Decoding the Challenges of Cloud Cost Allocation Management?

One of the main causes I see is that organisations haven’t adapted to the shift of where the responsibility for spend is for cloud versus where it was for on-premise.? This has created a huge gap between those accountable (still often the IT Infrastructure budget owners) and those responsible, the engineers.

In this blog, we will explore the complexities of cloud cost allocation, understand the challenges it presents, and provide actionable steps to help you get started with accurate cloud cost allocation.

What is Cloud Cost Allocation?

Cloud cost allocation is the process of attributing cloud expenses to specific resources, projects, departments, or customers within an organisation. It involves breaking down the overall cloud costs into smaller, identifiable units for better cost visibility, accountability, and decision-making.

Why is Cloud Billing Data so Complex?

Cloud billing data can be intricate and challenging to interpret for several reasons:

• Dynamic Pricing Models: Cloud service providers offer a wide range of pricing models, including pay-as-you-go, reserved instances, spot instances, and various types of discounts. Understanding and tracking these pricing models requires a deep understanding of cloud billing structures. For instance will these show as refunds or discounts?
• Granularity of Usage Data: Cloud providers generate vast amounts of usage data, capturing information about compute instances, storage, network traffic, and other resources. Analysing this data and associating it with the right cost centres or projects can be a complex task.
• Credits: Credits may seem like a brilliant thing, and they seem like a wonderful gift from your friendly provider when you sign up to certain projects/contracts. However the way they are applied can be challenging and it’s hard to allocate them in the right place if you’re using features that make sure you use them quickly.
• Multi-Cloud and Multi-Service Provider Environments: Many organisations operate in multi-cloud or hybrid cloud environments, where they use services from multiple cloud providers. Managing billing data from different providers and mapping it accurately to internal cost allocation structures can be challenging. However, with the launch of FOCUS <LINK> from the FinOps foundation this may finally be getting easier.

Why is Cloud Cost Allocation Hard?

Cloud cost allocation poses several challenges for organisations:

• Lack of Granularity: Cloud billing data often lacks the necessary granularity needed for precise cost allocation.? This may seem crazy considering we’ve said part of the problem is how much data there is, but hear me out. The data provided by cloud service providers may not align with an organisation's internal cost centres or projects, making it difficult to attribute costs accurately.
• Shared resources: Sometimes resources may be shared across multiple projects/cost centres, but it’s very challenging to know how much was used by each. Especially when it may be a shared database. There are new tools coming to market that solve this problem, but they are not widely known. As such you have to find a strategy to resolve this shared resource.
• You can’t “tag all the things”: Tags and labels are crucial to good cost allocation, but not everything can be tagged, so while it’s also best practice to use account level demarcation, where neither are possible you’re left with a pot of unallocated costs.
• Changing Infrastructure: Cloud infrastructure is dynamic, with resources being provisioned, scaled, and terminated based on demand. Keeping track of these changes and associating costs with the correct resources can be a significant challenge.
• Application of commitment discounts: Commitment discounts such as Reserved Instances, Savings Plans, CUDs all work in different ways. To get the most out of them, organisations should switch on sharing, which means they will be allocated wherever they have the most impact. This means their application will vary month to month, making it hard to attribute their benefit in a stable manner.
• Cross-Department Collaboration: Cloud cost allocation requires collaboration between finance, IT, and other departments to ensure accurate mapping of costs to relevant business units. Miscommunication or a lack of alignment between departments can lead to inaccuracies and disputes.

What Can You Do to Get Started Allocating Cloud Costs Accurately?

To tackle the challenges of cloud cost allocation, consider the following steps:

• Define Cost Allocation Framework: Establish a clear and comprehensive cost allocation framework that aligns with your organisation's goals, departments, projects, and cost centres. This framework should define how costs will be attributed and provide guidelines for accurate allocation. This should include plans for non-allocated costs (where tagging or account separation isn’t enough) as well as how to manage commitment discount application - likely use on-demand pricing as the allocation model and keep rate discounts central.
• Account/Project/Subscription based separation: Where possible, delineate between cost centres/projects/departments with corresponding logical accounts (or whatever the term is for the cloud you’re using). For both showback and chargeback this is very helpful and reduces noise created by untaggable services in shared areas. Where you have to share accounts for shared services follow the below point where possible.
• Implement Tagging and Metadata: Leverage cloud provider tools to implement resource tagging and metadata management. By applying tags to cloud resources, you can associate costs with specific projects, departments, or customers. Ensure consistent tagging practices across your organisation.
• Automate Cost Tracking: Utilise cloud management and cost optimization tools that provide detailed insights into usage, costs, and billing data. These tools can help automate the process of collecting and analysing cost data, reducing manual effort and improving accuracy.
• Collaborate and Communicate: Foster collaboration and communication between finance, IT, and other departments involved in the cost allocation process. Regular meetings, cross-functional discussions, and clear documentation of cost allocation policies can help ensure accuracy and transparency.
• Review and Refine: Regularly review and refine your cost allocation processes. Analyse cost reports, identify any discrepancies or anomalies, and make necessary adjustments to improve accuracy. Continuously monitor changes in your cloud infrastructure and update cost allocation accordingly.

Conclusion:

Cloud cost allocation presents significant challenges due to the complexities of cloud billing data, dynamic infrastructure, and cross-department collaboration. However, by implementing a well-defined cost allocation framework, leveraging tagging and automation tools, and fostering collaboration, organisations can overcome these challenges.

Accurate cloud cost allocation provides transparency, enables effective cost management, and empowers decision-makers with insights for optimising cloud spending. By taking proactive steps to allocate cloud costs accurately, organisations can achieve greater control, accountability, and cost efficiency in their cloud environments.

Unbiased, independent experts you can trust

Synyega are the UK’s leading independent privately owned ITAM and FinOps consulting organisation.? We have a desire to make a real change in how the industry works and that receiving independent advice on software licensing should be “standard practice” not the “exception”.?? We believe that every organisation should have access to independent advice that is not governed or influenced by a Reseller or a Software Vendor. Synyega will never partner with resellers or vendors so you can be sure our advice is always in your best interests.? For more information visit www.synyega.com