The cloud has become commonplace for almost every business in 2023, and this is because of its flexibility to any industry and workload set in front of it. Utilizing the cloud allows companies to access cloud resources on demand while also automating the increase or decrease of resources used depending on the workload.

With the long list of automation options that a cloud environment can provide, many businesses fall into the trap of assuming their cloud spend is 100% correct all the time without the need for check-ins or proper allocation. However, these assumptions can lead to many businesses continuing to pay for resources they are not using or not paying enough toward workloads that need it. This is where proper cost allocation comes into play.

Understanding the What and Why

Cloud cost allocation is the process of delegating certain cloud costs to specific departments, business units, individuals, and teams. This can ensure that organizations understand where their cloud spending is going, allowing them to make sound decisions about their budgets and assigning responsibilities to certain departments. By having proper cost allocation processes, businesses can better track spending and usage, allowing for better data to be compiled for forecasting and updates.

Cloud cost allocation is essential for many reasons, for example:

  • Increased accountability across multiple departments
  • It helps reduce unnecessary cloud costs
  • Supports financial management
  • Increases cloud cost visibility
  • Spending is no longer on the shoulders of just the finance department.

Choose a Proper Tagging Strategy

While implementing a tag strategy might be time-consuming, the time, money, and effort you save in the long run can be extremely valuable. Tagging entails categorizing, filtering, and sorting resources based on what they do, where they are used, their value, their environment, and who uses them. To create a proper strategy, your entire organization needs to follow a shared tagging policy and understand at least three of the most important details of each tag.

  • The owner of the resource.
  • The purpose or function of the resource
  • The environment that the resource is used in.

Essentially, tagging is there to help track and monitor your resources to the highest degree so you can continue to obtain data and the cost of certain workloads. Tagging can be your key to better cost allocation.

Take Advantage of Decentralized Account

Decentralized accounts can be seen as beneficial as you no longer have to use one huge central account to manage your data. You can break the account into smaller, more manageable pieces. This can entail having separate accounts for each product you create or even going a step further and having accounts for each step of the product’s timeline, like creation, marketing, and production.

Separating tasks like this gives you a clearer vision of your costs and where they are going. When you are trying to create the perfect cost allocation plan, this might be the way to go if you want to have pinpointed data across every resource. You don’t need to go through the process of separating the costs of products or tasks as they will already be separated for you. You can also use decentralized accounts for things like environments, teams, individuals, and features.

Ensure Departments Understand Their Responsibilities

While less of a strategy and more of a mindset, teaching and sharing the importance of cloud cost allocation and the effect that every individual and department has on the final cost is essential to ensuring the above two common ways of allocation are effective. Cloud environments and the following FinOps responsibilities are not singular tasks. Everyone is held accountable within their teams, and it takes everyone to be responsible to ensure these strategies work to the best of their abilities and that the company is on the road to savings instead of wastefulness.

If you choose to utilize decentralized accounts to help allocate cloud costs, you can ensure accountability by assigning accounts to each department and even each individual within the department to track their usage and spending. This can also be a way for everyone to see each other’s spending and gain a better perspective on how their actions can positively or negatively impact those around them. For example, if you help engineers see the cost impacts of their decisions, they can make the proper choices in order to prevent overspending at a technical level.

Properly allocating cloud cost spending is a non-negotiable for any organization. You need to find a strategy that works and communicate it throughout your departments accordingly. If you have questions or want to see areas of growth and savings in your cloud environment, contact the team at FinOps Oversight.