2.23 Effective Cost

Effective Cost represents the amortized cost of the charge after applying all reduced rates, discounts, and the applicable portion of relevant, prepaid purchases (one-time or recurring) that covered this charge. The amortized portion included should be proportional to the Pricing Quantity and the time granularity of the data. Since amortization breaks down and spreads the cost of a prepaid purchase, to subsequent eligible charges, the Effective Cost of the original prepaid charge is set to 0. Effective Cost does not mix or "blend" costs across multiple charges of the same service. This cost is denominated in the Billing Currency. The Effective Cost is commonly utilized to track and analyze spending trends.

This column resolves two challenges that are faced by practitioners:

1. Practitioners need to amortize relevant purchases, such as upfront fees, throughout the commitment and distribute them to the appropriate reporting groups (e.g. tags, resources).
2. Many commitment-based discount constructs include a recurring expense for the commitment for every billing period and must distribute this cost to the resources using the commitment. This forces reconciliation between the initial commitment row per period and the actual usage rows.

The EffectiveCost column MUST be present in the billing data and MUST NOT be null. This column MUST be of type Decimal, MUST conform to Numeric Format requirements, and be denominated in the BillingCurrency. EffectiveCost MUST be 0 when ChargeCategory is "Purchase" and the purchase is intended to cover future eligible charges. The aggregated EffectiveCost for a billing period may not match the charge received on the invoice for the same billing period.

In cases where the ChargeCategory is not "Usage" or "Purchase", the following applies:

• The EffectiveCost MUST be calculated based on the EffectiveCost of the related charges if the charge is calculated based on other charges (e.g. ChargeCategory is "Tax").
• The EffectiveCost MUST match the BilledCost if the charge is unrelated to other charges (e.g. ChargeCategory is "Credit").

The amortized cost of the charge after applying all reduced rates, discounts, and the applicable portion of relevant, prepaid purchases (one-time or recurring) that covered this charge.

2.23.3.1 Concerning Granularity and Distribution of Recurring Fee

Providers should distribute the commitment purchase amount instead of including a row at the beginning of a period so practitioners do not need to manually distribute the fee themselves.

2.23.3.2 Concerning Amortization Approaches

Eligible purchases should be amortized using a methodology determined by the provider that reflects the needs of their customer base and is proportional to the Pricing Quantity and the time granularity of the row. Should a practitioner desire to amortize relevant purchases using a different approach, the practitioner can do so using the Billed Cost for the line item representing the initial purchase.