Cost allocation in cloud computing involves assigning cloud expenses to specific projects, departments, or cost centers within an organization by tracking resource usage and mapping those costs to the appropriate business units or applications.
Cost allocation turns cloud bills into business insights
Effective cost allocation helps organizations understand and optimize their cloud spending patterns, enabling more informed and strategic decision-making.
Cost Allocation is a practice that helps optimize cost management in the cloud by establishing the relationship between costs
- Define your cost allocation boundaries.
- Invite in your stakeholders.
- Establish processes for cost assignment: showback/chargeback.
- Measure with unit metrics as KPIs.
- Handle unallocatable expenses.
Cost allocation has two main components
- Pools
- Objects
Cost Pools
A pool is a collection of unallocated or shared cloud costs (e.g., NAT gateway, logging, monitoring).
Cost Objects
A cost object is the final owner of the cost (team, app, BU, project).
Tags are key-value pairs that can be assigned to cloud resources and provide metadata about them.
Untagged resources are silent cost leaks
Most cloud resources support tagging, such as instances, VNET, security groups, and more, but some can't be tagged, so remember to define ways to manage those un-allocatable cost items.
Tags and labels can go into granularity that we can define what kind of service is it and what kind of application is it and department etc., and list goes on depending up on your organization.
By this you can build automation on top of you CSP to identify how the cost is being generated and you can achieve better allocation and define show back and charge back.
- Automate Tagging Where Possible
- Use Tags for Cost Allocation and Tracking
- Implement Tagging Policies for Compliance
- Utilize Tags for Security
- Regularly Review and Update Tags
Cost Pools tell you where money goes. Cost Objects tell you who owns it
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