volume licences at any time, especially from major providers such as Microsoft, Adobe, Oracle or Citrix, with which they can sustainably optimise their licence costs and benefit several times over:

• High savings in ongoing licence costs of up to 70 percent compared to the respective new version.
   
  

• 100 percent legally and audit-proof licence acquisition with maximum transparency in all processing steps, including complete documentation in the PREO licence portal "Easy Compliance".
  

• Many years of expertise in the integration of used software licences in classic network structures or hybrid licensing models.
  
  

• Detailed market knowledge and extensive experience through the audit-proof transfer of over one million used software licences.
  
  

• Existing capacities for software licence management in large IT infrastructure projects with thousands of workstations and transnational locations.
  
  

• Convincing reference projects for numerous medium-sized and large companies from a wide range of industries.  
   
  
  

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