Cost Allocation for Cloud Usage

Oct 30 2014 | by David Rapport

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Cloud resources – both computing and storage – are used by different departments throughout the enterprise, with the itemized monthly bills reflecting the resources purchased and used. The total of the bills from all cloud suppliers represents the total cost to the company.

However, there is a genuine need for accountants and other financial managers to distribute these costs among the different business units and projects, according to accepted accounting practices. Cloud costs can easily reach six figures for a medium size enterprise yet currently cost allocation methods involve a lot of guesswork.

It is not merely administrative and reporting issues that are at stake. Many other stakeholders would jump at the opportunity to unravel global cloud costs and break them down into usable chunks of data.

These include:

  • IT managers who want to understand how the enterprise’s different departments are using cloud resources.
  • Project managers who are responsible for calculating the actual cost of a project and/or a product or campaign.
  • Managers who oversee multi-location companies and who wish to evaluate the operating costs of each region.

Another important category of users who can make use of enhanced cost allocation methods are MSPs (Managed Service Providers) and VARs (Value Added Resellers) who may have hundreds of clients. Using a whole suite of cost allocation tools the service providers can more accurately and fairly bill their customers.

Cloudyn’s Tools for Allocating Cloud Costs

Cloudyn has a number of tools that enable cloud data to be sliced and diced according to multiple parameters, enabling all managers in the organization to assess the cloud costs for their specific purposes.

Firstly, Cloudyn can take data from multiple accounts and vendors to provide a comprehensive solution that does not need to be repeated a number of times and aggregated before actionable information is calculated.

Secondly, Cloudyn’s cost allocation is very flexible. Users can define multiple policies for allocating the costs and then view the data according to different categories or groups. For example, a CFO may wish to view the data according to each business unit, while an IT executive may wish to learn more about the costs of specific environments or virtual machines.

Assigning Usage to Categories

In order to track all of the desired cloud cost categories, you can tag resources or use other metadata properties. It is recommended to carefully consider the various categories required by all the organization’s stakeholders and then assign a tag to each category, for consistent tracking of cloud usage. Often a hierarchical structure can be considered to represent cost in business terms. For example, a business unit may have multiple cost centers and projects, or a cost center may include more than one business unit. For operational terms, cost can be viewed by the environment. These different views do not overlap, and for each purpose a different cost structure can be created.

Reconciling Tags

gift tagWhen using the company’s existing tags, it is not uncommon to find inconsistent naming practices. For example, cloud-based corporate e-mail may be tagged as mail, email or e-mail. By adding Cloudyn tags, past inconsistencies can be easily resolved.

 

Cloudyn also enables all taggable resources to be validated and ensure that they conform to the policies that were chosen. This ensures that the resources are properly tagged for the future

Allocating Shared & Uncategorized Usage

Tagging is a very simple yet powerful mechanism for assigning categories. But what of the great untaggable? Certain items, such as support, credits and some services (e.g., RedShift) cannot be tagged.

Here too Cloudyn has an answer. Cloudyn supports rules for allocating untagged resources to cost categories. Examples of allocation rules are:

• Distribute the support evenly according to tagged EC2 usage.
• Attribute 20% of RedShift usage to Business Unit A and 80% to Business Unit B.

Rules for Special Cases

Each cloud provider offers services that require special consideration in order to correctly allocate the costs. Cloudyn’s flexible policies allow you to handle these cases.

A good example of this is the pricing of AWS’s reserved instances. There is an upfront fee for the RI and then use of the actual qualifying resources will cost less. There is more than one way of handling this, and policies can be set up. For example, in some cases the cost center that purchases the RI will then be assigned all the costs, even if other departments make use of some of the resources. However, an alternative would be to allocate the costs to the other units that end up benefitting from the RI.

When MSPs purchase reserved instances, , they will generally distributes all the costs, including the initial fee, among all the clients that use the RI. In this way all the clients that use the RI benefit from lower costs.

Another consideration for reserved instances is RIs that are paid for monthly but never actually used. As the resource was never used, it cannot be tagged. It seems clear that in this case a policy needs to be set up to allocate the entire cost to the department that purchased the unused RI.

Cloudyn’s agility enables you to set up different rules and policies for each reserved instance and apportion the costs accordingly.

Calculating the Per Department Costs

When all the tags and rules have been set up and implemented, it is possible to assign all the costs to the various categories and calculate the full cost impact for each business unit. First the categorized usage costs are tallied, followed by the uncategorized costs as described above.

The flexibility and thoroughness of Cloudyn’s solution enables the true costs to be allocated to each business unit in a much more accurate way than any other method.

Existing Solutions

Up till now, there was no cloud solution that performs all the steps described above to deal with shared, unused, untagged and/or untaggable resources. Furthermore, as mentioned, each player within the organization can break down the costs according to their department’s internal business logic, gaining cost insights that are simply unavailable in other cloud ecosystems.

AWS Cost Allocation

AWS has some specific limitations when attempting to calculate and assign costs:

  1. Uncategorized resources cannot be allocated by cost. Amazon Web Services simply does not provide a method of allocating the costs of untaggable resources.
  2. Lack of derived tagging: Some resources can be tagged but sometimes this is not done, for example in the case of volumes. These resources “belong” to other resources that are tagged, such as instances, but AWS does not automatically make this connection.
  3. Reserved instances are not handled appropriately as described above, AWS has limitations when assigning the costs of RIs. Amazon creates a “blended cost” that averages out the RIs across all accounts. A specific RI cannot be assigned to a particular cost category.
  4. Improperly tagged resources are not resolved when a tag is spelled differently by different users, or when a user makes a typo, the error cannot be corrected retrospectively.
  5. A limited User Interface: For more complex analysis, other than simply showing the costs by tag, an AWS user needs to build their own cube over the AWS billing files. This cube is very complex, and in most cases it is only possible to build it over the monthly aggregated report. There is an hourly report “with resources and tags” but because of its size, it cannot be handled by standard software such as Excel.

Pie chart being built with crane

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