Reducing Azure Costs with Terraform

Last Updated on July 2, 2025 by Arnav Sharma

Why Azure Costs Can Spiral Out of Control

If you’ve ever checked your monthly Azure bill and muttered, “Wait, how did we spend this much?”—you’re not alone. The flexibility of cloud is incredible, but it’s also where many teams fall into a trap. Azure’s pay-as-you-go model lets you spin up resources on demand, but that same convenience can lead to a sprawl of unused, oversized, or forgotten infrastructure quietly racking up charges.

And the numbers back this up: 94% of IT leaders say their cloud storage costs are rising, and nearly 60% are seeing their total cloud bills spike. Clearly, we need a better strategy than just trimming resources after the damage is done.

That’s where Azure Cost Optimization (ACO) comes in. But let’s be clear—it’s not just about cutting costs. Done right, ACO is about being intentional: using what you need, when you need it, and aligning cloud spend with business value.

ACO: It’s Not Just About Spending Less

Think of Azure Cost Optimization as more than budgeting. It’s about treating cloud spend like a living part of your strategy, not just a line item.

Here’s what it involves:

• Right-sizing resources: That VM you picked with 16 vCPUs “just in case”? Probably overkill. ACO helps you match resources to real workload needs.
• Using the right pricing models: Reserved Instances (RIs), Savings Plans, and Spot VMs are like frequent flyer miles—if you know how to use them, the savings can be huge.
• Tagging and accountability: Knowing who spun up what, and why, is essential for tracking costs and avoiding surprise charges.
• Balancing performance and compliance: Cost savings mean nothing if your app crashes or your security posture takes a hit.

In short, ACO is about optimizing for value, not just minimizing the bill.

Terraform: Infrastructure as Code, with Cost Control Built In

Instead of managing resources manually, you define everything in code. It’s like having blueprints for your infrastructure – consistent, repeatable, and easy to audit.

Let’s look at a few reasons why Terraform works so well with Azure:

• Declarative syntax: You describe what you want, not how to get there. Terraform figures out the steps.
• Plan before you act: The terraform plan command gives you a sneak peek at what changes will happen—and what they might cost.
• Modules: These reusable chunks of code standardize deployments. Think of them as pre-packaged best practices.
• State tracking: Terraform remembers the current state of your infrastructure, reducing surprises and configuration drift.
• Multi-cloud friendly: Azure today, AWS tomorrow? No problem. Terraform doesn’t lock you in.

Using Terraform with Azure brings clarity to your cloud setup and helps enforce governance by design.

Proactive Cost Estimation with Infracost

One of the smartest ways to avoid budget blowouts? Know your costs before deploying anything.

Infracost – a tool that plugs into your Terraform workflow and estimates how much your planned resources will cost. Think of it like a price tag for your infrastructure-as-code.

You can even bake these checks into your CI/CD pipeline. If a developer tries to deploy something that’s wildly expensive? Block the PR. Warn them. Or just send a Slack message with, “Hey, did you really mean to spin up 32 premium VMs?”

This shift-left mindset transforms FinOps from a finance-only concern into a team-wide responsibility.

Build Once, Optimize Always: Golden Modules and Automation

If you’ve got a central platform team, use them. Have them create “golden modules”—prebuilt, cost-optimized Terraform templates for common workloads.

That way:

• Devs don’t need to learn all the ins and outs of Azure pricing.
• Everyone gets the right defaults (e.g., autoscaling, cheaper SKUs, proper tagging).
• Compliance is built in.

Some platforms even let teams deploy these modules with a simple UI—no need to write code. Suddenly, even non-technical users can launch compliant, cost-aware infrastructure. That’s not just efficiency; that’s scale.

Guardrails, Not Handbrakes: Policy as Code

Want to block expensive SKUs or ensure all resources are tagged for billing? Don’t rely on documentation, enforce it.

Tools like OPA (Open Policy Agent) or Sentinel (for Terraform Cloud) let you set rules like:

• “No Premium VMs in dev.”
• “All resources must have an owner tag.”
• “Disallow unreserved instances for production workloads.”

These policies act like seatbelts: unobtrusive when you’re doing things right, but life-saving when someone veers off track.

Real Tools Making a Real Difference

Here’s a quick snapshot of what’s helping teams wrangle Azure costs today:

Azure Native:

• Cost Management + Billing: Budgets, forecasts, chargebacks.
• Azure Advisor: Optimization tips (e.g., VM right-sizing, unused resources).
• Azure Monitor: Track anomalies in real time.
• Copilot for Azure: Ask “Where am I overspending?” and get instant insights—no spreadsheets needed.

Third-Party FinOps Tools:

• Infracost: Cost estimation from Terraform code.
• ControlMonkey: Pull request cost visibility and drift detection.
• Harness CCM: AI-powered cloud savings with auto-stopping rules.
• Spacelift: Governance, drift detection, and cost controls baked into Terraform workflows.

Challenges? Absolutely. But They’re Manageable.

Terraform isn’t magic. Some common headaches:

• Steep learning curve: Especially for teams new to IaC.
• Configuration drift: When someone changes things in the portal and Terraform gets out of sync.
• Technical debt: Sloppy modules pile up quickly.
• Hidden costs: Slow deployments, long CI pipelines, poor tagging—these all add up.

Solutions?

• Break code into clean, reusable modules.
• Use version control and CI/CD pipelines for all changes.
• Enforce policies early, not after production.
• Assign clear ownership of infrastructure stacks.
• Parameterize everything. Hardcoding is a future headache waiting to happen.
• And always—always—monitor and audit.

Final Thoughts: Terraform Is More Than Just Code

Terraform is not just about spinning up virtual machines or deploying a VNet. It’s about putting structure and sanity around your cloud usage.

In a world where agility is everything and cloud bills can spiral overnight, Terraform gives you control—over spend, security, consistency, and scalability.

Cost optimization isn’t a one-time project. It’s a mindset, a process, and a collaboration between engineering, finance, and business teams. With Terraform, you’re not just cutting costs—you’re building smarter, faster, and with purpose.