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Cloud Computing : Direct cost & Cost allocations – Part 27

December 20, 2013

Cost allocation is a technique to conclude the cost of services provided to customers of that service.

It does not verify the cost of the service, but moderately determines what the service costs to offer.

It is important to verify the cost allocation of the services that the FAA is used to provide, in order to decide a permissible fee/charge/tax for those services and there charges.

Incorporated in cost allocation are:

  1.  Direct cost
  2.  Indirect cost and
  3.  Incremental costs.

 

Direct costs

Direct costs are also known as separable costs. These are those costs that are associated to a single type of service and are connected to one type of output or customer like, a sector-tosector hand-off.

 

Incremental costs

Incremental costs modify with the level of output productivity produced.

Incremental costs measure alters in output, e.g., differences in staffing levels or staffing costs at a competence that is based on traffic count.

The cloud computing economic model is widely expected to bring significant rewards.

Several organizations have already reported reaping cost benefits in several ways, either by reducing capital investment, rapid time-to-market, virtualization, and more.

However, this is not always the case. For example, many organizations admit that when there is no chargeback, little attention is paid to the creation of new servers or deletion of unwanted servers. Uncontrolled sprawl and not reclaiming unwanted services, can add hefty charges to your cloud bills.

 

Consider strong cost allocation and chargeback policies :

1. – Support both allocation and usage models :

If you want to reserve dedicated resources for a group, many companies consider these resources consumed and therefore billable. Other companies do not charge until they are actually consumed by a user provisioning a machine or application.

2. - Chargeback granularity down to individual users :

Get reports for each business group. Also get individual user reports to see who your big consumers are.

3. - Cost transparency is more important than chargeback :

If you are already subscribed to cloud computing, then cost transparency or show back is probably more important for most companies as it lays the foundation for full chargeback latter on. Cost transparency should be included through all aspects of your cloud management solution. Users should be able to see how much different IT services will cost them and make tradeoffs in the type of machines (physical, virtual, external) and amounts of resources, and service levels they will receive. Approvers should also be able to see the cost. Cost transparency will have a much more immediate impact on utilization than reports run at the end of a month.

4. - Governance:

Most people have good intentions, but intentions alone will not save money. Put in policies that audit and govern unnecessary spending in the cloud. Policies can also translate to automated scripts that cleanup unwanted machines, storage, etc. When policies are put in place and governed regularly, cloud usage will reduce to what is actually required.

Multitenancy

Multitenancy refers to a principle in software architecture where a single instance of the software runs on a server, serving multiple client organizations (tenants). It is contrasted with a multi-instance architecture where separate software instances (or hardware systems) are set up for different client organizations. With a multitenant architecture, a software application is designed to virtually partition its data and configuration, and each client organization works with a customized virtual application instance. Multitenancy is also regarded as one of the essential attributes of Cloud Computing. The principle of multitenancy is not universally accepted and supported within the software industry.

 

Cost allocation

Cost allocation is a technique to conclude the cost of services provided to customers of that service. It does not verify the cost of the service, but moderately determines what the service costs to offer. It is important to verify the cost allocation of the services that the FAA is used to provide, in order to decide a permissible fee/charge/tax for those services and there charges.

 

From → Cloud Computing

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