5 Must-Haves for Getting Started With Cloud Cost Allocation in FinOps

As cloud adoption increases and companies scale their operations in the cloud, FinOps and cost allocation become critical. FinOps combines finance and DevOps, bringing technology, finance and business teams together to drive financial accountability and accelerate business outcomes. Cost allocation is central to any FinOps practice. 

Cost allocation means assigning costs to the departments, projects or activities that incur them. This process is vital for transparency and helps your organization understand where and how your cloud budget is spent. Getting started with cost allocation can seem daunting, but there are five steps you can take to ensure a successful cost allocation strategy. 

1. Create Your Cost Allocation Foundation with Metadata and Tagging 
   The first step in cost allocation is setting up a system of metadata and tagging. This enables your organization to gain visibility, allocate costs accurately and implement financial practices that align with business goals and resource ownership. Here are some tips to begin setting up metadata and tagging:
   • Learn about tags: Tags are key-value pairs attached to cloud resources. They act as identifiers that help categorize resources for cost tracking.
   • Identify essential tags: Common tags include information such as project names, departments, cost centers and owners. Determine which tags are most relevant to your organization by including business, financial and technology teams.
   • Document your tagging strategy: Create a clear policy that outlines which tags are required and which are optional, how they should be applied and who is responsible for tagging resources.
      
2. Start With a Simple Allocation Strategy 
   Using a simple approach is an excellent way to avoid unnecessary complexity as you start your cost allocation strategy. Your primary focus should be on identifying direct allocation and shared costs.
   • Direct allocation for clear costs: Assign costs directly to departments or projects when there’s a one-to-one relationship between the resource and the cost center.
   • Shared costs: Define what constitutes a shared cost. Use a simple allocation rule, such as even splitting for shared resources, and evolve as you gain insight.
      
3. Leverage Tools Provided by Your Cloud Service Provider  
   Cloud service providers offer native tools and features that integrate seamlessly with their infrastructure. These tools ensure compatibility and efficient utilization of the provider's ecosystem and provide the necessary features for effective cost management and optimization. Look for:
   • Cost management dashboards: Most cloud providers offer dashboards where you can view costs associated with different tags.
   • Automated tagging features: Look for features that automate the tagging of resources to save time and reduce errors. 
      
4. Foster Collaboration 
   Fostering collaboration between technology, finance and business teams around cost allocation and FinOps in general means promoting shared goals, transparency and the ability to adapt to the evolving landscape of cloud environments. Collaboration is the key to aligning cost allocation practices with business objectives. To foster collaboration in this context:
   • Educate teams on FinOps principles: Provide education and training on FinOps principles to all relevant teams. This helps disparate teams understand the fundamentals of cloud financial management and encourages a common language and approach to cost allocation.
   • Establish a FinOps team: Consider establishing a dedicated FinOps team or role responsible for coordinating cost allocation efforts. This team or person can serve as a central point of contact for collaboration, ensuring that communication flows smoothly between different departments.
      
5. Iterate and Improve 
   Cost allocation is an ongoing process. Taking a proactive approach to iterating and improving your cost allocation strategy will enable your organization to stay agile, be responsive to change, and continuously optimize cloud costs in alignment with business goals and evolving circumstances. Some tips include:
   • Review regularly: Set up regular reviews of your cost allocation strategy with business, finance and technology teams to identify areas for improvement.
   • Be ready to adjust: As your organization grows and changes, so will your cost allocation. Keep this in mind because it signifies maturation and value.

Starting with cost allocation in the cloud sets the foundation for an effective understanding of cloud usage. With this understanding, your organization can better decide where to invest and where to reduce costs. You can gain clarity on your cloud spending by understanding the basics, setting up a simple tagging and allocation system, using readily available tools, fostering collaboration and continuously improving.

CDW experts understand the challenges of developing a FinOps and cost allocation strategy. Beyond the tips discussed here, we empower you to maximize your businesses value by accelerating FinOps adoption along with collaborative, data-driven decision-making so you can optimize cloud investments and increase efficiency.