Cloud cost allocation: How one firm uses FinOps to do chargebacks right

Cloud computing and cloud software are some of the biggest IT trends of the decade, but they can wreak havoc on IT financial analysts trying to track assets, control and predict costs, or charge cloud service costs back to the departments that benefit from them.

With a growing list of cloud applications and infrastructure instances, tracing invoices and their associated owners and users can be time-consuming work lost in the details of mapping how and where services are used across the organization. High volumes of invoices with summarized information further complicate the process.

This administrative burden can easily eat into the productivity of IT and financial teams. In this article, we explore the benefits and common problems of cloud cost allocation, highlighting how one research firm uses a FinOps strategy to simplify chargebacks. 

Why cloud cost allocation and chargebacks matter

Cost allocation is a practice that includes chargebacks or show-backs, the act of sending cloud expenses to official accounting budgets with the aim of holding business units and departments fiscally responsible for the cloud services they use. Because cloud services are typically shared across the organization, IT leaders need to “pass the buck.” This is increasingly important as overruns hit and cloud costs spin out of control. Otherwise, the IT budget becomes the company financier, taking on the lion’s share of the corporate network and operational expenses as simply “the cost of doing business in the cloud.”

Innovation health and cloud ROI: Benefits of cloud cost allocation

IT organizations that spread cloud expenses fairly pave the way for 3 key benefits:

1. Making room in the IT budget for more investments in technology
2. Calculating the financial returns on cloud innovation and tech spending, understanding which projects and initiatives get the advantage
3. Calculating profitability with higher accuracy, seeing where investments may be outpacing departmental returns or the growth of the business overall

When cloud services can consume more than half of IT budgets, taking expenses downstream is an important way to see how digital innovation impacts the business, revealing where it pays out and where it doesn’t.

Chargebacks are the first step, but actually handling them is easier said than done.

One firm’s story: $2.6M savings and chargeback reports in 5 minutes

What happens when your company is overwhelmed by the work of cloud cost allocation? It’s a common problem because evaluating invoices from cloud services providers is no simple task. Infrastructure-as-a-Service (IaaS) invoices are known to include thousands of charges and line items to sort through. The complexity of the work compounds quickly, making the job no longer fit for spreadsheets and cost analysis performed by a human brain. 

This was exactly the situation for a major research firm that was trying to charge its IaaS costs to 500 corporate departments. Receiving invoices from three different cloud service providers, two IT financial analysts needed 5 days each month to build out chargebacks and financial reports. Equally frustrating, however, was the fact that the IT team had already invested in software that didn’t relieve this manual work. 

Point solutions aren’t enough: Upgrading to FinOps solutions

The market is flooded with point solutions that solve only a narrow set of cloud cost management needs – catering to IT but leaving finance out of the picture. While some tools can offer up cost-saving recommendations and are good at providing much-needed visibility into IaaS waste, they typically fail at addressing cost allocation and automated invoice processing. That’s because they aren’t comprehensive FinOps solutions or cloud expense management software platforms that help bridge the needs of IT and finance.

Here’s a quick comparison of key capabilities.  

So, it’s clear to see why the firm struggled – they needed to upgrade to an all-encompassing solution. Once they did, they recognized $2.6M in cloud savings and produced chargeback reports in 5 minutes, gaining 5 days of productivity back every month. Read the full story here.

How FinOps solutions automate cost allocation and chargebacks

The FinOps framework puts an efficient methodology into place for expense management, but accelerating cost allocation comes down to one key capability: AI algorithms and robotic process automation to facilitate chargebacks. This includes: 

• The collection and analysis of IaaS invoices, service usage data, reserved instances, savings plans, and other pricing information
• The process of associating service charges with the right departments (lines of business or cost centers) using the client’s business and financial rules
• Sharing cost allocation information with corporate financial management systems via integration and automating the process of compiling accounts payable or general ledger files
• The delivery of customized reports for each department or cost center, showing only the cloud services they consumed and the expenses relevant to them

Any company trying to do this manually will find that cloud complexity quickly stymies effective financial management.

Elevate your cloud financial management today with Tangoe One Cloud, the AI-powered FinOps solution specializing in cost allocations across multiple public and private cloud service providers.