In today’s era of dynamic cloud computing, organizations navigate a complex landscape of cloud spend with a multifaceted approach to cost analysis.
The challenge lies in catering to the diverse needs of stakeholders who rely on detailed cost reports. The Finance department, for instance, often demands a monthly cost breakdown, meticulously categorizing expenses according to product lines or shared environments. In contrast, the Operations team might prioritize a cost breakdown by project or team, while the Engineering department seeks a cost allocation aligned with application roles.
Within the expansive and ever-evolving terrain of cloud environments, these perspectives on cost allocation undergo continuous shifts and refinements. As a result, the ability to realign costs and structure assets in a way that mirrors the evolving priorities of the business becomes not just a value-add, but an imperative.
The Challenges of Cost Allocation
One of the central challenges in this process is the need to identify all assets and resources within the cloud environment while organizing them from a business-centric standpoint. This task is formidable, to say the least. Furthermore, establishing groups that meet the stringent requirements for effective business reporting can be particularly daunting when faced with a significant volume of costs that lack direct associations with specific resources at the close of each month.
This complex task demands a unique blend of technical expertise, strategic foresight, and a keen awareness of evolving business objectives. It is the linchpin that ensures cost management remains a robust and responsive aspect of organizational governance.
How can VMware Help?
Enter VMware Tanzu CloudHealth—a pioneering solution in the world of cloud cost management. This platform offers a powerful mechanism for reallocating costs in the cloud, empowering organizations to accurately distribute expenses incurred by services among different Lines of Business (LOBs) and Business Units (BUs). What sets this cost reallocation process apart is its commitment to aligning costs with a model that ensures accurate representation of where organizational spend is occurring in the cloud.
Let’s delve into the mechanics of this cost reallocation process:
Central IT Finance Reallocation: It all begins with the central IT finance department, taking on the task of distributing costs across diverse geographical locations where the company’s various brands are situated. This initial reallocation framework sets the stage.
Brand-Level Reallocation: Next in line are individual brands, each taking on the responsibility of further reallocating costs to their associated business units. This step offers a granular distribution of expenses tailored to the unique needs and activities of each brand.
Business Unit Distribution: Zooming in even further, we find distinct business units within the organization. These units take the baton and assign costs to the respective product lines operating within their sphere, thereby aligning costs with specific business functions.
Reallocation to Product Lines: Product lines, representing distinct segments or categories within business units, assume a pivotal role in the distribution process. They ensure that expenses are meticulously apportioned among various cost centers associated with each product line, reflecting the precise cost structure of individual offerings.
Cost Center Assignment: Finally, we arrive at the heart of the matter—individual cost centers. These represent specific operational divisions or functions within the organization. Here, reallocated costs find their true homes, mirroring the actual cost responsibilities of each operational unit.
Viewed through these distinct perspectives, the ability to seamlessly transfer funds between these stages in a systematic manner emerges as a critical capability. Such a capability unlocks the potential to establish a comprehensive and authentic cost modeling framework. By enabling transparent and seamless fund transfers between these groups, organizations can create a robust and transparent IT billing structure. This structure ensures that costs are accurately attributed to the appropriate levels of the organization based on their actual usage and contributions linked to the services they consume.
Understanding both pre-reallocation and post-reallocation costs is crucial for maintaining transparency regarding expenses incurred by business groups and how they are billed. Equally important is the need for precise cost reallocation to distinct groups, giving customers the flexibility to decide which teams should see their respective chargeback amounts and which teams remain unaffected. This strategic flexibility empowers organizations to align cost reallocation with their specific goals and priorities.
This level of granularity is the linchpin of precise and equitable cost reallocation. In the world of cloud spend management, precision is not just an aspiration; it’s an essential element in mastering the art of true chargebacks. It’s about navigating the intricate web of cloud costs with precision, ensuring that every financial resource finds its rightful place within the organization’s budgetary landscape.
Next Steps
To learn more about cloud cost management and Tanzu CloudHealth, make sure to read out white paper Building a Successful Cloud Financial Management Practice and be sure to sign up for a free trial of Tanzu CloudHealth.
