Importance of Accurate Cloud Cost Allocation
With the daily addition of new services by cloud service providers across a variety of business domains, such as data analytics and marketing mailing services (e.g., Amazon SES for email), cloud spend will continue to rise and diversify across business units and departments. Thus, to keep cloud spend in check, it is necessary to allocate resources accordingly.
Here are the top 5 reasons effective Cloud Cost Allocation is crucial for organizations:
1. Granular Visibility into Cloud Spend
Cloud cost allocation is driven by tagging and categorization, which are key to providing detailed insights into cloud infrastructure. Tagging with relevant metadata allows for cost tracking at a specific service level.
For example, tagging an EC2 instance with Project=Marketing and Environment=Production enables accurate cost attribution to that project and environment.
2. Fostering a Culture of Financial Accountability
Cloud cost allocation, as a principle, also includes in its cloud practices chargeback or showback cost tracking models. Through these models, tracking the specific business unit or department responsible for certain unusual cloud cost hikes becomes easier.
Also, holding teams accountable has the potential to encourage them to be more aware of cloud spend and drive efficient resource utilization.
3. Better Cloud Budgeting
Cost allocation fosters accountability and visibility. This eventually enables decision-makers to have accurate information about how much they need to spend on cloud infrastructure for business functions to continue without disruption.
As a result, they can set aside precisely the required budget from their overall operations for cloud infrastructure.
4. Identifying Opportunities for Cost Optimization
Cloud cost allocation simplifies identifying services that are being overprovisioned (e.g., an m5.4xlarge instance used for a low-traffic application). Thus, by rightsizing such resources, businesses maximize the ROI from their cloud spend without sacrificing performance.
5. Enabling Data-Driven Decision Making
Through cloud cost visibility tools and detailed tagging practices, stakeholders gain a holistic view of the complete drivers behind their cloud spend, right down to the specific functions of the last business unit. Empowered with such insight, leadership can make informed decisions related to investments, innovation, and business continuity.
Common Challenges Organizations Face during Cloud Cost Allocation
Many businesses face significant difficulties in successfully conducting the practice of cloud cost allocation in their organization, which often leads to missed opportunities for savings on their cloud bill.
Here are the top 5 challenges organizations face during Cloud Cost Allocation:
1. Complexity of Billing Data
Cloud bill is not a simple number, but has thousands of line items, each with more detailed nuances, which proves to be a hassle for account managers to accurately pinpoint accountability and resource utilization.
2. Shared and Multi-Tenant Resources
Resources for storage, networking, and containerization services are often shared across different business units since they are too much for one unit to utilize. For example, an S3 bucket might be used by multiple teams for hosting static websites, logs, or backups.
Thus, in between teams, if there’s a lack of clarity, there are high chances of cost misallocation — or no allocation at all!
3. Multi-Cloud Architecture
Each cloud provider has its benefits and drawbacks in the context of their pricing, billing models, and services, which is why organizations opt for multi-cloud architecture.
However, it complicates cloud cost allocation since each provider has different methodologies, making normalization and presenting a unified view challenging.
4. Lack of Skilled Professionals
Say, someone from a marketing unit might not have the technical know-how of adding labels and tags for their Amazon SES (Simple Email Service) campaigns, but may have significant utilization of that service. Also, they might unknowingly provision instances irrelevant to their function, leading to cost overruns.
5. Shadow IT
Fragmented resource provisioning ( for example, an AWS Lambda function being spun up ad hoc by a developer without notifying the DevOps team) can result in resources being created without necessary oversight.
This creates an impression of “Shadow IT,” which is detrimental to cost allocation and tagging.
Proven Practices for Precise Cloud Cost Allocation
For businesses looking to streamline cloud cost allocation across all domains, here are the top 5 tips and tricks:
1. Standardize Labeling and Tagging Policy
By defining standard naming conventions across the organization — even if departments are different — all teams, regardless of their domain, would be able to decode the tag. Also, enforce policies that restrict provisioning without proper tags.
2. Upskill Teams on Cloud Practices
Even for domains that are not precisely engineering-related but utilize cloud instances in their operations, enroll employees in programs that bring them up to speed on cloud fundamentals and help them gain working knowledge of at least the services they are interacting with.
3. Conduct Quarterly Tag Audits
For the company to ensure compliance with the tagging policy, conduct quarterly audits to verify the correct application of tags and clean up outdated or cluttered ones. With periodic audits, you ensure the integrity of the tagging structure and retain only relevant tags, thus keeping the infrastructure clean.
4. Leverage Automation Tools Where Possible
Manual cost allocation, for a decently sized cloud infrastructure, would consume unnecessary team bandwidth and is unrealistic. Automation tools solve this by taking over redundant tasks like cost anomaly detection, rightsizing, and resource cleanup, among others.
5. Encourage Cross-Team Collaboration
Establish communication channels and protocols dedicated to cloud operations that help different business units by setting clear goals and responsibilities. By doing so, teams can act cohesively and in sync to optimize cloud spending.
Conclusion
CXOs often complain that their cloud spend doesn’t yield ROI proportional to the services being utilized. However, many organizations end up overspending thousands of dollars on cloud resources due to factors like overprovisioning and failure to leverage discount plans. Cloud cost allocation specifically addresses this challenge. When implemented holistically across the entire organization, it enables stakeholders to identify areas for optimization and empowers them to maximize cloud potential per dollar spent.
Frequently Asked Questions
Q1: What are the major benefits of Cloud Cost Allocation?
Greater visibility into cloud infrastructure, identification of cost optimization opportunities, improved accountability for cloud service utilization, and creation of a culture of awareness around cloud spend are the primary benefits of cloud cost allocation.
Q2: What are AWS Cost Allocation Tags?
AWS Cost Allocation Tags are labels structured as key-value pairs that can be assigned to specific AWS resources during provisioning. Their primary utility lies in categorizing costs within billing reports. Tags can be activated through the AWS Management Console, CLI, or Infrastructure as Code (IaC) tools and services.
Q3: What is Chargeback in the context of cloud infrastructure?
Chargeback is a cloud cost allocation practice that involves charging an organization’s departments for their cloud spend. Chargeback enforces strong accountability; thus, this practice should be implemented carefully because, while trying to cut down on cloud spend, business units might not provision enough resources, which can lead to overburdening the system.
Q4: How does Showback help in effective cloud cost allocation?
Showback, similar to Chargeback, is a cost allocation practice that holds a business unit accountable for its cloud spend. Unlike Chargeback, however, those business units are not charged for the costs incurred.
Q5: What role does FinOps play in cloud cost allocation?
The FinOps framework acts as a starting point for organizations in bringing their engineering, finance, and business units into sync with regard to cost tracking and accountability.
It enables teams to make data-driven decisions and fosters a culture of financial ownership across the organization.
Q6: How do I allocate costs across multiple teams or departments?
From the onset, establish clear objectives and KPIs, draft a tagging policy after discussions with all stakeholders, and enforce tagging as a mandatory policy. For continuity and separation, establish decentralized accounts, which are instrumental in isolating costs between teams and improving accountability.
