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Managing Shared Cost

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Definition

A foundational Principle of FinOps is: “Everyone takes ownership for their cloud usage”. The true key to understanding total cost of ownership is built upon transparency and accuracy, but unallocated shared costs hinders both of these. Without appropriately splitting costs that are shared, engineers and product managers lack a complete picture of how much their products are really costing.

The goal of Cost Sharing is can be full allocation; however it can also be the adoption of an informed ignore approach. The latter is where a business decision is explicitly made about shared platform services coming from a central budget versus a from a portion of each cost center’s budget.

Almost every organization has cloud costs that need to be segmented and allocated to business departments; the cost of running networking services, Support costs which benefit all Engineering teams or simply the cost of service resources from a cloud provider for which they do not (yet) support tagging/labelling.

As organizations increase their adoption of public cloud, without a strategy and processes in place to assign shared cloud resource costs to specific business owners, it becomes increasingly difficult to understand how to properly and fairly allocate costs, and to actually forecast and budget.

Maturity Assessment

Crawl

  • cost allocation metadata established enabling 80% of spend being allocated unallocated costs
  • shared costs are not identified beyond common Support charges
  • product owners and engineers are unaware of their portion of shared platform/service costs resulting in reduction in accuracy of forecasting and budgets
  • shared platform owners are not able determine costs generated by internal customers

Walk

  • robust cost allocation metadata established with minimal or no unallocated costs
  • shared platform owners are able to showback costs generated by internal customers
  • product owners and engineers are aware of their portion of shared platform/service costs and include these costs
  • shared cost process documented to enable and manage expectations of “fair share” onboarding of new cost centers/business units
  • shared costs are split using an appropriate distribution model(s) (proportional, fixed, even-split) across the entirety of the organization

Run

  • product owners and engineers are aware of their portion of shared platform/service costs and include these costs as part of their forecasting & budget planning
  • shared platform/service owners are able to fully allocate and chargeback costs generated by internal customers
  • shared platform/service owners are able to recover costs generated by internal customers and perform accurate forecasting/budget planning
  • shared cost recovery reflects commercial discounts/commitment based discounts
  • bill reconciliation process for tracking of shared cost changes including support for credit adjustments over charged periods.
  • shared cost process automated to enable “fair share” onboarding of new cost centers/business units
  • shared costs are distinguished from dedicated costs

Functional Activity

As someone in a Business/Product role, I will…

  • identify shared services/infrastructure which are part of my product and engage with stakeholder FinOps personas to determine how to
  • understand cloud providers common use cases, and have a basic understanding of billing and pricing models

As someone in a Finance/FinOps role, I will…

  • understand the basics of how cloud computing works, know the key services offered by cloud providers being used, including their common use cases, and have a basic understanding of billing and pricing models
  • work with Finance to ensure required allocations are implemented to support financial reporting so shared costs can be assign to specific business owners.
  • build processes and define rules to enable full allocation of shared costs.
  • allocate the shared costs based on the defined rules and create stakeholder persona reporting
  • understand available cost sharing models (fixed, proportional, even-split) and determine which models should be applied based on the use case

As someone in an Engineering/Operations role, I will…

  • architect solutions that support segmentation of cost such that shared costs can be allocated to specific business owners
  • know much of all the shared platform costs that have occurred for which my team is responsible

As someone in an Executive role, I will…

*

Measure(s) of Success

  • Shared platform/service owners are able to fully recover costs generated by internal customers
  • The majority of cloud costs can be categorized and allocated directly allocated to an organizational unit. According to the FinOps Community of Practitioners, comprehensive allocation translates to at least 80% of cloud spend is allocated for a FinOps practice operating at a Crawl maturity level; and 90% for a FinOps practice operating at a Run maturity level
  • Ability to surface the percentage of cost that cannot be categorized and allocated directly
  • Effective reporting on shared costs showing trends to inform forecast and budget planning
  • Effective reporting that identifies spend drivers and responsible stakeholder teams of shared costs that may go underlooked by current enterprise accounting policies
  • Shared cost policies and design patterns socialized among stakeholder personas

Inputs

  • Adjusted and amortized cloud cost & usage data
  • Cost allocation constructs aligned to the organization’s reporting needs
  • Stakeholder real-time visibility into cost and usage reporting data
  • Shared resources (networking, shared-storage, K8s Node, etc)
  • Platform services (logging, database, security, etc)
  • Enterprise level support
  • Enterprise level discounts
  • Licensing, 3rd party SaaS costs

Real World Resources

Avoid and Simplify Shared Costs

AWS
Industry: Financial Services
Persona: FinOps Practitioner
by Joseph Daly, Nationwide

Nationwide’s strategy to handle shared costs is to avoid them as much as possible. We do this through our account and tagging strategies. We segment or accounts by department and sometimes by application so that if there are any untaggable expenses are at least identifiable to the account owner. We...

Read more

Fair cost allocation in a shared Platform (as a Service)

Industry: information Technology & Services
Persona: Engineering & Operations
by David Sterz, Mindcurv

A central Platform Team is the enabler for the Product Teams to develop value faster and compliant by providing shared platform services as a product (VCS, Container Registry, CI/CD) on a shared deployment target (Kubernetes) along with shared operational services (Dashboarding, Log-management, Metrics, and Tracing + APM, etc.)

Read more

Non-technical/Market/Environmental/Corporate Governance Influencing Factors for Share Costs

Industry: information Technology & Services
Persona: Executive
by Neil May, Wish Star

Influencing factors on how to track, process and share costs using vendor pricing, procurement and pattern spotting

Read more

One Way to Put it All Together

Industry: Health Care
Persona: Business/Product Owner
by Chris Greenham, healthAlliance

Shared Costs should be identified upfront as part of Service Design. Just as the Service Design is subject to design approval, the Shared Cost Model needs approval from FinOps.

FinOps should own the Cloud Shared Cost model(s) on behalf of the Business Cost Centre Owners, for both Business as Usual...

Read more

Get Involved

Get involved and contribute to the community by sharing your real world experiences related to this Capability in the form of a story or providing a playbook for how you have implemented best practices in your organization. Your real world experiences can be provided in the context of:

  • one or more cloud providers
  • the types of cloud services used (compute, storage, database, etc...)
  • describe a combination of tooling, platform or vendor, and processes including KPIs
  • the industry the organization belongs to
  • the complexity of the organization (global enterprise, start-up, etc…)
  • the [FinOps personas](https://www.finops.org/framework/personas/) involved / organizational roles

Join the conversation about this Capability in Slack . You can submit stories, how-tos and suggest improvements using one of the options for contributing here.