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Mastering the Basics and Best Practices of AWS Cost Allocation Tags

AWS Cost Allocation Tags

AWS cost allocation tags allow you to effortlessly track how you’re using AWS budgets and resources to help you better control your cloud costs.

Cost allocation tags are a key part of managing Amazon Web Services (AWS) expenses and forecasting your company’s future resource needs. They make it easy to track how your AWS resources are being used so you can form a more granular understanding of your AWS costs and resource allocation.  

In this article, we’ll cover everything you need to know about AWS cost allocation tags, including the types of tags, when you should use them, and seven best practices for using AWS cost allocation tags.

What are AWS cost allocation tags?

AWS cost allocation tags are digital labels assigned to resources such as Amazon EC2 instances and Amazon S3 buckets. Once AWS cost allocation tags have been activated, you can then track tagged resources using AWS Cost Explorer and other AWS billing and reporting tools such as the Cost and Usage Report (CUR) so you can understand the cost of AWS services and your resource usage on a more detailed level.

Each cost allocation tag consists of a unique tag key and value. This allows the tag to serve as a unique identifier for a tagged resource. You can apply tags to represent numerous categories (such as cost centers, application names, or owners), or you can use them to organize your costs across numerous AWS services.

The two types of AWS cost allocation tags

AWS offers two options for tagging and tracking resource usage: AWS-generated cost allocation tags and user-defined cost allocation tags. Which option is best will depend on your priorities and what you are trying to accomplish.

Let’s take a detailed look at both, how they work, and the advantages that they offer.

AWS-generated cost allocation tags

When activated, AWS automatically creates AWS-generated cost allocation tags and applies them to AWS resources, giving companies the time-saving benefits of automation when tagging new resources. These tags are an excellent choice if you want to achieve basic cost tracking without the complexities of creating custom tags or providing unique assignments to various member accounts.

AWS-generated cost allocation tags include “createdBy” tags that AWS automatically creates and manages in order to show which user or role launched resources. You can use them for a variety of cost analysis functions, including linking each resource’s cost back to specific invoices.

The “createdBy” tags must be activated in order for AWS to autonomously tag resources as they are launched. However, any resources tagged prior to the tag activation will not retroactively receive the “createdBy” tags.

User-defined cost allocation tags

AWS-generated cost allocation tags can provide a lot of insights into resource usage and costs, but user-defined cost allocation tags offer a much higher level of customization. 

With these tags, you’ll have the flexibility to create your own custom tags using AWS Tag Editor and assign those tags based on your organization’s unique needs. This enables granular cost tracking and analysis and the ability to track cloud spend however your organization best sees fit.

With user-defined cost allocation tags, you can create and activate tags to categorize resource usage and costs based on projects, departments and teams, deployment environments, the AWS service you’re using, and numerous other categories. 

While it can be time-consuming to create and apply these tags manually, the level of insight and transparency they provide within a company’s cost management console and other reports are often well worth the effort.

When should your business use AWS cost allocation tags?

AWS cost allocation tags have numerous use cases. Ultimately, these tags provide businesses with valuable data—and like any business metrics, you can use the data provided by cost allocation tags to unlock plenty of useful insights.

AWS cost allocation tags enrich your billing console with detailed information and key insights into how you’re using your  AWS resources. These insights can help you efficiently allocate resources, identify resource usage patterns/cost optimization opportunities, and make informed budget decisions.

Any business that needs granular visibility and control over AWS spending will benefit from using cost allocation tags. These tags are especially valuable in multi-resource and multi-team environments where tracking costs based on projects, departments, or initiatives is key.

Advantages of using AWS cost allocation tags

Using AWS cost allocation tags provides many benefits compared to untagged resources, including noteworthy advantages such as:

  • Granular cost tracking
  • Resource accountability
  • Improved budgeting and forecasting
  • More detailed financial reporting
  • Automation and APIs for efficiently managing tags

AWS cost allocation tags help provide the visibility you need for AWS cost optimization. By combining these tags with a cost optimization platform such as ProsperOps, you can gain unmatched insight into how you’re using your AWS resources and identify valuable opportunities for savings.

How to enable each type of AWS cost allocation tags

AWS does not automatically enable AWS cost allocation tags. Instead, you must activate and apply them to AWS resources before they will work. In the case of user-defined tags, you must also first create and define the tag.

Here is how you can enable each type of AWS cost allocation tag:

Steps for AWS-generated tags

AWS automatically applies AWS-generated tags to specific resources. They do not require any manual intervention. 

However, to ensure they are present in your cost allocation reports and analysis, follow these steps:

  1. Activate AWS cost allocation tags: Log in to your AWS Management Console, go to the AWS Cost Explorer, and make sure you’ve activated cost allocation tags for your AWS account. This will ensure that the automatically generated tags are recorded and included in your cost reports.
  2. Review cost allocation reports: Once you have enabled cost allocation tags, regularly review the AWS Cost and Usage Reports to see detailed breakdowns of your AWS-generated tags. The reports can also be exported to Amazon S3 for further analysis and reporting.

Steps for user-defined tags

You must manually create and assign user-defined cost allocation tags to AWS resources. 

Here are the steps you should follow to set up user-defined tags:

  1. Identify tag categories: Determine the categories you want to use for cost allocation. For example, you can create tags to track resource usage based on projects, departments, environment types (such as production or development), or service types (such as EC2 or RDS).
  2. Create tags: You can create user-defined tags using the AWS Tag Editor, which you can find in your AWS Management Console. When creating tags, be sure to assign each tag a meaningful key and value based on your chosen categories.
  3. Apply tags to resources: After creating the user-defined tags, you’ll need to apply them to the specific resources you want to track. You can apply tags to new resources during the resource creation process or add them later through the AWS Management Console.
  4. Review cost allocation reports: Once you’ve assigned user-defined tags to your resources, review the AWS Cost and Usage Reports or utilize the AWS Cost Explorer to analyze cost data based on these tags. This provides insights into how AWS allocates expenses across different categories or projects, enabling better cost management and resource optimization.

Best practices for using AWS cost allocation tags

AWS cost allocation tags can offer a lot of value—especially when you know how to take full advantage of the benefits they provide. To make the most of your AWS cost allocation tags, here are seven best practices that you should follow:

Keep your tagging strategy straightforward

When it comes to using AWS cost allocation tags, simplicity is your best bet. You’ll want to develop a clear and straightforward tagging strategy that aligns with your company’s objectives. Avoid going overboard with excessive tag categories, as this is likely to create more confusion than clarity.

Instead, focus on essential aspects, such as projects, departments, environments, or services. This will ensure that you can glean meaningful insights from your reports. It also helps eliminate a lot of wasted time spent managing tags that are not truly necessary.

Start tagging ASAP

It’s a good idea to start tagging your AWS resources as soon as possible; if you aren’t doing so already, there’s no better time to start than right now.

Take a proactive approach to tagging AWS resources to ensure you capture essential cost data right from the start. This allows you to analyze historical cost and usage trends more accurately.

Getting started using AWS cost allocation tags as soon as possible can also help eliminate the amount of retroactive tagging you have to do—which can be a cumbersome process and ultimately less accurate than tagging resources when you create them.

Pay attention to tag requirements

It’s important to understand the limitations and requirements of AWS cost allocation tags. For example, different types of tags have specific character and naming constraints. Different AWS services may have unique tagging requirements and limitations as well.

When creating and applying cost allocation tags, you’ll want to make sure you comply with all of these requirements. This will be key to ensuring your tags function correctly, and your cost allocation reports are accurate.

Don’t include sensitive information

AWS cost allocation tags do not have the strongest security or access control features. Instead, they are visible to anyone who has the appropriate permissions, which can often end up being a large number of employees within your company.

Maintaining the security and privacy of sensitive data is a top priority anytime you are storing data on the cloud. Therefore, where and how you store data is a key security concern. In the same way that you wouldn’t store valuables in Tupperware containers, you should use cost allocation tags for their intended purpose without containing any sensitive data.

Using cost allocation tags for non-metadata purposes could inadvertently expose sensitive data. To avoid potential security risks, make sure that your cost allocation tags do contain any data that would be deemed private or sensitive.

Regularly audit your tags

Consistently monitoring and auditing your cost allocation tags is essential to maintaining the accuracy and consistency of your cost-tracking efforts. This helps you regularly validate the accuracy and relevance of your tags to ensure the system applies them consistently to new resources and that the tags on existing resources are kept up-to-date and meaningful.

Business operations evolve over time, and how your company utilizes AWS resources will change as well. Auditing your AWS cost allocation tags on a regular basis to ensure they align with your business operations and objectives is vital for maintaining the effectiveness of your cost allocation strategy.

Standardize tags for consistency

Adopting standardized naming conventions for your AWS cost allocation tags will help promote consistency and streamline your cost analysis processes. For example, using standardized tag prefixes, such as “Project:” or “Department:” will provide a clear indication of the tag’s purpose and category that you and your team can understand at a glance.

As we mentioned earlier, it’s also important to develop a naming strategy that will keep your tags within the character limits imposed by various AWS services. By developing standardized naming conventions for your tags, you can keep them compliant with AWS requirements while also helping keep your tags organized and easy to work with.

Handle multi-account environments appropriately

AWS cost allocation tags are especially useful for tracking costs in multi-account environments. Doing so, however, requires careful planning and coordination.

When managing cost allocation tags across multiple AWS accounts, it’s essential to develop a consistent tagging strategy. Using AWS Organizations is one effective way to centralize tagging policies and ensure you’ve consistently enforced those policies across all accounts.

By employing standardized tags and tagging policies across all of your company’s AWS accounts, you can achieve the consistency and transparency needed to track resource allocation across your entire organization.

Optimize your cloud costs with ProsperOps

Using AWS cost allocation tags is crucial to understanding how your company allocates AWS resources, but it’s only the beginning when it comes to AWS cost optimization. 

To reduce your company’s cloud spend without reducing performance, you need to execute a comprehensive cost optimization strategy that includes right-sizing resources, using the right discount instruments (such as Savings Plans and Reserved Instances), managing idle resources, and numerous other considerations.

ProsperOps helps you optimize cloud costs automatically, leveraging powerful machine-learning algorithms to analyze your company’s usage patterns and automatically optimize cost controls in real-time for maximum savings.

With ProsperOps, managing cloud spend doesn’t have to be an all-consuming process. To start optimizing your AWS costs automatically, sign up for a free ProsperOps demo today.



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