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By Chen Yunlong, Head of Alibaba Cloud Open Platform
When we shop on Taobao, we will check the goods’ prices and coupons to calculate their costs. This is especially important when it comes to enterprise procurement. Each sum of money must be recorded clearly.
For most enterprises that migrate to the cloud, IT spending is a big part of their costs. Many enterprises may ask:
- Was the ROI high or low after migrating the business to the cloud? Where has all the money gone?
- How can we make a budget?
- How can we save more money?
These problems reflect three major cost-related demands of enterprises for cloud migration: cost visualization, consumption predictability, and cost optimization. , The most fundamental part among them, cost visualization, is to make accounts clear.
Today, let’s take a look at how to cast accounts on the cloud!
Defining On-Cloud Cost Allocation
In addition to understanding on-cloud consumption by calculating costs, enterprises also need to figure out how money is spent in a more fine-grained manner. This is what we call account splitting. Account splitting helps enterprises separate on-cloud expenditures by applications, projects, and departments. In this way, enterprises will know the ROI of each project.
Enterprises usually perform cloud migration step by step. Most of them would migrate a business unit first and manage it independently. At this time, there is no demand for account splitting because each business unit has an independent account. As an enterprise migrates to the cloud on a large scale, its cloud team expands and on-cloud expenditures increase. The management model will also transform from decentralized management to centralized management by a cloud governance team (or the central O&M team) with centralized payment and cost allocation.
The account splitting in an enterprise can be divided into two modes:
- Showback: Casting accounts by departments and giving them to CFO and department leaders for review. Usually, there is no requirement for budget making and independent accounting. Many Internet enterprises adopt this mode.
- Chargeback: Casting accounts by departments. In addition to the review, each business unit will calculate IT spending and manage budgets independently. Many traditional enterprises and MNCs adopt this mode.
Chargeback, the more mature account management, helps transform IT departments from a cost center to a capability center.
What Are the Problems with On-Cloud Account Allocation?
Since both Showback and Chargeback are standard practices, why are their weaknesses amplified after migration to the cloud? With a traditional self-built data center, the procurement of the IT infrastructure is strictly executed according to the process of the enterprise’s financial budget, procurement, and delivery. The cost can be well managed by teams or projects. After the enterprise migrated to the cloud, it completely broke the “system” and encountered several major situations:
- On-cloud commodities have various types and forms.
A cloud service provider is a super platform that sells everything. Customers can be easily overwhelmed by hundreds of product categories, thousands of commodity categories, tens of thousands of SKUs, and billing items. Except for standard virtual machines (VMs), most products are new to customers. When using new products, customers will not consider account splitting in the first place.
- Cloud service providers must go through a process for developing tag-based account splitting.
Only Microsoft Azure supports tag-based account splitting on the first day of its release. AWS went through a process for developing tags. It supported several tags in the beginning, dozens of tags in 2018, and hundreds of tags in 2020. In this process, many resources cannot be tagged and the problem remains today. This situation is more prominent on Alibaba Cloud. Only 28 cloud products supported tag-based account splitting in September 2020, compared with three in April 2020. Therefore, on our platform, few customers heavily rely on tags.
- There is a lack of IT governance systems.
IT departments need tags, but tags are attached to instances by the DevOps team of each business unit. If an enterprise lacks the cloud governance process, programmers will not add tags by themselves.
What Should Enterprises Do If They Want to Split Accounts?
A: Establish a Process of Leadership Review
Account splitting’s implementation must be supported by a leadership review. Cost accounting should be a part of the monthly or quarterly business review. Thus, the orderly conduct of other processes can be guaranteed by this top-to-bottom mode.
B: Split Accounts by Users’ Account
Presently, many enterprises choose the multi-account mode based on resource directory management for cloud migration. In this mode, each application is an independent account in the application directory. Therefore, all expenses under this account can be fully included ins the costs of this department. We recommend our customers to use the IT Governance Workshop for Group Enterprises for multiple accounts, which will soon be released by Alibaba Cloud Open Platform. In this IT Governance Workshop, we have best practices for account naming and folder organization.
C: Split Accounts by Tags — Dedicated Resources
If multiple departments share an account, users must add tags to distinguish the purpose of resource utilization. In this process, the O&M team is responsible for distinguishing the function and execution method of tags:
- In a highly automated enterprise, they add tags in the process of service delivery to ensure that all resources are tagged whenever possible.
- Enterprises with weak O&M capabilities choose to manually add tags in the console or use MSP to outsource the work.
Regardless of the tagging method, when a tag is added, the tag will be transferred from the resource management system to the bill of the expense center. When using Excel or other BI tools, users can see the relationship between expenses and departments. Alibaba Cloud’s finance unit can be associated with tags and appear on the bill at the same time.
Resources that cannot be tagged or do not have tags must be regularly reviewed. Users can use the require-tag template in the config to review these resources. If a resource should be tagged but has not been tagged, users should tag it as soon as possible. If a resource cannot be tagged, send a request to Alibaba Cloud. In this way, the costs of the resource, which cannot be tagged, can be controlled below 10%.
Finally, through tag-based account splitting, you can show an enterprise’s CFO a more accurate cost allocation report, and the part that can’t be separated by account splitting can be noted for follow-up action. For specific operations, users can search “Best Practices for Tag-Based Account Splitting” on Alibaba Cloud’s official website.
D: Split Accounts for Shared Resources
For shared resources, such as CEN, NAT gateways, traffic packets, advance payment of Reserved Instance (RI), and support plans, cloud service providers do not provide more fine-grained solutions for account splitting. Currently, the common practice is to split an account according to a fixed proportion that has been negotiated.
If you require a more accurate cost allocation, more calculations are needed. For example:
- Traffic-Based Products: Share the cost of each virtual machine with departments according to network traffic.
- RI: RIs are usually purchased in central procurement for IT resources to optimize internal costs. In general, to optimize 60% to 80% of the fixed cost, we won’t purchase too many RIs. Since the match of RIs is random to a certain extent, the partial “unfairness” may exist in the bill. Considering that RIs’ feature of providing the overall optimization solution, its specifications, and the use of virtual machines with this specification in various departments, a more complicated formula will be used when splitting this part of costs.
- Container Application: A container service cluster is typically shared by multiple applications at the application layer. The costs of using the container service cluster are shared by https://kubecost.com/ to further allocate costs by application based on the basic resources dimension of IaaS.
Has your enterprise settled the accounting on the cloud? You’re welcome to consult and communicate with us.