Introducing Intelligent Showback: Addressing fundamental flaws in cloud cost allocation

Erik Carlin

Erik Carlin

Co-Founder and Chief Product Officer
new product intelligent showback cloud cost allocation

The cloud is expensive and companies are constantly looking for ways to reduce their cloud bill. That’s why a few years ago we started ProsperOps and launched our first product—Autonomous Discount Management. Customers configure a few settings, turn our service on, and algorithms take over management of discount instruments to maximize cloud savings. We are now doing this on more than half a billion dollars of annual compute spend for some of the world’s leading brands, and delivering industry leading results.

That’s great for a customer’s overall bottom line, but businesses also need a way to allocate costs back internally. If we generate incremental savings, but customers can’t properly apply the benefits to their stakeholders, the value is diminished.

That’s why we are excited to announce ProsperOps Intelligent Showback. This new capability takes the pool of savings our Autonomous Discount Management service has maximized at the company level, and provides multiple methods for reallocating savings across the organization.

Current Showback Flaws

Showback is the process companies use to take a single, centralized cost and internally allocate it back to departments, teams, products, etc. based on their proportional consumption. Showback is complex and incredibly hard to get right. This is particularly true when discount instruments like Reserved Instances (RIs) and Savings Plans (SPs) are involved and it stems from two ways the AWS billing system was implemented:

  1. AWS shows commitment discount costs in the accounts where they were purchased, not where they actually applied.

    Unfortunately, this is at odds with the FinOps best practice to centralize discount instruments to ease management and maximize savings. As a result, the central account accrues massive costs while member accounts—with actual compute usage where the discounts applied—have excess savings because there is no corresponding commitment cost.
  2. AWS application of discount instruments is seemingly random when there are multiple matching resources distributed across accounts in the organization.

    Discounts may apply to development resources today and production resources tomorrow, and could change at any time (we’ve heard this referred to as winning the RI or SP lottery). For example, Compute Savings Plans cover the highest discounted resources first (which is good because this maximizes overall savings), but can leave lower discounted regions, products, instance types, platforms, etc. with zero savings. If you are a centralized FinOps team supporting global business units, your EMEA customer running in Frankfurt probably isn’t happy with a showback allocation where they receive 100% on-demand rates while their North American counterparts running in Ohio enjoy all or a majority of the savings from the company’s centralized FinOps strategy.

    Paradoxically, this can cause teams to decentralize their cloud financial management activity, even pushing some companies to disable Reserved Instance and Savings Plan sharing, which lowers the organization’s overall savings potential.

    Bottom line–showback and accurate cost allocation become impossible when there is no way to predict the distribution of savings benefits. This also prevents companies from determining accurate unit costs, which is an incredibly powerful way to manage your cloud economics and is FinOps nirvana.

Wouldn’t it be nice to maximize overall company savings AND be able to control how that pool of savings is split? That is why we built Intelligent Showback. 😃

There are existing third-party tools today that address the first problem above. They show commitment costs where they applied versus where they were purchased. That is helpful and better than native AWS billing views, but you are still a prisoner to where AWS chooses to apply the discounts. What makes Intelligent Showback unique is that it solves both issues.

prosperops intelligent showback cost allocation
Webinar Replay

FinOps Applied: Intelligent Showback

Addressing Fundamental Flaws in Cloud Cost and Savings Allocation

prosperops intelligent showback cost allocation
Live Webinar
Welcome to Cost Optimization 2.0

How Cost Optimization has Evolved with Automation and Intelligence

prosperops intelligent showback cost allocation
Live Webinar
FinOps Applied: Intelligent Showback

Addressing Fundamental Flaws in Cloud Cost and Savings Allocation

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Intelligent Showback vs. The Alternatives

Intelligent Showback takes the pool of savings optimized by ProsperOps at the organization level and provides multiple methods to accurately allocate those savings to stakeholders.

To help illustrate the existing showback problem and how Intelligent Showback compares, consider the following simple example of an AWS organization with three accounts:

Account A is owned by the centralized FinOps team for purchasing AWS Reserved Instances and/or Savings Plans. It contains a single 3 Year No Upfront Compute Savings Plan of $3.28/hr and no compute usage.

Account B is owned by Business Unit 1 and runs 80 c5.large instances of Linux in us-east-2.

Account C is owned by Business Unit 2 and runs 40 c5.large instances of Windows in eu-central-1.

Example AWS Account Resources

In this example, let’s play out what happens over a 100 hour period. AWS controls the application of the Compute Savings Plan which floats to cover 100% of the c5.large instances in Account B (because they have the higher discount) and no c5.large instances in Account C, as shown here:

central finops team aws accounts
legend - aws account structure

Native AWS Billing

Native AWS billing (which includes related tools like Cost Explorer) shows cost and savings allocation across teams as follows:

native aws billing - incorrect cloud cost allocation
Native AWS Showback Example
  • The Central FinOps team accrues $328 of cost from the Compute Saving Plan. They bear the full cost burden for the company while other teams receive the savings benefit.
  • Business Unit 1 has no cost! Their on-demand usage was completely offset by the central Compute Saving Plan (that the Central FinOps team paid for) so their savings is $680 and their effective discount is 100%.
  • Business Unit 2 pays full on-demand pricing of $756 and receives zero savings!

If the Business Unit 2 leader truly understands the data, they should push back on the effectiveness of this showback method. Ultimately, if the use of the method persists, they should reject centralized FinOps and purchase their own commitments (hence, the AWS setting to disable RI and SP sharing) which would hurt overall company savings.

Traditional Showback

Traditional Showback addresses the centralization of commit discount costs only, so cost and savings allocation across teams looks as follows:

traditional showback cloud cost allocation
Traditional Showback Example
  • The Central FinOps team now has no cost (which is an improvement) since this model allocates costs where AWS happened to apply the discount.
  • Business Unit 1 now has the cost of the Compute Savings Plan allocated to them for which they received the savings benefit. Their costs increase to $328 so their savings is decreased to $352, which is an effective discount of 51.8% (the max discount when usage of this type is 100% covered).
  • Nothing changes here. Business Unit 2 still pays full on-demand pricing and receives zero savings benefit.

While this is an improvement over native AWS billing showback, the Business Unit 2 leader should still reject this because they are receiving no benefit from a centralized FinOps model. This doesn’t solve the showback problem.

Intelligent Showback

Intelligent Showback decouples savings allocation from how the AWS blackbox chooses to apply discounts. In this model, the cost and savings allocation across teams looks as follows:

intelligent showback accurate cloud cost and savings allocation
Intelligent Showback Example
  • The Central FinOps team has no cost because they had no usage that received a savings benefit.
  • Business Unit 1 and Business Unit 2 each receive a proportional share of the overall savings generated relative to 1) the amount of their usage, and 2) the discount rates of their usage.
  • Business Unit 1’s cost is higher at $442 because they no longer receive all of the discount benefit. Their savings is $238, which is an effective discount of 35.0%.
  • Business Unit 2’s cost is lower at $642 because they now (finally) get a portion of the savings. Their savings is $114, which is an effective discount of 15.0%.
  • Note Business Unit 1’s effective discount of 35.0% is higher then Business Unit 2’s of 15.0% because Business Unit 1 runs Linux EC2 in us-east-2 (with a max effective discount of 51.8% @ 100% coverage) vs. Business Unit 2 which runs Windows EC2 in eu-central-1 (with a max effective discount of 22.2% @ 100% coverage).

Note: Intelligent Showback is designed to have modular savings reallocation methods. This example uses the Shared Benefit method but other methods, which provide different savings allocation benefits, are in development.

With Intelligent Showback, companies can finally control how cloud savings are allocated. This enables a more reasonable and sustainable showback of costs, a mature, centralized FinOps capability, and puts companies on the path to determining accurate unit costs.

When combined with Autonomous Discount Management, ProsperOps now offers companies a single, simple solution to both generate industry leading savings outcomes AND control allocation of those savings to effectively showback costs. We hope these capabilities help you to prosper in the cloud!

Visit our help center for more information on Intelligent Showback, or schedule a demo of our cloud financial management platform to get a closer look.

Prosper On!

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