Shared Cost Reallocation
This advancement represents a critical phase in your company's FinOps journey, enhancing the granularity of cost allocation and allowing for a more refined reallocation of shared expenses. Effective managing and allocating costs is crucial for businesses leveraging SaaS and cloud services. These should be correctly allocated and assigned across different projects, teams, or departments, especially for shared costs.
This document will guide you through each method, providing a clear understanding of how to implement them effectively in your FinOps practice.
For instructions on setting up Shared Cost Reallocation in Finout, please refer to the How to Use Shared Cost Reallocation documentation.
Finout Shared Cost Allocation
Finout’s cost allocation layer powered by Virtual Tags streamlines the mapping and analysis of cloud services and providers, ensuring transparent and detailed breakdowns of cloud spending.
Finout's Shared Cost Reallocation solution directly addresses the challenges of showback by facilitating precise and automated reallocation of shared expenses. This advancement represents a critical phase in your company's FinOps journey, enhancing the granularity of cost allocation, allowing for a more refined reallocation of shared expenses.
By this stage, you should have already achieved the following:
Integrated your cloud infrastructure spending into Finout.
Familiarize yourself with Finout’s MegaBill.
Completed the creation of your Virtual Tags, to allocate all your dedicated resources to their right owners tailored to your company's requirements.
But now you are stuck with a portion that isn’t “breakable”, a shared cost that you cannot allocate as a dedicated cost on a resource level.
Building on these initial steps, the Shared Cost Reallocation feature brings a new level of granularity to cost allocation, enabling more precise reallocation of shared costs.
To navigate your shared costs, we offer two strategies to help you break down shared costs:
Shared Cost Allocation Strategies
1. Telemetric based reallocation
Finout’s telemetry-based cost reallocation leverages external telemetry data, such as the number of bytes transmitted, length of queries, or even business KPIs, to precisely and equitably distribute shared cloud costs among different use cases (Virtual Tags values). This approach splits costs in a way that reflects the actual consumption of shared resources, ensuring fair attribution according to actual data, enhancing visibility into cloud spending, enabling more accurate financial management.
By utilizing shared costs within Virtual Tags, users can select metrics that may not directly relate to the cost in question but offer a fair basis for further breaking down expenses based on real usage or engagement.
Integrating telemetry data into Finout is streamlined through various methods, including direct exports from an S3 bucket and integrations with Datadog, Snowflake, or Prometheus. This ensures a seamless flow of relevant data into Finout's cost allocation mechanisms, simplifying the process of managing complex cloud expenses and aligning financial responsibilities with measurable contributions.
Analogy: Imagine a group of business partners sharing a buffet. Instead of tracking every item each person consumed, they agree on a practical proxy—such as how many trips each person made to the buffet—to divide the cost fairly. In the same way, telemetry-based reallocation distributes shared cloud costs using meaningful usage indicators, ensuring each team pays its proportional share.
For instructions on setting up telemetry based reallocation in Finout, please refer to the Setting Up a Telemetry Based Reallocation documentation.
2. Customized cost reallocation
The customized cost allocation, also known as the fixed percentage method, simplifies the process of sharing costs by evenly dividing them among all involved entities. This approach assumes that each entity, regardless of their individual usage or consumption, benefits equally from the shared resource. Therefore, it distributes the total cost uniformly, ensuring that each party bears an identical fraction of the expense. This method is particularly effective in scenarios where detailed tracking of individual usage is impractical or where the perceived value of the shared resource is equally distributed among the users.
This method additionally offers the flexibility to customize allocation percentages among users, enabling adjustments based on specific criteria to ensure the total cost is accurately divided, covering the full 100% across selected entities. It's particularly suited for customizing cost distribution to accurately reflect each participant's unique usage patterns, contributions, or agreed terms within a group.
Analogy: Imagine a group of business partners sharing a buffet. When it’s time to settle the bill, a flexible cost-sharing method allows them to choose how the cost should be allocated. Option one: divide the total evenly among all participants—a simple approach. Option two: allocate the cost based on each person’s level of participation, such as who contributed more to the shared meal or made greater use of particular offerings. Similarly, the flexible percentage method distributes shared business expenses according to meaningful usage patterns, ensuring that each team contributes fairly based on its share of consumption.
For instructions on setting up customized cost reallocation, please refer to the Setting Up a Customized Cost Reallocation documentation.
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