Leave No Dollar Behind
What is Cost Sharing?
Every organization has a bucket of cloud costs that needs to be shared across departments, like the cost of running an email system, support costs that get charged at a parent (payer) account level or simply the cost of untaggable resources. While Cloudability’s Business Mapping can help you minimize the size of the shared costs bucket, the need to fully allocate shared costs remains. Cost Sharing allows you to create a bucket of shared costs, define allocation rules, allocate the shared costs based on the defined rules and then generate an exportable report.
Sharing a Cloud Vendor’s Support Charge
In general, a cloud vendor’s support charge is applied at the parent account level. Some organizations choose to cover this charge with a Central IT/Cloud team’s budget, but this approach is unusual. More commonly, a Central IT/Cloud team is often considered a supporting organization (being a cost center), and therefore needs to allocate its cost to its customers: Business Units or Application Owners. With Cloudability’s Cost Sharing, a cloud vendor’s support charge can be proportionally distributed among Business Units based on their direct charges.
Figure 1. Choosing a business dimension and a sharing mode and creating a bucket of shared costs
Let's consider following example. Table 1 below shows how much each business unit consumed in a given month and how the organization was charged $200 of enterprise support charge.
In this case, with the proportional sharing mode, the enterprise support charge ($200) will be distributed among the Business Units as following:
At the end, Sales Operations will be accountable for total of $150 ($50 Direct Cost + $100 Allocation) while Engineering will be accountable for total of $60 ($20 Direct Cost + $40 Allocation).
Sharing Database Cost
Let’s think of an overly simplified organization that runs five different applications — A, B, C, D, and E — that share a common database. Each application owner is accountable for the P&L (profit and loss) of each application. Each owner also needs to chip in to cover the cost of the shared database. However, management decided to exclude application E, an R&D project, from bearing this shared responsibility during its incubation phase. With Cloudability’s Cost Sharing, the cost of the database can be shared among applications while still excluding application E.
Figure 2. Excluding a target
How does Cost Sharing work?
Built on the power of Business Mapping, Cost Sharing leverages Business Mapping so that unallocated costs are already reduced to the smallest possible amount. Figure 3 shows how you can do full chargeback using Cloudability's Business Mapping and Cost Sharing, using a proportional allocation model example.
Figure 3. Business Mapping phase and Cost Sharing phase
Once a Business Dimension is selected, the following needs to be identified:
- Source(s): The bucket of cost to be shared, for example, Enterprise Support Charge or the cost of Shared Database, or both.
- Target(s): Whom/Where to allocate the shared costs, for example, Business Units, Application Owners, etc.
- Allocation Options: Cost Sharing supports three modes of allocation
1) Proportional: based on relative percentage of direct costs
2) Even-split: split total amount evenly across targets
Figure 4. Example of even-split cost sharing result
3) Fixed: user-defined coefficient (note that the sum of coefficients needs to be 1 or 100%)
Figure 5. User imputing fixed allocation percentages for each target
- Scope: The scope of the sharing is defined by Master/Payer Account, Sub Account or Account Group. Think of a scope as fences - it's to mark boundaries.
Figure 6 shows how the Master Account scope would distribute the shared cost while Figure 7 shows how the Linked Account scope would.
Figure 6. Sharing using the master account scope
Shared cost is distributed among the linked accounts that belong to the master account.
Figure 7. Sharing using the linked account scope
Shared cost is distributed only within the linked account boundary. In this example, neither account 2 nor account 3 get any allocation of shared cost.
- Cost basis: Like in the rest of of Cloudability, you choose the cost metric to use, such as Cost (Total), Cost (Adjusted), or Cost (Amortized)
Frequently Asked Questions
Can I use more than one Business Dimension to enable Cost Sharing?
The current version allows users to enable Cost Sharing in one Business Dimension. If you have a use care requiring more than one Business Dimension, then please contact us as firstname.lastname@example.org. We’d love to hear about it!
Can I apply more than one mode of allocation?
The current version allows one mode of allocation per Cost Sharing. Similarly, we’d love to hear about any use case you have that needs more than one allocation mode. Please reach out to us at email@example.com.
How can I share the Cost Sharing result?
You can export the result page in csv.
Are Cloudability’s Views supported?
Views are not supported in the current version.
Why do I still see a portion of the Shared Cost in the Allocation After Cost Sharing table?
The goal of Cost Sharing is full allocation; however if there was no target associated with a portion of the shared cost, that cost cannot be shared and therefore will surface as the Shared Cost in the Allocation After Cost Sharing table.