Cloud Cost Allocation and Tracking with Strict FinOps Model

Since organisations are shifting towards cloud environments, efficient financial management is a key factor. The cloud has flexibility, scalability, and the possibility to pay as you go as your usage grows, but it creates a need for the potential problem of expenses that are hard to predict. In this blog, we consider how a rigid FinOps model can enrich cloud cost distribution and control in the context of cost optimization with transparency and clear responsibilities for businesses. 

Rising Demand for Cloud Cost Management

The Market of Cloud Services: Dynamics and Future Trends  

As identified on GlobeNewswire, the global market for cloud services is expected to grow at a rate of 18% and surpass $1tn by 2026. In this journey to Digital transformation, new-age companies are transitioning from on-premises infrastructure to the cloud faster. Although this transition will deliver many potential benefits, it poses many difficulties, especially in cost control.  

The pain of accurate cloud cost tracking is the next problem organizations face when adopting cloud solutions. A common theme that emerges when working with and for organizations is that OpEx is on the rise, contrary to the initial expectations for a decrease in CapEx. This is made worse by the variable cost nature of the cloud, where the finance and procurement teams no longer have direct oversight over spending. Self-service provisioning makes engineers and developers more independent in resource allocation, which results in possible cost inefficiency and absence of control.  

Enter FinOps: Cost management dilemma: a solution  

FinOps is a financial management approach that provides an optimized financial management relationship between the financial, IT, and business. With FinOps, it is possible to build cost awareness that is embraced by all members, effectively changing how everyone in an organization looks at cloud costs. This goes beyond simple budgeting, where resources are predicted, estimated, and allocated; instead, resources are planned, monitored, and flexibly managed in cloud environments. One of the hardest questions regarding cloud computing is the issue of Cloud Cost Allocation. 

When we combine Cloud Cost Allocation with other useful features such as Cloud Service mapper and detailed billing outputs, we can get the following definitions:  
Cloud cost allocation refers to how overhead expenses related to cloud services are divided between various organizational entities, such as departments, teams, projects, etc. It enables cloud administrators to better see where resources are consumed and the costs incurred. Effectively allocating costs is critical to a company’s ability to understand its true costs and make sound financial decisions.   

Importance of Cost Allocation   

• Accountability: Resource allocation effectively encourages accountability because every team has a clear understanding of the cloud cost implications.

• Budgeting: On the same note, expenses on the cloud can be accounted for, making the organization’s budget more accurate once the direction of the spending is established.  

• Optimization: Authors argue that this is because the areas with high expenditures have been identified, and corrective measures can be taken to enhance resource utilization.    

How Best to Allocate Costs   

• Tagging: Tag the resources as much as possible based on departments, projects, or environments for the right tracking with succeeding reporting. Tags should match the resources as closely as possible to give the best selection.   

• Cost Mapping: Evaluating costs attached to individual business activities becomes slightly easier since they can be evidently associated with distinct functional and strategic business activities. This links expenditures on the cloud and the results realized within the various organizations.  

• Usage Reporting: Combining usage reports to check out what has been frequently used, hardly used, or changed in some way may help, too. This practice should include a Spend Analytics Part related to cloud costs containing numerical values regarding cloud expenditures.   

• Budgeting and Forecasting: This approach, where allowances are placed for each department or project, assists in containing costs. Some recommendations organisations may make include using historical data to predict future cloud expenditures.   

• Involving Stakeholders: Involve many different departments in the cost-sharing processes so that all teams learn about the costs, how they are incurred, and how they contribute to the general budget. 
  

Fig 1: Best to Allocate Costs   

Building a Strong FinOps Framework

Defining a Strict FinOps Model 

A strict FinOps model requires much financial discipline, responsibility, and cloud cost ownership to be revealed and shared continuously for all spending. It covers the best practices of cost narrating, distribution, and evaluation procedures. The purpose is to cause change that concerns the need to drive the appropriate behaviour of the financial, Information Technology and business departments.  

FinOps is Pure, but not everyone has achieved a pure FinOps model. Let’s take a look at the Guidelines for a Pure FinOps Model.  

• Collaboration: Press people to bring top finance, IT, and business groups together to develop a proper strategy for cloud financial management. Interdepartmental meetings can then be arranged at the right time to ensure that all departments are in harmony regarding the relevant financial goals.  

• Real-Time Visibility: Identify control spaces that can provide live information about expenditures on clouds so that timely actions can be initiated. The stakeholders also benefit from the live spending against the target budgets on other visually valuable dashboards.  

• Continuous Improvement: Financial processes should be updated in documentation and validation related to business requirements and cloud environments. Feedback processes should often be used to transform prior spending experiences into know-how. 

• Culture of Accountability: Create a corporate environment where all employees know the costs of their cloud activities. This should be achieved by training the teams and ensuring an adequate supply of resources that foster cost-efficient decisions instead of the lowest cost. 

Fig 2: Strict FinOps Model 

Steps to Implement a Strict FinOps Model 

• Establish Governance Framework: Establish working relations with a clear indication of who is supposed to do what and how decision-making regarding cloud costs should be made. Lack of confusion regarding authority and accountability will remove those barriers to clear decision-making.  

• Utilize FinOps Tools: FinOps tools monitor, track, and report cloud consumption costs. These tools should address multi-cloud environments and deliver special analytical insights.  

• Educate Teams: Hold sessions with these teams to brief them on cost management principles and how to best use available tools. While education has the capacity to enhance teams' decision-making regarding spending strategies, the issue of prudent expenditures appears to lack conclusive research.  

• Set Clear Policies: They should develop policies regarding resource usage, tagging, and reporting systems. Make sure all parties know these policies and the message associated with spending on clouds. 

• Monitor and Adapt: This means always being on the lookout for trends in how the money is spent and changing the policy in acclamation. Flexibility, or at least the ability to shift gears, is paramount as the cloud market changes. 

Essential Tools for Cost Allocation and Tracking 

Overview of FinOps Tools  

The following is a list of efficient FinOps tools that help manage cloud expenses with components such as budgets, forecasts, and deviations. They enable organizations to understand Cloud spending and optimize their Cloud resources. 

Essential Capabilities of a FinOps Tool 

• Cost Tracking and Allocation: Tools must accurately record cloud resource costs and assign costs to different departments or projects. Another good aspect of granular tracking is that costs can accurately be attributed to sales. 

• Automation: When it comes to specific activities like resource tagging, some of the goals include reducing potential errors that might be made by manual resource handling. Some benefits include minimizing the time needed for such work so that more team members can focus on important and useful activities. There are also cases where spending patterns can prompt alerts from being fully automated.  

• Advanced Analytics: Tools must use AI and machine learning to detect spending and recognize potential abnormalities. Based on past results, the application can predict different costs for future periods.  

• Integration Capabilities: Depending on the complexity of the organisation, the best FinOps tool must effectively interconnect with other existing financial systems to allow for the interchange of data and produce accurate reports. 

• Customizable Dashboards: The possibility of creating dashboards using spending data that is most preferable and convenient to teams enables proper analysis of the spending data.  

Comparative Overview of FinOps Tools 

Harness

• Cloud Support: AWS, Azure, GCP  

• Strengths: Enables full observation of multi-cloud expenses without needing tagging; includes savings advice.  

• Considerations: It may be expensive for an organization that operates under tight financial control.

Apptio Cloudability  

• Cloud Support: AWS, GCP, Azure  

• Strengths: Easy-to-use platform; sophisticated billing capabilities.  

• Considerations: Restricted Kubernetes integration; tagging must be done separately to get a complete picture of consumption.  

Cloud Health by VMware  

• Cloud Support: AWS, GCP, Azure  

• Strengths: Incredibly flexible; flexible auditing and governance options for financials.  

• Considerations: Depending on good tagging practices, comparison reports are multi-dimensional.  

Spot by NetApp  

• Cloud Support: AWS, GCP, Azure  

• Strengths: Automation features for minimizing costs, cost patterns, and tendencies.  

• Considerations: Deserves tag management.   

Flex – er a Cloud Management Platform – Optima  

• Cloud Support: Azure, AWS, GCP  

• Strengths: Single view of cloud resources in the work area; flexibility to integrate with billing reports of cloud services.  

• Considerations: Does not support Kubernetes; cost anomaly alert by static. 

Cloud Custodian  

• Cloud Support: AWS, Azure, GCP  

• Strengths: Open-source flexibility; appropriate degree of cost control in detail.  

• Considerations: Innovative hardware that needs professional installation and occasional adjustments.