Azure Cost Management – Best Practices & Tools

The cloud is great, but cloud costs can quickly spiral out of control! In this article, we will take a look at Azure cost management, sharing some of its more useful features and some best practices to prevent those nasty unexpected bills!

We will cover:

1. What is Azure cost management? How does it work?
2. Why should you consider Azure cost management?
3. Different factors affecting Azure’s cost
4. Best practices for Azure cost management
5. Azure cost management tools

Azure Cost Management is a service baked into the Microsoft Azure cloud that helps you monitor, manage, eliminate waste, and optimize cloud spending. It provides tools and insights to help you understand and control your costs in the Azure cloud environment, as well as enable you to make informed decisions to ensure the cost-effectiveness of particular services.

Check out also AWS Cost Optimization Best Practices article.

When you sign up for an Azure subscription, you will have access to Cost management by selecting it from the available Azure services on your homepage.

If you have an Azure subscription, the native Azure cost management tool that comes free of charge is a no-brainer to use. It is often overlooked when you want to dive straight into the good stuff and start spinning up services, but it pays (literally) to take some time to explore cost management and set up some controls.

Note that there are 3rd party services you might want to consider that add additional cost management capabilities and handle costs from multiple cloud providers, a big advantage if you are looking to view costs from multiple clouds on a single pane of glass.

One such tool was Cloudyn which was acquired by Microsoft and later integrated into Azure Cost Management. CloudHealth by VMware, CloudCheckr, Apptio Cloudability, and RightScale Optima are all popular choices.

Costs in Azure are largely determined by the following:

1. The number of resources that have been provsioned.
2. Sizes (or SKUs) of resources provisioned.
3. Utilization of resources — you may pay more or less for resources depending on how much they are used.
4. Data transfer and network costs — not to be underestimated, these can quickly mount up where outbound traffic traverses VNET peerings, Azure services, or VPN connections.
5. Storage costs.
6. The geographic region where the resource is provisioned may differ in cost from another Azure region. For example, a virtual machine is generally cheaper in UK South than in UK West (although not for all SKUs!).
7. Pricing plans — Commiting to consume more resources upfront or a larger amount of a particular resource can lead to cost reductions, such as Enterprise agreements or reserved virtual machine instances.

Here are Azure cost management best practices:

1. Select the right service and use the correct service tier level

To start reducing your costs, you’ll need to make sure you have selected the right service for the job and provisioned it using the correct service tier level. This is easier said than done and usually involves monitoring the service metrics to make sure the features you are paying for are being utilized, and that the service capacity you have provisioned is being fully utilized whilst allowing for expansion.

2. Regularly monitor Azure resources

Regular monitoring of Azure resources and usage patterns is crucial for effective cost management.

3. Utilize Azure’s monitoring and reporting tools

Utilizing Azure’s monitoring and reporting tools, such as Azure Monitor and Azure Advisor, can help identify cost optimization opportunities, detect anomalies, and make informed decisions.

4. Exploit the benefits of autoscaling in the cloud

Once you have your resources monitored and on the correct service level and SKU, you can fully exploit the benefits of autoscaling in the cloud to save costs. For example, your web app might scale down when the CPU is less than 70% to a lower tier that costs less to run, and only scale up when the user demand is high and the CPU rises above 70%.

5. Tag your resources

Tagging your resources is a good cost management practice which is a mechanism commonly used to provide better visibility and cost for resources and groups of resources. By associating tags with resources, organizations can track spending by departments, projects, or cost centers, allowing for more granular cost management and control.

Once inside cost management, it is split into three main areas, Cost management, Billing, and Products & Services.

1. Cost management

Cost analysis

The Cost Analysis section in Azure Cost Management provides a detailed analysis of your Azure spending and helps you understand how your costs are distributed across various services, resources, and dimensions. It offers insights into your Azure usage and spending patterns, allowing you to identify cost optimization opportunities and make informed decisions, identify spending patterns, understand cost fluctuations, and detect any anomalies or unexpected spikes in your Azure costs.

The interface provides interactive tools and filters to explore your costs and allows you to analyze the trend of your costs over time. You can view cost trends by day, week, month, or custom time periods. This feature helps you identify spending patterns, understand cost fluctuations, and detect any anomalies or unexpected spikes in your Azure costs.

Cost Alerts & Budgets

Putting some cost management alerts in place on your subscription should be one of the first ports of call when setting up a new Azure subscription.

In these sections, you can create and view budgets and set up anomaly alerts. As best practice, you should set your budget here to get an email alert when the threshold you specify is reached.

Azure Cost Management also provides a cost forecasting capability based on historical data. It uses machine learning algorithms to project future costs, allowing you to estimate and plan your budget accordingly. This can be valuable for predicting and managing future expenses, and you can be alerted on predicted spend rather than actual.

Advisor recommendations

This section pulls the cost-related recommendations from Azure Advisor, listing things such as resizing or shutting down underutilized resources, leveraging reserved instances, or modifying service configurations. As best practice, you should check this on a regular basis for up-to-date recommendations.

2. Billing

Invoices

The invoices section will allow you to download your monthly invoice as a PDF, and show historical invoices and upcoming billing dates.

Payment methods

Add or modify your billing methods, or pay by wire transfer.

Payment History

View a timeline of previous payments and the details.

Reservations

In Azure reservations, there are two types of transactions that can occur: billed transactions and unbilled transactions.

Billed transactions refer to the actual usage or consumption of Azure resources that are covered by an Azure reservation. When you have an active reservation for a specific resource, such as a virtual machine or a SQL database, and you use that resource, the usage is billed against the reservation. The associated costs are deducted from the reservation balance rather than being charged at the regular pay-as-you-go rates.

Billed transactions are typically visible on your Azure invoice or billing statement, showing the usage that has been applied against your active reservations. The reservation coverage is automatically applied to the corresponding resources’ usage, and the costs are adjusted accordingly.

Unbilled transactions are the usage or consumption of Azure resources that have not yet been invoiced or included in your billing statement. These transactions occur when you have active reservations, but the usage hasn’t been processed or accounted for in the current billing cycle.

Unbilled transactions can occur for various reasons, such as timing differences between resource usage and the billing cycle, delays in usage data processing, or the reservation term not aligning perfectly with the billing period. These transactions do not impact your current reservation balance since they have not been invoiced yet.

Billing profiles

A set of configurations that define the billing details and preferences associated with an Azure subscription. It includes information such as the billing address, payment methods, currency, and tax settings.

3. Products & Services

All Billing Subscriptions

View all subscriptions billed to your billing account, showing the plan and SKU for each. Recurring subscriptions such as your Azure support plan, Azure Marketplace purchases, and Microsoft AppSource purchases will show here.

Reservations + Hybrid Benefit

Currently, in preview, Billing administrators can now see reservations purchased in their organization. You can also purchase reservations directly from this section.

Azure Hybrid Benefit is a licensing benefit that lets you bring your on-premises core-based Windows Server and SQL Server licenses with active Software Assurance (or subscription) to Azure and will show in this section when applied to your subscription.

Savings Plans

In this section, you can purchase or view existing savings plans. By committing to a consistent amount of usage for 1 or 3-year terms, you receive significant savings on compute resources as you use them. You can apply the savings plans to multiple different scopes, as shown in the screenshot below.

Azure subscriptions

This section will shortly be removed and replaced by the ‘All billing subscriptions’ section.

Recurring charges

Also to be replaced by the ‘All billing subscriptions section’.

Azure Cost Management is included with your Azure subscription at no additional cost. It provides powerful features to analyze, manage, and optimize your Azure spending, helping you maximize the value and efficiency of your cloud investments.

It’s important to get to grips with everything cost management has to offer. Microsoft provides some free training on cost management over on the Microsoft Learn site, which is well worth a read or a refresher.

If you’re interested in finding out about how you can use Spacelift to manage your Azure resources via the Terraform Azure Provider, check out our Azure documentation. There you can also learn how to configure the following authentication methods in Spacelift: Spacelift Managed Integration, Static Credentials, and Managed Service Identities. And don’t forget that you can easily take Spacelift for a free test drive!