How is Azure amortization calculated?

Products

• CloudHealth

Issue/Introduction

CloudHealth calculates the hourly amortization rate for reservations and uses that to generate amortization cost based on usage.  The math we do to calculate amortization hourly rate is the following:

1. The term of reservation is obtained; it can be 1 or 3 years.
2. Then the platform calculates hours in the prepay year.  If a reservation is bought for 1 year, the approximate total of potential hours would be around 8760 hours, for example.
3. The reservation prepay amount for that term from Azure is then divided by the number of hours in the term.  This gives the amortization hourly rate.

This means, for example, that 31-day months will have different totals than 30-day months, as costs are spread evenly across the terms of each reservation.   CloudHealth will start amortizing it as soon as we see it appears in the data (often midday). 

CloudHealth also accounts for leap years (and leap hours)!

 

The below example explains how we calculate the amortization hourly rate:        

Reservation term = 1 year
Reservation size = Standard_d2s_v3
Reservation region = East US
Upfront cost = 501
Hourly rate = 501/8760 = 0.0571918