- 11 minutes to read
Microsoft Cost Management is a suite of tools that help organizations monitor, allocate, and optimize the cost of their Microsoft Cloud workloads. Cost Management is available to anyone with access to a billing or resource management scope. The availability includes anyone from the cloud finance team with access to the billing account. And, to DevOps teams managing resources in subscriptions and resource groups.
Billing is where you can manage your accounts, invoices, and payments. Billing is available to anyone with access to a billing account or other billing scope, like billing profiles and invoice sections. The cloud finance team and organizational leaders are typically included.
Together, Cost Management and Billing are your gateway to the Microsoft Commerce system that's available to everyone throughout the journey. From initial sign-up and billing account management, to the purchase and management of Microsoft and third-party Marketplace offers, to financial operations (FinOps) tools.
A few examples of what you can do in Cost Management and Billing include:
- Report on and analyze costs in the Azure portal, Microsoft 365 admin center, or externally by exporting data.
- Monitor costs proactively with budget, anomaly, and scheduled alerts.
- Split shared costs with cost allocation rules.
- Create and organize subscriptions to customize invoices.
- Configure payment options and pay invoices.
- Manage your billing information, such as legal entity, tax information, and agreements.
How charges are processed
To understand how Cost Management and Billing works, you should first understand the Commerce system. At its core, Microsoft Commerce is a data pipeline that underpins all Microsoft commercial transactions, whether consumer or commercial. There are many inputs and connections to the pipeline. It includes the sign-up and Marketplace purchase experiences. However, we'll focus on the pieces that make up your cloud billing account and how charges are processed within the system.
In the left side of the diagram, your Azure, Microsoft 365, Dynamics 365, and Power Platform services are all pushing data into the Commerce data pipeline. Each service publishes data on a different cadence. In general, if data for one service is slower than another, it's due to how frequently those services are publishing their usage and charges.
As the data makes its way through the pipeline, the rating system applies discounts based on your specific price sheet and generates rated usage, which includes price and quantity for each cost record. It's the basis for what you see in Cost Management, but we'll cover that later. At the end of the month, credits are applied and the invoice is published. The process starts 72 hours after your billing period ends, which is usually the last day of the calendar month for most accounts. For example, if your billing period ends on March 31, charges will be finalized on April 4 at midnight.
Credits are applied like a gift card or other payment instrument before the invoice is generated. While credit status is tracked as new charges flow into the data pipeline, credits aren't explicitly applied to these charges until the end of the month.
Everything up to this point makes up the billing process. It's where charges are finalized, discounts are applied, and invoices are published. Billing account and billing profile owners may be familiar with this process as part of the Billing experience within the Azure portal or Microsoft 365 admin center. The Billing experience allows you to review credits, manage your billing address and payment methods, pay invoices, and more – everything related to managing your billing relationship with Microsoft.
After discounts are applied, cost details then flow into Cost Management, where:
- The anomaly detection model identifies anomalies daily based on normalized usage (not rated usage).
- The cost allocation engine applies tag inheritance and splits shared costs.
- AWS cost and usage reports are pulled based on any connectors for AWS you may have configured.
- Azure Advisor cost recommendations are pulled in to enable cost savings insights for subscriptions and resource groups.
- Cost alerts are sent out for budgets, anomalies, scheduled alerts, and more based on the configured settings.
Lastly, cost details are made available from cost analysis in the Azure portal and published to your storage account via scheduled exports.
How Cost Management and Billing relate
Cost Management is a set of FinOps tools that enable you to analyze, manage, and optimize your costs.
Billing provides all the tools you need to manage your billing account and pay invoices.
Cost Management is available from within the Billing experience. It's also available from every subscription, resource group, and management group in the Azure portal. The availability is to ensure everyone has full visibility into the costs they're responsible for. And, so they can optimize their workloads to maximize efficiency. Cost Management is also available independently to streamline the process for managing cost across multiple billing accounts, subscriptions, resource groups, and management groups.
What data is included in Cost Management and Billing?
Within the Billing experience, you can manage all the products, subscriptions, and recurring purchases you use; review your credits and commitments; and view and pay your invoices. Invoices are available online or as PDFs and include all billed charges and any applicable taxes. Credits are applied to the total invoice amount when invoices are generated. This invoicing process happens in parallel to Cost Management data processing, which means Cost Management doesn't include credits, taxes, and some purchases, like support charges in non-Microsoft Customer Agreement (MCA) accounts.
The classic Cloud Solution Provider (CSP) and sponsorship subscriptions aren't supported in Cost Management. These subscriptions will be supported after they transition to MCA.
For more information about supported offers, what data is included, or how data is refreshed and retained in Cost Management, see Understand Cost Management data.
Manage your billing account and invoices
Microsoft has several types of billing accounts. Each type has a slightly different experience to support the unique aspects of the billing account. To learn more, see Billing accounts and scopes.
You use billing account management tasks to:
- View invoices and make payments.
- Configure your billing address and PO numbers.
- Create and organize subscriptions into departments or billing profiles.
- Renew or cancel products you've purchased.
- Enable access to Cost Management, Reservations, and Marketplace offers.
- View agreements, credits, and commitments.
Management for classic Cloud Solution Provider (CSP) and classic sponsorship subscriptions isn't available in Billing or Cost Management experiences because they're billed differently.
Report on and analyze costs
Cost Management and Billing include several tools to help you understand, report on, and analyze your invoiced Microsoft Cloud and AWS costs.
- Cost analysis is a tool for ad-hoc cost exploration. Get quick answers with lightweight insights and analytics.Power BI is an advanced solution to build more extensive dashboards and complex reports or combine costs with other data. Power BI is available for billing accounts and billing profiles.
- Exports and the Cost Details API enable you to integrate cost details into external systems or business processes.
- The Credits page shows your available credit or prepaid commitment balance. They aren't included in cost analysis.
- The Invoices page provides a list of all previously invoiced charges and their payment status for your billing account.
- Connectors for AWS enable you to ingest your AWS cost details into Azure to facilitate managing Azure and AWS costs together. After configured, the connector also enables other capabilities, like budget and scheduled alerts.
For more information, see Get started with Cost Management and Billing reporting.
Organize and allocate costs
Organizing and allocating costs are critical to ensuring invoices are routed to the correct business units and can be further split for internal billing, also known as chargeback. Cost Management and Billing offer the following options to organize resources and subscriptions:
- MCA billing profiles and invoice sections are used to group subscriptions into invoices. Each billing profile represents a separate invoice that can be billed to a different business unit and each invoice section is segmented separately within those invoices. You can also view costs by billing profile or invoice section in costs analysis.
- EA departments and enrollment accounts are conceptually similar to invoice sections, as groups of subscriptions, but they aren't represented within the invoice PDF. They're included within the cost details backing each invoice, however. You can also view costs by department or enrollment account in costs analysis.
- Management groups also allow grouping subscriptions together, but offer a few key differences:
- Management group access is inherited down to the subscriptions and resources.
- Management groups can be layered into multiple levels and subscriptions can be placed at any level.
- Management groups aren't included in cost details.
- All historical costs are returned for management groups based on the subscriptions currently within that hierarchy. When a subscription moves, all historical cost moves.
- Management groups are supported by Azure Policy and can have rules assigned to automate compliance reporting for your cost governance strategy.
- Subscriptions and resource groups are the lowest level at which you can organize your cloud solutions. At Microsoft, every product – sometimes even limited to a single region – is managed within its own subscription. It simplifies cost governance but requires more overhead for subscription management. Most organizations use subscriptions for business units and separating dev/test from production or other environments, then use resource groups for the products. It complicates cost management because resource group owners don't have a way to manage cost across resource groups. On the other hand, it's a straightforward way to understand who's responsible for most resource-based charges. Keep in mind that not all charges come from resources and some don't have resource groups or subscriptions associated with them. It also changes as you move to MCA billing accounts.
- Resource tags are the only way to add your own business context to cost details and are perhaps the most flexible way to map resources to applications, business units, environments, owners, etc. For more information, see How tags are used in cost and usage data for limitations and important considerations.
In addition to organizing resources and subscriptions using the subscription hierarchy and metadata (tags), Cost Management also offers the ability to move or split shared costs via cost allocation rules. Cost allocation doesn't change the invoice. Cost allocation simply moves charges from one subscription, resource group, or tag to another subscription, resource group, or tag. The goal of cost allocation is to split and move shared costs to reduce overhead. And, to more accurately report on where charges are ultimately coming from (albeit indirectly), which should drive more complete accountability. For more information, see Allocate Azure costs.
How you organize and allocate costs plays a huge role in how people within your organization can manage and optimize costs. Be sure to plan ahead and revisit your allocation strategy yearly.
Monitor costs with alerts
Cost Management and Billing offer many different types of emails and alerts to keep you informed and help you proactively manage your account and incurred costs.
- Budget alerts notify recipients when cost exceeds a predefined cost or forecast amount. Budgets can be visualized in cost analysis and are available on every scope supported by Cost Management. Subscription and resource group budgets can also be configured to notify an action group to take automated actions to reduce or even stop further charges.
- Anomaly alertsnotify recipients when an unexpected change in daily usage has been detected. It can be a spike or a dip. Anomaly detection is only available for subscriptions and can be viewed within the cost analysis preview. Anomaly alerts can be configured from the cost alerts page.
- Scheduled alerts notify recipients about the latest costs on a daily, weekly, or monthly schedule based on a saved cost view. Alert emails include a visual chart representation of the view and can optionally include a CSV file. Views are configured in cost analysis, but recipients don't require access to cost in order to view the email, chart, or linked CSV.
- EA commitment balance alerts are automatically sent to any notification contacts configured on the EA billing account when the balance is 90% or 100% used.
- Invoice alerts can be configured for MCA billing profiles and Microsoft Online Services Program (MOSP) subscriptions. For details, see View and download your Azure invoice.
For for information, see Monitor usage and spending with cost alerts.
Microsoft offers a wide range of tools for optimizing your costs. Some of these tools are available outside the Cost Management and Billing experience, but are included for completeness.
- There are many free services available in Azure. Be sure to pay close attention to the constraints. Different services are free indefinitely, for 12 months, or 30 days. Some are free up to a specific amount of usage and some may have dependencies on other services that aren't free.
- The Azure pricing calculator is the best place to start when planning a new deployment. You can tweak many aspects of the deployment to understand how you'll be charged for that service and identify which SKUs/options will keep you within your desired price range. For more information about pricing for each of the services you use, see pricing details.
- Azure Advisor cost recommendations should be your first stop when interested in optimizing existing resources. Advisor recommendations are updated daily and are based on your usage patterns. Advisor is available for subscriptions and resource groups. Management group users can also see recommendations but will need to select the desired subscriptions. Billing users can only see recommendations for subscriptions they have resource access to.
- Azure saving plans save you money when you have consistent usage of Azure compute resources. A savings plan can significantly reduce your resource costs by up to 65% from pay-as-you-go prices.
- Azure reservations help you save up to 72% compared to pay-as-you-go rates by pre-committing to specific usage amounts for a set time duration.
- Azure Hybrid Benefit helps you significantly reduce costs by using on-premises Windows Server and SQL Server licenses or RedHat and SUSE Linux subscriptions on Azure.
For other options, see Azure benefits and incentives.
Now that you're familiar with Cost Management + Billing, the next step is to start using the service.
- Start using Cost Management to analyze costs.
- You can also read more about Cost Management best practices.
What is cost management and billing? ›
Cost Management + Billing helps you understand your Azure invoice (bill), manage your billing account and subscriptions, monitor and control Azure spending and optimize resource use. Learn how to analyze costs, create and manage budgets, export data, and review and act on recommendations.What does Azure cost management do? ›
Azure Cost Management lets you analyze past cloud usage and expenses, and predict future expenses. You can view costs in a daily, monthly, or annual trend, to identify trends and anomalies, and find opportunities for optimization and savings.What is required for Azure cost management? ›
To enable Cost Management in the Azure portal, you must have confirmed customer acceptance of the Microsoft Customer Agreement (on behalf of the customer) and transitioned the customer to the Azure Plan. Only the costs for subscriptions that are transitioned to the Azure plan are available in Cost Management.Where can you view a costs analysis for Azure charges? ›
To review your costs in cost analysis, open the scope in the Azure portal and select Cost analysis in the menu. For example, go to Subscriptions, select a subscription from the list, and then select Cost analysis in the menu.What are the four 4 main processes of cost management? ›
- Resource planning. ...
- Cost estimation. ...
- Cost budget. ...
- Cost control.
Planning, communication, motivation, appraisal, and decision-making are the features that make managing costs an important business procedure. Resource allocation, cost estimation, cost budgeting, and cost control are the major functions of the cost management process.What are the three benefits of cost management? ›
- Lower Expenses. The main benefit of putting cost controls in place is lowering your company's overall expenses. ...
- Gain Operational Efficiency. ...
- Realize Procurement Effectiveness. ...
- Streamline Technology.
Cost management typically focuses on generating savings and maximizing profits in the longer term.What are the 3 pricing models of Azure? ›
- Pay-as-you-go. Pay-as-you-go is the simplest and most flexible payment model. ...
- Reserved instances. This payment model saves money because it enables you to pay upfront for a predefined period of VM run time. ...
- Spot VMs.
This gives users the flexibility to use their preferred tools and technologies. In addition, Azure offers four different forms of cloud computing: infrastructure as a service (IaaS), platform as a service (PaaS), software as a service (SaaS) and serverless functions.
What are the four tools of strategic cost management? ›
Among these tools, there are activity-based costing, target costing, Kaizen costing, product life cycle costing. Strategic cost management is effective by accurate evaluation and identification of costs in the creation of income, profitability and value creation for companies.Can you use Azure cost management to view costs associated to management? ›
Users can view costs by navigating to Cost Management + Billing in the Azure portal list of services. Then, they can filter costs to the specific subscriptions and resource groups they need to report on.What is Cost analysis in Azure? ›
Cost analysis is a tool in Azure Cost Management that allows you to view aggregated costs over a period. This view can help you understand your spending trends. View costs at different scopes, such as for a resource group or specific resource tags. Cost Analysis provides built-in charts and custom views.How do I monitor my Azure monitoring costs? ›
To get started analyzing your Azure Monitor charges, open Cost Management + Billing in the Azure portal. Select Cost Management > Cost analysis. Select your subscription or another scope. You might need additional access to cost management data.What are the 4 types of costing? ›
Costs are broadly classified into four types: fixed cost, variable cost, direct cost, and indirect cost.What are the five major cost categories? ›
- Prevention cost. Cost of planning and executing a project so it is error-free or within an acceptable error range.
- Appraisal cost: Cost of evaluating processes and their outputs to ensure quality.
- Internal failure cost: ...
- External failure cost: ...
- Measurement and test equipment costs:
- (1) Cost is always related to its cause:
- (2) Abnormal costs are charged in costing:
- (3) Cost is charged after it is incurred:
- (4) Past costs are not taken into consideration to future costs:
- (5) Keeping of accounts for cost is also based on Double entry principle:
Each of these functions plays a critical role in helping organizations achieve efficiently and effectively. Luther Gulick, Fayol's successor, further defined 7 functions of management or POSDCORB—planning, organizing, staffing, directing, coordinating, reporting and budgeting.What is cost management tools? ›
Companies use project cost management software to monitor the profitability of the projects they deliver. This type of software allows businesses to estimate the cost of delivering different types of projects, identify actual costs, and compare them to calculate profit.What are the 3 main components in elements of cost? ›
The Elements of Cost are the three types of product costs (labor, materials and overhead) and period costs.
What are the 3 main categories of cost in product costs? ›
- Direct material. Direct material costs are the costs of raw materials or parts that go directly into producing products. ...
- Direct labor. ...
- Manufacturing overhead.
A cost management plan example could be the budget for a home improvement project. Direct costs would include hired labor and building materials. Indirect costs would include equipment rental fees, insurance, and general maintenance.What are the factors that affecting cost management? ›
So cost management is important in construction project to ensure the success of project, the most factors affected in cost management that indicated through literature review in this study are: Poor scope definition, Inaccurate activity cost estimate, Poor work breakdown structure definition, Change in schedule, ...What are the different areas of cost management? ›
While cost management is viewed as a continuous process, it helps to split the function into four steps: resource planning, estimation, budgeting and control.What is importance of cost management? ›
Having a good cost management system in place makes it easier for an organization to estimate and allocate its budget. Cost management is a form of management accounting that helps a business reduce the chance of going over budget with more accurate forecasts of impending expenditures.What are the four objectives of cost accounting? ›
Cost accounting has the following main objectives to serve:
Determining selling price 2. Controlling cost 3. Providing information for decision-making 4. Ascertaining costing profit 5.
- A traditional Enterprise Agreement. An Enterprise Agreement (EA) is traditionally used for on-premise systems and now, as a commitment-based agreement for enrolments for both cloud and on-premise. ...
- Cloud Service Provider. ...
Cost-Based Pricing. Value-Based Pricing. Competition-Based Pricing.What are the 4 service categories provided by Microsoft Azure? ›
A public cloud computing platform, Microsoft Azure offers infrastructure as a service (IaaS), software as a service (SaaS), platform as a service (PaaS), and a serverless model.What are the top 10 most used Microsoft Azure services? ›
- Azure DevOps.
- Azure Blob Storage.
- Azure Virtual Machines.
- Azure Backup.
- Azure Cosmos DB.
- Azure Logic Apps.
- Azure Active Directory.
- API management.
What are the core concepts in Azure? ›
Important components of Microsoft Azure are Compute, Storage, Database, Monitoring & management services, Content Delivery Network, Azure Networking, Web & Mobile services, etc.What is the difference between cost management and strategic cost management? ›
The cost management techniques should be such that they improve the strategic position of a business apart from focusing on controlling costs. The basic aim of Strategic Cost Management is to help the organisation to achieve the sustainable competitive advantage through product differentiation and cost leadership.What are the 5 model of strategic management? ›
The five stages of the process are goal-setting, analysis, strategy formation, strategy implementation and strategy monitoring.What are the five steps in implementing a system of cost control? ›
- Controlling physical. Usually, someone who has power in the company is in charge of controlling costs. ...
- Historical accounting. ...
- Static budgets and standard costs. ...
- Flexible budget with standard costs. ...
- The central responsibility.
Cost management is the process of planning and controlling the costs associated with running a business. It includes collecting, analyzing and reporting cost information to more effectively budget, forecast and monitor costs.What is included in cost management? ›
It includes activities such as planning, estimating, budgeting, financing, funding, managing, controlling, and benchmarking costs so that the project can be completed within time and the approved budget and the project performance could be improved in time.What is the purposes of cost management? ›
Cost management is the process of estimating, allocating, and controlling project costs. The cost management process allows a business to predict future expenses to reduce the chances of budget overrun. Projected costs are calculated during the planning phase of a project and must be approved before work begins.What are the 4 types of cost? ›
Costs are broadly classified into four types: fixed cost, variable cost, direct cost, and indirect cost.What are the 3 types of cost? ›
- Variable costs: This type of expense is one that varies depending on the company's needs and usage during the production process. ...
- Fixed costs: Fixed costs are expenses that don't change despite the level of production. ...
- Direct costs: These costs are directly related to manufacturing a product.
- Direct cost.
- Indirect cost.
- Fixed cost.
- Variable cost.
- Sunk cost.
What are the 2 types of cost control? ›
- Planning the budget properly. ...
- Monitoring all expenses using checkpoints. ...
- Using change control systems. ...
- Having time management. ...
- Tracking earned value.
Strategic cost management is the process that aims to strengthen a company's strategic position by carefully controlling costs according to the company's broader objectives.What are the 3 major components of costs? ›
The three general categories of costs included in manufacturing processes are direct materials, direct labor, and overhead. Note that there are a few exceptions, since some service industries do not have direct material costs, and some automated manufacturing companies do not have direct labor costs.What are the 4 factors of cost? ›
- What are the ingredients in your cost of production? For manufacturing companies, it's critical to understand your production costs. ...
- Raw materials. Raw materials are the physical materials needed to produce the product. ...
- Labor. ...
- Overhead. ...
- Outside Services. ...
- What's the bottom line?
- The cost approach to real estate valuation considers the value should equal the total cost to build an equivalent structure.
- The cost approach considers the cost of land, plus costs of construction, less depreciation.
- Cost ascertainment. ...
- Cost control. ...
- Cost reduction. ...
- Profit ascertainment. ...
- Rational pricing. ...
- Providing a basis for decision-making. ...
- Statutory compliance. ...
- Accurate profit analysis.
Having a good cost management system in place makes it easier for an organization to estimate and allocate its budget. Cost management is a form of management accounting that helps a business reduce the chance of going over budget with more accurate forecasts of impending expenditures.