COST04-01 Establishing Governance Frameworks to Continuously Optimize the Cost Allocation Ratio

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Accurate and effective cost allocation is the basis for cost monitoring and optimization. Enterprises should focus on and improve the cost allocation ratio to strength cost governance.

Tagging is a widely used method that allows flexible cost allocation across various business dimensions, such as products, applications, and responsible personnel. However, during implementation, companies may face challenges that reduce tag coverage, including:

Heavy workload: As cloud resource usage grows, managing multiple tags across numerous assets becomes increasingly complex.

Inconsistent tag application: Variability in departmental adoption, incorrect key-value assignments, and untagged resources create gaps in cost tracking.

Evolving environments and requirements: Organizational changes, shifting stakeholder expectations, and adjustments to business or financial strategies impact tagging effectiveness.

To address these challenges, organizations should introduce structured operations management, conduct regular reviews, and refine their tagging strategies through ongoing governance. Recommended approaches include:

1. Establish KPIs for improvement: The primary goal of cost tagging is accurate cost allocation. It is advisable to define the Cost Allocation Ratio as a KPI, which measures tag coverage across resources. A higher ratio indicates improved efficiency in cost allocation and reporting as well as higher data reliability. During the governance process, tracking trends in the Cost Allocable Ratio helps assess whether tagging coverage within the organization is improving or declining.
2. Identifying tag deficiencies and errors: Once the need for tag governance is determined, the first step is identifying all resources that are not tagged and those with incorrect tag key-value pairs. Governance should prioritize high-cost resources before gradually expanding to others. Organizations can use tools provided by cloud providers or develop tools by themselves to assess tag compliance during resource creation. A more robust approach integrates permissions management to identify resource creators and their organizational units and to automatically assign appropriate tags.
3. Regular review and optimization of specifications: Tagging is not a one-time setup. Regularly auditing and refining tagging specifications ensures that cost tags remain adaptable to changing environments and evolving stakeholder demands. It is necessary to adjust tagging granularity based on feedback and expectations from management and finance teams. It is also essential to review and update tagging specifications in collaboration with stakeholders.

You can view the proportion of allocated costs in Cost Center to assess tag coverage and enhance tag management.

You can identify and manage untagged or wrongly tagged resources using Cost Center, TMS, and cloud service consoles.

You can use resource compliance policies preset in Config to identify non-compliant resources, such as resources without tags.

You can use tag policies preset in Organizations to standardize tags added to resources in your organization.