AWS Cost Allocation
AWS Cost Allocation Tagging Strategy: Designing and Implementing

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Need for a cost optimization strategy

As more businesses move to Amazon Web Services (AWS) for their cloud requirements, defining a cloud cost optimization strategy is a business importance. Cloud allocation is complex and involves a lot of data analysis. Businesses must establish the right cost allocation processes early in their cloud adoption cycle to ensure the costs are assigned to the right departments and business units.

AWS provides many tools and services to help businesses understand, optimize their cloudcosts, and manage cost allocation. This article explains the concept of cost allocation tags in AWS and provides best practices to implement tagging strategies.

Understanding Cost Allocation Tags

A tag is a label that you or AWS can assign to an AWS resource. Each tag has two parts – a key and a value. This is also known as a key-value pair. Tags can be employed for resource organization, and cost allocation tags can help you comprehend your cloud expenses with a high level of detail.  For example, creating a key-pair called department: engineering helps you allocate all costs associated with the engineering department to one tag for granular tracking of departmental spends. Once you apply your tags to your resources, cost allocation tags can be activated in the Billing console. This will enable AWS cost allocation reports that provide a detailed breakdown of costs by different activated tags.

Advantages of Using Cost Allocation Tags

Implementing a clear tagging strategy early in the cloud lifecycle provides several benefits.

Improved cost visibility and transparency: Cost allocation tagging provides granular details about cloud spending across different entities in the organization. This can help you identify which departments or projects are overspending and take measures to optimize costs associated with those departments or projects. Additionally, tagging provides visibility to charge back AWS costs to specific departments or projects leading to greater accountability.

Better resource utilization: Tagging drives a better understanding of overall cost allocation which helps make decisions to optimize AWS spending. As an example, cost allocation tagging provides insights into resources that are underutilized and therefore can either be shut down or moved to a different pricing tier.

Simplified cost reporting: With appropriate tagging, businesses can generate detailed reports to analyze the AWS expenditure across different dimensions and at various levels in the organization. Finance teams can easily aggregate or filter costs to gain a comprehensive view of overall cloud spend.

Designing and implementing an AWS Cost Allocation Tagging Strategy

The cost allocation tagging feature provided by AWS is powerful and can help businesses gain greater visibility into their overall cloud cost. However, to get the best out of the feature and benefit the business, it is necessary to have a well-defined strategy and a solid implementation plan.

Define Your Strategy

Before creating tags, it is critical to define a strategy for your tagging needs. Involve all relevant stakeholders, collect requirements from each department or team, and define a unified tagging strategy that aligns with the cost optimization goals of the organization.

Establish a Tagging Convention and Enforce Usage

Creating a tagging convention that defines the purpose and value of each tag will ensure consistency for tagging across the organization. For example, key value pairs such as department: product management or environment: testing will help quickly identify the costs associated with the product management department or the testing environment from the generated reports.

After creating a tagging convention, it is important to enforce it to get the bestout of the tagging strategy. This can be enforced using tools such as AWS tag policies, AWS Systems Manager Parameter Stores, or other third-party tools by automating the process of tag application.

Monitor Tag Usage

After defining the strategy, establishing tagging conventions, and enforcing them, it is equally important to monitor tag usage periodically to make sure the strategy and conventions are providing the results needed for the organization. Use the AWS Cost Explorer to view and analyze costs based on various dimensions. Take corrective measures as needed based on any inconsistencies inusage to maximize the benefits from your tagging strategy.

Review the Tagging Strategy Regularly

Tag management is a continuous process. As the business evolves and organizational goals change, it is important to review the tagging strategy to make sure it is still relevant. Gather feedback from stakeholders, review tag definitions, and re-define the tagging convention as needed to align tagging practices with organizational goals at all times.

Leverage Automation

Automating the process of tag management and tag enforcement can help in ensuring consistency and diminishes the need for manual checks. AWS offers a variety of tools such as AWS Cloud Formation for automatic tagging while creation, and AWS Service Catalog to ensure the set tagging rules are followed.


Cloud technologies offer tremendous opportunities and benefits to businesses. But they also come at a heavy cost. Businesses must look out for ways to optimize costs while harnessing the benefits of cloud services. Cost allocation taggingis a powerful way to drive cost optimization across various departments in the organization.

By defining a clear cost allocation tagging strategy upfront and ensuring best tagging practices, businesses can gain several benefits such as financial transparency, chargeback abilities, accountability across departments, and overall cost optimization.

However, as with any process, cost allocation tags must be monitored and tweaked regularly to ensure the strategy and practices are continuously aligned with business goals.

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