Shared costs refer to expenses that are associated with resources or services shared or used by multiple teams, departments, or applications within an organization. This shared approach lowers costs by eliminating the need for individual users to manage their own resources.
Sharing resources, including servers, storage, databases, and network devices, helps organizations improve efficiency by maximizing resource use and avoiding double expenses. Instead of purchasing separate servers, for example, multiple teams within an organization may use a single cloud-based service. This creates a shared cost model where expenses like maintenance, licensing, and operational fees are distributed based on allocation rules. If a team utilizes more resources (storage or computing power), its cost allocation should reflect a higher resource consumption.
The following are some of the most common types of shared costs encountered in shared resource environments:
These include external tools and applications sourced from cloud service provider (CSP) marketplaces or direct vendors, such as monitoring tools, data warehouses, and security services.
Shared resources like managed databases (e.g., AWS RDS, Azure Cosmos DB) and container orchestration platforms (e.g., Kubernetes) support multiple business units and applications. Cost allocation depends on whether these services are taggable.
Organizations must allocate the costs of internally developed shared platforms, like data lakes and microservices (e.g., user management systems), to the teams that benefit from their use.
Enterprise-level savings plans and reserved instances generate cost savings that need to be fairly allocated to the departments and projects that utilize them.
Effective cost allocation is essential for organizational financial health. Implement a robust cost allocation strategy to ensure equitable charges and promote responsible resource management.
The management of shared costs in cloud environments presents a number of significant challenges, potentially impacting an organization's financial performance and operational efficiency. This includes:
Without detailed monitoring, it's difficult to track resource usage by teams, leading to inefficiencies and hindering accountability.
Unexpected cloud costs, such as data egress charges, underestimated storage needs, or misconfigured services, can disrupt budgets and financial planning.
Choosing between fixed percentage allocations and usage-based models for shared cloud costs presents challenges. Fixed allocations may not reflect actual usage, while usage-based models require precise tracking.
Accurate cost distribution requires thorough monitoring systems to prevent unfair charges, internal disputes, and inefficiencies.
Unclear resource ownership can result in mismanagement, over-provisioning, or underutilization, ultimately increasing costs and inefficiencies.
Poor cost management leads to cloud waste, resulting in unnecessary expenses from over-provisioning or underutilization.
Managing shared cloud costs is like navigating a ship. Without a clear chart (cost allocation policies) and a skilled crew (collaboration between finance and engineering), you risk being shipwrecked (budget overruns) on hidden reefs (unexpected expenses). Businesses need to understand and allocate shared costs effectively to ensure financial transparency and accountability. See how a cloud cost management tool like Octo, can provide the insights needed to optimize your cloud spending, allocate shared costs efficiently, and achieve budget control.
