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Shared Cost Reallocation
Shared Cost Reallocation
Updated over a week ago

Effective managing and allocating costs is crucial for businesses leveraging SaaS and cloud services. These must be divided and assigned accurately across various projects, teams, or departments, particularly 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 four 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 family BBQ with a huge, shared salad at the heart of the feast. When it comes time to sort out the bill, rather than arguing over each leaf of lettuce, we glance at how much lemonade everyone guzzled down. Thus, we split the cost of the salad according to everyone's lemonade consumption, making sure each person contributes fairly to the communal pot. It's like using lemonade as a secret code to figure out who ate how much. In the same fun spirit, telemetry-based reallocation slices up shared costs based on different usage patterns. This way, we ensure everyone pays fairly based on their digital "appetite," keeping the financial spread as balanced as a perfectly dressed salad.

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: A family BBQ where the centerpiece is a gigantic salad. When it comes to settling up for this feast, the customized cost reallocation method offers a flexible path, allowing you to tailor the payment process. Option one: everyone chips in equally — no muss, no fuss. Option two: tailor the tab based on everyone's salad saga, like who snatched up the gourmet olives or who barely nibbled on the greens. If cousin Joe wolfed down most of the feta, he tossed a few extra coins into the pot. Similarly, the flexible percentage method lets you slice and dice shared business expenses, from cloud computing feasts to data storage desserts, keeping the financial feast as harmonious as a well-tossed salad.

For instructions on setting up customized cost reallocation, please refer to the Setting Up a Customized Cost Reallocation documentation.

To learn how to set up Shared Cost Reallocation, refer to our step-by-step guide. In this guide, you will learn how to create the different strategy types to help you break down shared costs.

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