Cost Reallocation Strategies

Products

• CloudHealth

Issue/Introduction

This article provides examples of various cost reallocation strategies to help better understand how the functionality behaves.

Here are the main takeaways from the examples provided:

• Common scenarios for cost reallocation
• Understanding how the reallocation ruleset is structured
• How to your reallocation rules appear in reporting
• Understanding how reallocation can change depending on allocation by a singular region and account, or across regions and accounts

Resolution

Example 1: Reallocate Indirect Cost by Direct Cost

This example shows how to reallocate an Indirect Cost by the proportion in which a Direct Cost is distributed across all Groups in each of your Perspectives.

Anatomy of the Ruleset

• Source: One or more Indirect Costs
• Destination: All Groups in Each Perspective
• Proportion: Proportion of Direct Cost in all Groups in Each Perspective

Understanding the Reallocation Result

Consider that the EC2 CloudWatch cost is the Indirect Cost that you want to reallocate based on EC2 Compute and EC2 Transfer costs, both of which are Direct Costs.

Initial Distribution of Indirect Cost

Assume that the EC2 CloudWatch cost is distributed as follows across Accounts and Regions. This is the source that the platform reallocates.

Calculation of Direct Cost Proportions

The platform calculates the proportion in which the direct costs for EC2 Compute and EC2 Transfer are distributed across Accounts and Regions. The platform also calculates per-region and across-region totals for each direct cost.

Effect of Reallocation Basis

You can choose to reallocate by accounts and regions (default setting) or across accounts and regions. The platform varies the reallocation based on your selection.

Case A: Reallocate By Accounts and Regions

The platform starts with the per-region per-account value of the source cost.

The next step is to calculate the proportion in which to distribute the source cost at the destination.

The proportioning is calculated based on the following ratio:

Ratio = (Total for per-region destination costs) / (Account-wise per-region totals)

In this example, in Account A > Region 1, the proportion of EC2 CloudWatch costs is calculated as follows:

Proportion = 60 * (100 / 140) = 42.86

Case B: Reallocate Across Accounts and Regions

The platform starts with the across-account value of the source cost.

The next step is to calculate the proportion in which to distribute the source cost at the destination.

The proportioning is calculated based on the following ratio:

Ratio = (Total for per-region destination costs) / (Sum of account-wise totals)

In this example, in Account A > Region 1, the proportion of EC2 CloudWatch costs is calculated as follows:

Proportion = 300 * (100 / (140 + 90 + 75 + 25)) = 90.91

Confirm Reallocation using Current Cost Report

The rulesets you create in the platform determine how costs are reallocated in your environment. The best way to visualize the result of a reallocation rule is by analyzing Cost Reports.

This example shows how to analyze the reallocation of an indirect cost by the proportion in which three direct costs are distributed across Perspective Groups.

In this example, four Indirect Costs (EC2 Unused RI, EC2 RI Prepay, and AWS Config) are reallocated by the proportion in which a Direct Cost (EC2 Compute) is distributed across Perspective Groups.

1. In the platform, from the left menu, select Reports > Cost > Current to view the cost report for the current month.

   • X-axis: Select a Perspective. In this example, the Owner Perspective is selected
   • Y-axis: Cost ($)
   • Category: Service Items

     Customize the report as follows:

2. Download the report by selecting Actions > Download as CSV. Then open the report in Microsoft Excel. 

3. Customize the report so that the Data Format of the numeric cells is set to Currency with a Thousand separator.

4. Copy and paste all the rows into an area below the existing data, so that you can analyze the reallocation without changing the original cost data.

5. For each row in this new section, edit the cost cell to include the following formula:

   If the cell is empty, make it blank; Otherwise, divide the value in the cell by the row total displayed in the rightmost column.

6. Change the Data Format of these computed cells to Percentage with two-decimal precision.

7. Highlight the rows corresponding to the Direct Costs used for the reallocation and the Indirect Cost being reallocated.

    

   Notice that the percentages for the Direct and Indirect Cost are equal across all columns, indicating that the reallocation was successful.

Example 2: Reallocate Indirect Cost to Specific Groups

This example shows how to reallocate an Indirect Cost to one or more Perspective Groups by specific percentages.

Anatomy of the Ruleset

• Source: One or more Indirect Costs
• Destination: Specific Perspective Groups
• Proportion: Proportion by specified percentages

Understanding the Reallocation Result

Consider that the EC2-CloudWatch cost is the Indirect Cost that you want to reallocate to specific Perspective Groups. One Group receives 60% of the EC2 CloudWatch cost while another receives 40% of the cost.

Initial Distribution of Indirect Cost

Assume that the EC2 CloudWatch cost is distributed as follows across Accounts and Regions. This is the source that CloudHealth reallocates.

Distribution of Direct Costs in Destination Groups

Assume the following distribution of service costs in the two Groups into which you want the Indirect Cost to be reallocated.

 

Effect of Reallocation Basis

You can choose to reallocate by accounts and regions (default setting) or across accounts and regions. The platform varies the reallocation based on your selection.

Case A: Reallocate By Accounts and Regions

The platform starts with the per-region per-account value of the source cost.

Based on the percentage you specific, the platform calculates how much of the source cost should be proportioned in each selected Group.

Since Group A receives 60% of the source cost, the reallocated proportion in Group A is calculated as follows:

Proportion = 60 * 60% = 36

Case B: Reallocate Across Accounts and Regions

The platform starts with the across-account value of the source cost.

The next step is to calculate the per-region destination cost in each account and the sum of the per-region destination cost.

 

The proportioning is calculated based on the following ratio:

Ratio = [(Total for per-region destination costs) / (Sum of account-wise totals)] * Specified percentage

In this example, in Account A > Region 1, the proportion of EC2 CloudWatch costs is calculated as follows:

Proportion = 300 * (100 / 200) * 60% = 90

Example 3: Reallocate Costs from One Group to Specific Groups

This example shows how to reallocate costs from a source Perspective Group to one or more destination Perspective Groups by specific percentages.

Anatomy of the Ruleset

• Source: One Perspective Group
• Destination: Specific Perspective Groups
• Proportion: Proportion by specified percentages

Understanding the Reallocation Result

Consider that you want to reallocate costs attributed to the Owner > Kartik group to specific Perspective Groups. One Group receives 60% of the cost while another receives 40% of the cost.

Distribution of Source Group Cost

Assume that costs on the source Perspective Group are distributed as follows across Accounts and Regions. This is the source that the platform reallocates.

 

Distribution of Direct Costs in Destination Groups

Assume the following distribution of service costs in the two Groups into which you want the source Group cost to be reallocated.

 

Effect of Reallocation Basis

You can choose to reallocate by accounts and regions (default setting) or across accounts and regions. The platform varies the reallocation based on your selection.

Case A: Reallocate By Accounts and Regions

The platform starts with the per-region per-account value of the source Group cost.

Based on the percentage you specify, the platform calculates how much of the source cost should be proportioned in each selected Group.

Since Group A receives 60% of the source cost, the reallocated proportion in Group A is calculated as follows:

Proportion = 40 + [60 * 60%] = 76

Case B: Reallocate Across Accounts and Regions

The platform starts with the across-account value of the source Group cost.

The next step is to calculate the per-region destination cost in each account and the sum of the per-region destination Group cost.

The proportioning is calculated based on the following ratio:

Ratio = (Across-account source cost total) * Specified percentage * [(Total for per-region destination costs) / (Sum of account-wise totals)]

In this example, in Account A > Region 1, a proportion of the source Group cost is reallocated to the EC2 Compute cost in the Destination Group A:

Proportion = EC2 Compute Cost + 300 * 60% * (100 / 200) = 40 + 90 = 130

Example 4: Reallocate Costs from One Group to Remaining Groups

This example shows how to reallocate costs from a source Perspective Group to the remaining Groups in the same Perspective in proportion to the direct costs in the remaining Groups. Essentially, this approach is a shortcut to the example for Reallocate Costs from One Group to Specific Groups with the advantage that it does not require you to specify the percentages by which the source Group costs are allocated.

Anatomy of the Ruleset

• Source: One Perspective Group
• Destination: Remaining Groups in the same Perspective
• Proportion: Proportion of direct costs in the remaining Groups

Understanding the Reallocation Result

Consider that you want to reallocate costs attributed to the Owner > DevOps Group to the remaining Groups in the Owner Perspective.

Distribution of Source Group Cost

Assume that costs on the source Perspective Group are distributed as follows across Accounts and Regions. This is the source that the platform reallocates.

Distribution of Direct Costs in Destination Groups

Assume the following distribution of service costs in the remaining Groups into which you want the source Group cost to be reallocated.

Effect of Reallocation Basis

You can choose to reallocate by accounts and regions (default setting) or across accounts and regions. The platform varies the reallocation based on your selection.

Case A: Reallocate By Accounts and Regions

The platform starts with the per-region per-account value of the source Group cost.

Based on the percentage you specify, the platform calculates how much of the source cost should be proportioned in each of the remaining Group.

The proportioning is calculated based on the following ratio:

Proportion = (Accountwise per-region source cost) * [(Total for accountwise per-region destination cost) / (Accountwise per-region destination cost total)]

In this example, in Account A > Region 1, a proportion of the source Group cost is reallocated to the EC2 Compute cost in the Destination Group A:

Result = EC2 Compute Cost + [60 * (100 / 140)] = 40 + 42.86 = 82.86

Case B: Reallocate Across Accounts and Regions

The platform starts with the across-account value of the source Group cost.

The next step is to calculate the per-region destination cost in each account and the sum of the per-region destination Group cost.

The proportioning is calculated based on the following ratio:

Ratio = (Across-account source cost total) * [(Total for per-region destination costs) / (Total destination cost)]

In this example, in Account A > Region 1, a proportion of the source Group cost is reallocated to the EC2 Compute cost in the Destination Group A:

Result = EC2 Compute Cost + 300 * (100 / 330) = 40 + 90.91 = 130.91

 

Additional information regarding reallocation can be found here:  https://docs.vmware.com/en/VMware-Aria-Cost/SaaS/working-with-reports-recommendations-aria-cost/GUID-cost-reports.html#cost-reallocation-0