Cloud cost management is a crucial process for organizations to effectively monitor and manage the usage and expenditure on cloud resources. Understanding and executing cloud cost management effectively requires a grasp of certain basic terms and concepts. This article focuses particularly on the terms ‘Actual Cost’ and ‘Amortized Cost’, explaining how they relate to cloud cost management.
Actual Cost
Actual Cost refers to the expenses incurred over a specific period. It represents the direct costs based on the usage of particular resources or services. Actual cost is useful for businesses to monitor their expenditure in real-time and ensure operations are within budget.
Examples of Actual Cost:
- The actual runtime cost of servers
- Actual costs for storage and data transfer
- Actual costs of software licenses
Amortized Cost
Amortized Cost refers to costs that are distributed equally over a specific period. Typically, amortized cost is used to spread out significant one-time expenditures over a certain duration. This improves cost predictability and management, especially in long-term planning and budgeting.
Examples of Amortized Cost:
- Distributing the cost of a large hardware purchase as monthly amortized costs
- Spreading the initial investment cost of starting a project over several years
Conclusion
Actual Cost and Amortized Cost are fundamental concepts in cloud cost management, and understanding the difference between them helps organizations manage costs effectively and adhere to budgets. Businesses can utilize these cost calculation methods to properly monitor spending, forecast future costs, and formulate appropriate financial planning.
