AWS Cloud Cost Dilemma: Savings Plans vs. RIs - Your Definitive Guide

Fun Fact: AWS Savings Plans and Reserved Instances can be a bit like choosing a car. One's a fuel-efficient sedan (Savings Plans), while the other's a customized sports car (RIs). The question is, do you need to race, or are you looking to save on gas?

Introduction

The cloud has revolutionized the way organizations operate, offering scalability, flexibility, and cost efficiency. However, cost optimization remains a top priority for organizations leveraging services from AWS. Two key options to achieve cost efficiency are AWS Savings Plans and Reserved Instances (RIs). Choosing between these cost-saving strategies can be a daunting task. In this definitive guide, I'll dissect the AWS cloud cost dilemma, providing you with the insights and knowledge needed to make informed decisions for your organization.

POV: At the crossroads of cloud cost management, there's a man in a dilemma. His choices: AWS Savings Plans or Reserved Instances. It's like he's in a cloud-based version of 'The Matrix.' Are you ready to take the red pill or the blue pill?

The mission is to empower organizations to make strategic decisions for optimal cloud resource utilization. In this regard, a comprehensive six-step decision-making process for effectively choosing between AWS Reserved Instances (RIs) and Savings Plans is outlined. By considering unique usage patterns, service scope, cost flexibility, workload variations, and growth projections, individuals and teams can ensure a well-informed choice that aligns with their specific needs and financial goals.

Step 1: Understanding the AWS Reserved Instances and AWS Savings Plan

• Reserved Instances: A pricing model that allows you to commit to a specific instance types and families in exchange for a lower hourly rate. RIs offer better predictability for instance types but can be less flexible compared to Savings Plans.

• Savings Plan: A pricing model that offers cost savings across a broader range of services without the need to commit to a specific instance or family. Savings Plans provide consistent pricing benefits, but they offer less instance type predictability compared to RIs.

Step 2: Determine your organization's cloud usage patterns

• Reserved Instances: Suitable when your usage is consistent and predictable, and you can commit to using specific instance types and families over a longer term.

• Savings Plan: Ideal if your usage fluctuates across instance types, families, or services. They provide broader flexibility for cost savings across various services.

Step 3: Determine the scope of cloud services

• Reserved Instances: Primarily apply to EC2 instances, making them more suitable if your organization's primary usage is focused on compute or database instances.

• Savings Plan: They cover a wider range of services, making them suitable if your organization uses a variety of AWS services beyond just EC2 instances such as AWS Lambda, Fargate, sagemaker etc.

Step 4: Analyze Cost Flexibility

• Reserved Instances: Convertible RIs offer the option to switch instance sizes and families for increased flexibility. Additionally, Standard RIs can be resold in the marketplace.

• Savings Plan: Provide flexibility to switch automatically between instance types and families, allowing you to adapt to changing requirements.

Step 5: Determine and plan for varying workloads

• Reserved Instances: Appropriate when your resource requirements display consistent stability, and you can dedicate to utilizing particular instances. Well-suited for companies with foreseeable expansion, as they secure cost savings throughout an extended commitment duration.

• Savings Plan: Ideal for rapidly changing resource demands, enabling seamless transitions between various instance types and families. Offers the agility to accommodate growth and evolving workload needs, making it a great fit for organizations with dynamic scaling requirements.

Step 6: Make a decision that is right for your organization

There is no one-size-fits-all answer to this question. The best option for your organization will depend on your specific needs and requirements. Based on the above considerations, make an informed decision:

Choose Savings Plans if your organization's workload is diverse, flexible, and spans various cloud services, allowing for cost-efficient adaptability.

Opt for RIs if your organization's usage is consistent, you can commit to specific instance types, and you prioritize cost predictability and long-term savings.

Success Story

By proactively engaging FinOps expertise and implementing targeted technology solutions, one of our customers has achieved unparalleled cost efficiency and resource utilization. One of the key factors contributing to their remarkable success was the strategic procurement of Savings Plans.

Initially, we adhered to the comprehensive six-step process detailed earlier, leading us to select the Savings Plan option. This decision was driven by the demand patterns of their executive personas and our careful observations.

We evaluated their workload and reviewed the monthly on-demand billing for EC2 services. Upon analyzing the workload, we determined that the expenditure for EC2 services was at least $70 per hour. This prompted us to opt for an initial savings plan of $56 to avoid excessive commitment. After two months, observing complete utilization of the initial savings plan, we proceeded to introduce an additional $15 per hour savings plan, all guided by the evolving workload dynamics.

These financial commitments allowed the Security Software Vendor to lock in significant cost savings on their computing resources while ensuring long-term predictability and stability in their cloud expenditures. By intelligently leveraging Savings Plans, the customer experienced an impressive 20-23% reduction in their monthly cloud spend. This decisive move, combined with other resource-level optimizations, resulted in an overall 30% savings on their monthly cloud expenditure. Moreover, the Savings Plans successfully covered over 80% of their computing resources, offering unmatched value and return on investment.

Comparison Table

Conclusion

By systematically analyzing your organization's current workloads, future scaling plans, flexibility requirements, cost predictability needs, and instance type preferences, you can make a well-informed decision between Savings Plans and Reserved Instances. This decision should align with your organization's strategic objectives and cost optimization goals, ensuring efficient cloud resource utilization.