Cost Optimization

Cost Optimization

Audit cloud, SaaS, and infrastructure spend. Cut what's not earning its keep. Rightsize what's oversized. Negotiate what's negotiable. Without breaking what works.

When to use

• Quarterly or annual cost review
• Finance flags rising spend
• Vendor contract renewal coming up
• Budget cut required
• New leadership wants the numbers
• Migrating between providers (cost is part of the case)
• Audit before scaling significantly (catch waste before it scales)

When NOT to use

• Active incident response (use incident-response)
• Performance issues that happen to involve infrastructure (use performance-optimization)
• Vendor evaluation for a new purchase (use vendor-evaluation)
• Personnel or org costs (out of scope for this skill)

Required inputs

• Current cost (monthly, ideally for the last 12 months)
• Cost broken down by service or vendor
• Inventory of cloud resources (instances, databases, storage, etc.)
• Inventory of SaaS subscriptions
• Owners per cost line (who decided to spend this, who uses it)
• Constraints (compliance, performance, contract terms)

The framework: 5 levers

Every cost optimization opportunity falls into one of these levers.

Lever 1: Eliminate

Stop paying for things that aren't used.

• Idle resources (instances, databases, environments running but unused)
• Subscriptions where no one logs in
• Duplicate tools (multiple tools doing the same job)
• Old projects still incurring cost
• Test environments that should have been torn down
• Forgotten domains, backups, snapshots, logs

This is usually the largest opportunity in the first audit. Often 10-30% of spend.

Lever 2: Rightsize

Pay for what you actually use, not what you provisioned for the worst case three years ago.

• Oversized instances (CPU and memory utilization low)
• Over-provisioned databases (storage and throughput far above usage)
• Over-purchased SaaS seats
• Premium plans where standard would suffice
• High-availability setups for non-critical systems

Rightsizing requires real usage data, not theoretical needs.

Lever 3: Restructure

Use cheaper structures for the same workload.

• Reserved or committed-use pricing (1-3 year commitments at 30-70% discount)
• Spot or preemptible instances for fault-tolerant work
• Cold storage for data accessed rarely
• Tiered storage (hot/warm/cold) by access pattern
• CDN caching to reduce origin load
• Compression and deduplication
• Serverless for spiky workloads
• Reserved instances for steady workloads

The right structure depends on the access pattern. Mismatch costs money.

Lever 4: Negotiate

Pay less for the same thing.

• Annual contracts at lower rates than monthly
• Volume discounts at higher tiers
• Multi-year commitments for predictable workloads
• Bundle deals (consolidating services with one vendor)
• Renewal negotiation (vendors expect you to ask)
• RFP / competitive bid (using alternatives as leverage)

Most enterprise vendors negotiate. Most SaaS vendors don't, except at higher tiers. Consumer-tier services usually don't.

Lever 5: Reframe

Change the question.

• Build vs buy: maybe in-house is cheaper at scale
• Buy vs build: maybe outsourcing is cheaper at small scale
• Different architecture (e.g., monolith vs microservices) has different cost profiles
• Different audience (do all customers need the same tier?)
• Different stack (open source vs commercial)

Reframe is the longest-lead lever. Worth thinking about even if not actionable now.

Workflow

Step 1: Pull the spend data

Get monthly costs by service, vendor, and (where possible) team or project.

For cloud (AWS, GCP, Azure): the billing console and cost-explorer tools. For SaaS: each vendor's billing portal, plus an SaaS-management tool if available. For everything else: bank statements and accounting export.

12 months minimum. Trends matter as much as absolute numbers.

Step 2: Categorize

Organize spend into categories:

• Hosting / compute
• Storage
• Database
• Networking / CDN
• Monitoring / observability
• Email
• CMS / hosting platforms
• Analytics / marketing
• Productivity / collaboration
• Development tools
• Security / compliance
• Other

The categories vary by business. The point is: similar costs grouped, easy to compare.

Step 3: Identify the biggest line items

80/20 rule. Usually 20% of vendors account for 80% of spend.

Focus the audit on the top 80%. The long tail can be cleaned up but rarely yields big savings per item.

Step 4: Apply the 5 levers

For each major line item, walk the levers:

Document the opportunity, the effort, the risk, and the savings estimate.

Step 5: Prioritize

Plot opportunities on a 2x2:

• Y axis: savings
• X axis: effort

Quadrants:

• High savings, low effort: do first
• High savings, high effort: plan
• Low savings, low effort: do as time allows
• Low savings, high effort: skip

Also consider risk:

• Eliminate something used by no one: low risk
• Rightsize a database: medium risk (test in staging first)
• Replace a critical dependency: high risk (plan carefully)

Step 6: Execute the easy wins

For each easy-win opportunity:

• Document the change
• Get owner approval
• Make the change
• Monitor for unexpected impact
• Confirm cost reduction in next billing cycle

Easy wins typically include:

• Canceling unused subscriptions
• Tearing down idle resources
• Switching off dev environments outside business hours
• Moving cold data to cheaper storage tiers

Step 7: Plan the larger work

For higher-effort opportunities:

• Spec the change (use pm-spec-writing for the plan)
• Test in staging
• Roll out incrementally
• Validate cost impact

Examples:

• Migrating to reserved instances
• Consolidating monitoring vendors
• Migrating from one CMS to another with cost benefit

Step 8: Set up ongoing visibility

Optimization isn't one-time. Costs creep back up.

• Monthly cost review (at least)
• Cost dashboard (current, trend, by category)
• Alerts on cost spikes (e.g., daily spend exceeds threshold)
• Tagging or labeling on cloud resources (cost by team or project)
• Quarterly deeper review

Step 9: Negotiate at renewal

For vendor contracts up for renewal:

• Start the conversation 60-90 days before renewal
• Have alternatives identified (even if you don't switch)
• Ask for a multi-year discount
• Ask about volume tiers
• Ask if usage rightsizing is possible
• Be willing to walk (most vendors find a way to keep you)

Pre-pandemic, many vendors auto-renewed at increases. Post-pandemic, many are hungry for retention. Ask.

Step 10: Document the policy

Going forward:

• New vendor evaluation requires cost justification
• Resource provisioning has approval thresholds
• Tagging and labeling are required for cloud resources
• Quarterly review is calendared
• Cost attribution is clear

Without policy, costs creep.

Common opportunities by category

Hosting and compute

• Reserved or committed-use pricing for predictable workloads (30-70% off)
• Spot or preemptible for fault-tolerant batch
• Auto-scaling for variable loads
• Right instance family (compute-optimized, memory-optimized, etc.)
• Dev/staging instances stopped outside business hours

Storage

• Lifecycle policies to move old data to cheaper tiers
• Delete old logs, backups, snapshots
• Compression for archival
• Object versioning costs (every version is a stored object)

Database

• Right size based on actual CPU/memory usage
• Reserved capacity for predictable workloads
• Read replicas for read-heavy workloads (cheaper than scaling primary)
• Drop unused indexes (indexes cost storage and write performance)
• Old data archived or deleted

Networking and CDN

• CDN reduces origin egress costs (often the biggest cost category)
• Compression on the wire
• Image and video optimization
• Region-aware routing

Monitoring and observability

• Sample logs (don't ingest 100% of high-volume sources)
• Retention policies (do you need 90 days or 30?)
• Consolidate tools where possible
• Free or open-source tooling for non-critical needs

SaaS

• Audit logins per seat (inactive users on $X/seat = $X waste)
• Renegotiate at renewal
• Move to annual billing for the discount
• Consolidate overlapping tools

Failure patterns

Cost-cutting that breaks something. Aggressive rightsizing without testing causes outages. The cost of an outage is usually larger than the savings.

Optimization that takes more time than it saves. A team spends a quarter saving $5K/year. Math doesn't work. Focus on opportunities where savings exceed effort.

Renewal autopilot. Annual renewals go through without review. Calendar them.

No tagging. Cloud spend grows; no one knows whose. Tag everything from day one.

Free tier overruns. "It's on the free tier." Then it's not, and bills surprise. Set alerts on free-tier services.

No environment differentiation. Production-grade staging "to match prod." Costs as much as prod. Often unnecessary.

Untouched legacy. "The old project still runs." Why? Often: nothing actually uses it. Audit and shut down.

Premium tiers for non-premium needs. Enterprise plan because someone wanted a feature that's been since added to lower tiers. Recheck.

Vendor lock-in justifying cost. "We can't switch." That's not a reason to overpay; it's a strategic problem to plan around.

Optimizing the small stuff while ignoring the big stuff. Saving $50/month on tools while $5K/month sits in oversized infrastructure. Top-down first.

Penny-wise, pound-foolish. Cutting a useful tool to save $20/month, then losing hours to manual work. Tools that pay for themselves shouldn't be cut.

No reinvestment. Every dollar saved goes to bottom line; nothing reinvested in upgrades or capacity. Saved costs and improved capability aren't either/or.

Output format

A cost optimization document includes:

• Current state: total spend, by category, trended
• Top line items: the biggest costs
• Opportunities: by lever (eliminate / rightsize / restructure / negotiate / reframe)
• Prioritized list: with savings, effort, risk
• Action plan: owners, dates
• Easy wins executed: what's already done, results
• Ongoing governance: dashboard, review cadence, tagging, approval thresholds

Reference files

• references/cloud-audit-checklist.md: A practical walkthrough for auditing a cloud account (compute, storage, database, network, monitoring) for waste and rightsizing opportunities.