Cloud Cost Allocation: How One Firm Uses FinOps to Do Chargebacks Right 

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Cloud computing is one of the biggest IT trends of the decade, but it can wreak havoc on IT financial analysts trying to track investments, allocate cloud costs, and normalize expenses into corporate financial management structures. It’s a sizable challenge to trace cloud applications to their associated users and know how and where hosted network services are being used across the organization. The work can easily eat into the productivity of critical IT and financial teams. In this article, we explore the common problems of cloud cost allocation, highlighting how one research firm uses Tangoe’s FinOps solution to simplify cost allocations and financial management across multiple cloud service providers (CSPs).  

Why Cloud Cost Allocation Matters 

Cost allocations, also known as chargebacks, are an essential exercise in holding business units and departments fiscally accountable for the cloud services they benefit from. When IT spending represents large portions of corporate operating costs and cloud services can consume more than half of IT budgets, carefully accounting for applications and infrastructure is an important way to see how digital innovation impacts the bottom line — the profit and loss balance sheet. All that financial insight and intelligence comes down to the IT financial analysts who help hold cloud users responsible, taking cloud expenses downstream to their associated line of business or cost center.  

The Problem of Allocating IaaS Costs: One Firm’s Story 

But what happens when your IT financial analysts are 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 manual processes, spreadsheets, and cost analysis performed by a human brain.  

This was exactly the situation for a major research firm that was trying to allocate expenses received from 500 corporate departments using services across three cloud providers. Two IT financial analysts needed 40 hours to build out monthly chargebacks and financial reports. Equally frustrating, however, was the fact that the IT team had already invested in cloud management software that wasn’t helping with this problem.  

Cloud Chargebacks: Why Software and Point Solutions Aren’t Enough 

The market is flooded with cloud cost management software and point solutions that solve only a narrow set of needs. While these tools can make cost-saving recommendations and are good at offering much-needed visibility into how companies are using their IaaS services, they typically fail at serving closely related issues like cost allocation and automated invoice processing. That’s because they aren’t comprehensive cloud expense management platforms serving broader needs across both IT and financial management teams.  

Here’s a quick comparison of key capabilities.  

Features & Capabilities Point Solution: Cloud Management Software Tangoe One Cloud Expense Management Solution 
Cloud Usage Data Analytics Yes Yes 
Cloud Rate Optimization Yes Yes 
Cloud Usage Optimization Yes Yes 
Works with 4 Major CSPs No Yes 
Cloud Invoice Processing  No Yes 
Cloud Cost Allocation  No Yes 
Bill Pay Services No Yes 
Integration with Financial Systems & Generates General Ledger Files No Yes 
Budget vs. Actual Comparisons No Yes 
Contract Management  No Yes 

So, it’s clear to see why Tangoe was asked to solve this problem. We helped the firm replace their existing cloud management software with an all-encompassing solution. Plus, we did it in 30 days. After implementing Tangoe One Cloud for IaaS, the company overcame their challenges, recognizing $2.6M in cloud savings and streamlining processes for both IT and finance teams. Read the full story here

Using FinOps Solutions for Cost Allocation 

Many companies are still working to normalize cloud infrastructure expenses into their financial management practices, because accurate chargebacks can be the secret to contextualizing costs to rein in spending.  

Carrying out this work doesn’t have to be a manual, time- and resource-intensive process.  

FinOps strategies start by putting an efficient framework into place for cost governance, while cloud expense management platforms turn that strategy into an ongoing discipline with wide-ranging tools for automation. Accelerating cost allocation comes down to one key capability: arming IT financial analysts with AI algorithms and robotic process automation to automate:  

  • The analysis of cloud data, reserved instances, savings plans, and other usage information, 
  • The process of connecting service charges to the right departments or lines of business,  
  • The process of compiling an AP or general ledger file and sharing cost allocation information with corporate financial management systems, and 
  • The delivery of customized reports for each department, showing only the cloud services they consumed and the expenses related to them. 

Any company trying to allocate cloud costs manually will find that the complexity of combing through invoices with hundreds of line items quickly stymies them from reaching the more meaningful work of cost optimization.  

Tangoe’s specializes in making cloud cost allocation fast and easy, with a proven plan for getting started. Contact us today for free consultation ask for a FinOps product demonstration