5 Areas of Cloud Cost Allocation for Enterprise and MSPs

Nov 5 2014 | by Zev Schonberg

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IT organizations face growing pressures to control costs and enable responsible financial resource management. As a result, CIOs are expected to present proven operational efficiencies under tight budgetary constraints. While this reality is no different in the cloud, implementing cost allocation can be quite challenging. The future of cost allocation in the cloud holds IT teams that are able to retain and enforce allocation policies. These will demonstrate significant business results causing other company team leaders to become more aware of and accountable for their cloud consumption and expenses.

After numerous discussions with the individuals in charge of AWS cloud costs at a number of large enterprises, I realized that some key factors were missing from the equation. For starters, generally, no distinction is made between the different business units that are used in the cloud. While some of the units may be broken up manually on a spreadsheet, overall, a lack of differentiation between accounts makes for a difficult division process. Below, I will delve into the 5 crucial areas that organizations and companies ought to focus on for optimal cloud cost allocation.

1 – Define Your Business Units

The first step in cloud cost allocation involves organizing business unit, or user, groups. Putting the concept of the cloud aside, figure out how business unit groups will be defined when it comes to budgeting and costs. It is important to keep in mind, however, that there may be different cost centers, teams, and campaigns within these units, that would also need to be clearly mapped out for organized and optimized cost allocation.

2 – Lay Down the Law: Leadership and Management

Once the business unit groups have been defined, the group heads need to be brought together to learn about and understand the rules and regulations regarding cost allocation. Here, it is the profit and loss (P&L) manager’s duty to explicitly state the rules for categorization and tagging policies. This will ensure that charge-back cost allocation works in a meaningful way. It can be as simple as expressing the importance of adding tags for specific business units, projects, and teams. The P&L manager will differ for each organization, be it the CFO or the CIO, however it must be someone from the top who has a genuine interest in organizing the coming plan of action.

3 – Associate Resources to a Business Unit

Once the leaders are all on board, the next step entails tracking and monitoring the associated resources for each business unit. Therefore, it is vital that all of the group heads collaborate in efforts to enforce consistent terminology, spelling, capitalization, and punctuation throughout the designated groups (i.e. COSTCENTER vs Cost_Center). For that matter, Amazon cloud provides resource tagging, which allows resources to be categorized by their specific business units. Organizing each business unit as a cloud cost center by means of a consistent tagging policy allows organizations, as well as each business unit, to monitor, analyze and optimize their cloud costs.

4 – Untaggable Resources and Services

Following the previous point, a lot of thought has to also be put into resources that are not naturally categorizable, such as data transfer in Amazon, or services like support or reserved instances. It is classic among enterprises to buy reservations on a consolidated level to match their consolidated environment. However, a consolidated level only pertains to the master corporate account and is not relevant to any business unit in particular. These reservations are paid for with a special one-time fee, up front, leaving the underlying question of: which business unit gets charged? Conversely, the massive discounts offered by the reservations save companies/organizations a significant amount of money, which leads to yet another question of: which business group receives the discounts? If the reservations were bought on the consolidated level, how can they be assigned to specific groups?

To learn more about the answers to these questions, I encourage you to read my recent post.

5 – Governance and Enforcement

Due to the dynamic manner of the cloud, along with the fact that it is not a closed environment with a finite capacity like traditional dedicated data centers, IT teams must maintain solid governance and control over their systems. Enterprises and service providers need to have automated and comprehensive environments that consist of tools that measure cloud utilization, cost, and performance on all business levels. It is imperative that this system support policy enforcement and complete transparency on a daily or even hourly basis.

When it comes to cost allocation and tagging, the system needs to help maintain consistency, tracking changes over time for error prevention and detection. Additionally, automated alerts and reports need to be put in place in case a resource is generated without a tag. This ensures that either everything that is spun up has a tag, or that the proper individual will be notified if a tag does not exist, so as to rectify the situation. On top of that, monthly reviews should be put in place to ensure that all of the tags that are in use are also consistent.

Final Words

These are important issues to consider when calculating your cloud cost allocation. While there is no all encompassing solution for all companies and organizations, customizing the points above to fit your needs will have you well on your way to cloud cost optimization. Cloudyn deals with points 3, 4 and 5, and also helps with tagging, so that even if your cloud resource tagging policy is a mess, Cloudyn will help you re-tag, organize and normalize the terminology. Furthermore, it is in Cloudyn’s the pipeline to generate alerts every time you spin up an instance without a tag.

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