3.28 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 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 adheres to the following requirements:

• EffectiveCost MUST be present in a FOCUS dataset.
• EffectiveCost MUST be of type Decimal.
• EffectiveCost MUST conform to NumericFormat requirements.
• EffectiveCost MUST NOT be null.
• EffectiveCost MUST be a valid decimal value.
• EffectiveCost MUST be 0 when ChargeCategory is "Purchase" and the purchase is intended to cover future eligible charges.
• EffectiveCost MUST be denominated in the BillingCurrency.
• The sum of EffectiveCost in a given billing period may not match the sum of the invoices received for the same billing period for a billing account.
• When ChargeCategory is not "Usage" or "Purchase", EffectiveCost adheres to the following additional requirements:
  • EffectiveCost of a charge calculated based on other charges (e.g., when the ChargeCategory is "Tax") MUST be calculated based on the EffectiveCost of those related charges.
  • EffectiveCost of a charge unrelated to other charges (e.g., when the ChargeCategory is "Credit") MUST match the BilledCost.
• Charges for a given CommitmentDiscountId adhere to the following additional requirements:
  • The sum of EffectiveCost where ChargeCategory is "Usage" MUST equal the sum of BilledCost where ChargeCategory is "Purchase".
  • The sum of EffectiveCost where ChargeCategory is "Usage" MUST equal the sum of EffectiveCost where ChargeCategory is "Usage" and CommitmentDiscountStatus is "Used", plus the sum of EffectiveCost where ChargeCategory is "Usage" and CommitmentDiscountStatus is "Unused".

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.

3.28.3.1 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.

3.28.3.2 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.