Chargeback overview

Accounts for IT budgets (hardware and software costs) are important to maintain for any organization, however, they do not necessarily directly correlates to specific IT services and the business value they provide. To optimize spend, avoid waste, and align investment with evolving needs and priorities, it’s essential to gain clear visibility into the true cost of each service. Chargeback in TrueSight Capacity Optimization enables you to generate an accurate service-by-service accounting that makes it possible for both IT and lines of business to make more cost-effective decisions based on the relative costs. Using chargeback, you charge an entity that utilizes a resource according to their utilization and take more optimal decisions.

Chargeback terminology

To understand Chargeback better, you need to be aware of the following terminologies:

Target

A target is an entity that utilizes a resource, and to which resource costs are charged back in turn. Target entities can be structured into hierarchies to represent either organizational or logical structures.

In essence, targets are customers (organizations, business units) that consume a service offering, to which service offering costs are charged back.

Cost object

A cost object is any entity with an associated cost that you want to measure. The process of calculating IT costs over time is called accounting. Cost objects can be classified into the following types:

Basic cost object

A basic cost object is any entity with an associated cost that you want to measure. For example, VM costs in terms of CPU and memory utilization, cost per instance of a Xen server, and so on.

Composite cost object

A composite cost object defines a typical set of service offering costs. This type of cost object applies simultaneously to the same service.

Fixed-rate cost objects

In a fixed-rate cost object, a fixed cost (equal to the cost rate) is accumulated on an hourly basis for the cost object allocated to the target.

The formula for calculating fixed-rate costs is:

In this formula:

  • cr is the cost rate
  • Δt is the time duration for which the cost object is allocated to the target.

Example

A fixed-rate cost object has a cost rate of $100 per hour.
It is allocated to a target T1 for 24 hours.

The accumulated total cost of the fixed-rate cost object is:
$100 (Cost rate) x 24 (Time duration) = $2400

Allocation-based cost objects

Allocation-based cost objects take into account the quantity of resources (or instances of cost objects) that are allocated to a target.

The formula for calculating allocation-based costs is:

In this formula:

  • cr is the cost rate
  • q is the quantity of resources allocated to the target
  • Δt is the time duration for which the cost object is allocated to the target.

The quantity of resources allocated to the target can change over a period of time, therefore the formula is applied to each interval, during which q remains constant. Later, all contributions are summed up.

Example

4 servers are allocated to a target T1 for 24 hours.
The cost rate per server is $10 per hour.

The total accumulated cost is:
4 (Servers) x $10 (Cost rate) x 24 (Time duration) = $960.

In this case, the cost rate has a (currency / (hour x server)) measurement unit that represents the cost for a single allocable server or single allocable instance of the resource.

Quantity allocations for allocation-based cost objects

The only data needed for calculating allocation-based cost objects is the quantity of allocated resources. This is called a quantity allocation, and is a characteristic of the cost object.

Utilization-based cost objects

Utilization-based cost objects take into account the measured utilization of resources (or instances of cost objects). They are also referred to as Measured Resource Usage (MRU).

The formula for calculating utilization-based costs is:

In this formula:

  • cr is the cost rate
  • Er is the resource consumption for a specific resource.
    The SUM is calculated over all resources allocated to the target.

Resource consumption

A resource and its corresponding cost object can have a measured utilization over time, which can be integrated over a given time interval to obtain the Resource Consumption.

The formula for calculating resource consumption is:

In this formula:

  • Ui are utilization samples over different time intervals
  • Δt is the time interval
  • E denotes resource consumption, because its meaning is very similar to that of of energy when utilization is interpreted as power consumption.

Examples of resource consumption

Example 1

A CPU has a 10% utilization for 1 hour, and 50% utilization for the subsequent hour.
It accumulates a total consumption of:
[(10% of 60 mins) + (50% of 30 mins)]\ = 36 CPU minutes

Example 2

In this example we consider CPU utilization in terms of GHz used.
A CPU is used at 3 GHz for 1 hour and at 1 GHz for the subsequent half-hour.
CPU consumption is calculated as:
(3 Ghz x 1 hour) + (1 Ghz x 0.5 hour) = 3.5 GHz x hour

Note: Here, the measurement unit is GHz x hour, which is equivalent to GHzHour.

Note

The choice of the most significant measurement for consumption depends on the resource type and available utilization metrics.

Named allocations for resource consumption

To compute resource consumption, you must know exactly which resource is allocated to a target. This is called a named allocation.

Cost rate

Cost rate is the price of a specific basic cost object, that is, the unit cost for the consumption of specific resources. For example, VM memory costs per hour, VM CPU utilization costs per minute.

 

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