What Is AWS Cost Optimization?
AWS cost optimization is the process of reducing your Amazon Web Services (AWS) spending by identifying mismanaged resources, eliminating waste, reserving capacity to achieve higher discounts, and selecting the most cost-effective pricing models. This requires a comprehensive analysis of your current AWS usage and costs to find opportunities for savings without compromising on performance or capacity requirements.
The goal is to maximize the efficiency of AWS resources in a way that aligns with your business objectives. By implementing best practices and utilizing tools designed for cost management, organizations can achieve significant savings for AWS services.
In this article:
- The Importance of Cloud Cost Optimization
- 4 Principles of AWS Cost Optimization
- Free AWS Cost Optimization Tools
- Common Challenges in AWS Cost Optimization
- 6 Pro Tips for Effective AWS Cost Optimization
The Importance of Cloud Cost Optimization
According to the Accel Euroscape report, 80% of companies spend over $1.2 million per year on cloud services, and the total global spend on public clouds is over $500 billion per year. Publicly listed cloud service providers from the United States, Europe, and Israel have a combined valuation of $1.2 trillion. AWS continues to be the leading cloud provider, with 49% of companies reporting they are using its services.
As cloud spending, and specifically AWS costs, become a large part of IT budgets, organizations can no longer afford to ignore cost optimization tools and best practices. In recent reports, the top concern voiced by survey respondents was managing cloud spending. Many organizations now use multi-cloud cost management tools to evaluate and optimize cloud spend in their organizations.
4 Principles of AWS Cost Optimization
Optimizing costs in AWS requires the following steps:
- Understanding AWS pricing structure: The three primary cost drivers in AWS are compute, storage, and outbound data transfer. Each of these elements contributes differently to overall costs, depending on the AWS services and pricing models used.
- Embracing cost optimization tools: It’s important to plan scalable, efficient infrastructure that aligns with financial objectives from the start. AWS provides a set of tools and services that help organizations manage and optimize spending, and dedicated cost optimization tools offer more advanced functionality. These tools assist in organizing and tracking costs, enhancing control through consolidated billing, enabling budgeting, and identifying opportunities for savings.
- Leveraging AWS price flexibility: AWS allows users to select and pay only for the services they need, and select the most appropriate price model for each resource. Some cloud resources can be used on-demand for maximum flexibility, while others can be retained for long periods in exchange for discounts. Some resources also offer volume discounts when users scale up.
- Selecting the appropriate pricing model: AWS provides a variety of pricing options tailored to different use cases, including on-demand instances, savings plans, spot instances, and reservations. On-demand instances offer flexibility without long-term commitments, while savings plans and reservations offer lower rates in exchange for a commitment. Spot instances offer unused computing capacity at a discount, but can be interrupted at short notice.
Melissa Abecasis
Director of Customer Success & Sr. Cloud FinOps Engineer, Anodot
Melissa brings a wealth of experience in customer success, cloud financial operations, and program management, with a demonstrated work history in the Information Technology and healthcare industry.
TIPS FROM THE EXPERT
1. Implement a tagging strategy for better visibility
Develop a consistent tagging strategy across all AWS resources to track and allocate costs effectively. This will help identify resource owners, usage patterns, and areas where optimization can be implemented.
2. Use reserved instance reports to optimize reservations
Leverage AWS’s reserved instance (RI) reports to continuously evaluate and adjust your RI portfolio. This ensures you’re not overcommitting and can take advantage of RI exchanges or sales to better align with your changing needs.
3. Regularly review data transfer costs
Data transfer fees can add up quickly and are often overlooked. Regularly review and optimize data flow between AWS regions and services. Consider using AWS Global Accelerator or AWS Direct Connect to reduce transfer costs in high-traffic scenarios.
4. Leverage AWS Savings Plans for flexibility
If your workloads are less predictable, consider AWS Savings Plans instead of traditional reserved instances. Savings Plans offer flexibility across instance types and regions, allowing you to maximize savings without being locked into specific configurations.
5. Schedule resource downtime
Implement scheduling scripts or use tools like AWS Instance Scheduler to automatically shut down non-critical instances during off-hours. This simple step can lead to substantial savings, especially in development and testing environments.
Free AWS Cost Optimization Tools
AWS offers several free tools as part of its platform, which can provide basic cost optimization capabilities.
1. AWS Cost Explorer
AWS Cost Explorer enables users to visualize, understand, and manage their AWS spending and usage over time. It allows for the creation of custom reports that can drill down into the details of an organization’s AWS costs and usage patterns. Admins can filter by service type, tags, or specific time periods.
By leveraging its analytical capabilities, organizations can identify trends, pinpoint cost drivers, and uncover opportunities for reducing expenditure. Cost Explorer provides insights into historical data up to the last 12 months and forecasts for up to the next three months, helping in budget planning and expenditure management.
2. AWS Budgets
AWS Budgets allows organizations to set custom budgetary controls and alerts that notify them when their costs or usage exceed predefined thresholds. This helps business teams stay within their financial constraints without constantly monitoring their AWS expenditure manually.
By setting budgets for specific services, accounts, or even tags, users can gain granular control over their spending, ensuring alignment with financial planning and operational objectives. AWS Budgets also integrates with tools like AWS Lambda to automate responses when budgets are breached.
3. AWS Trusted Advisor
AWS Trusted Advisor is an online tool that provides real-time guidance to help users optimize their AWS environments for cost savings, performance, security, and fault tolerance. Analyzing AWS resource configurations and usage patterns identifies opportunities to reduce costs, improve system performance and reliability, and enhance security by highlighting potential vulnerabilities.
Trusted Advisor checks are categorized into five areas: cost optimization, performance, security, fault tolerance, and service limits. The tool offers actionable recommendations with detailed steps on how to implement each suggestion. For example, it might suggest consolidating underutilized instances or upgrading to a newer instance type that offers better performance at a lower cost.
4. AWS Cost and Usage Report
The AWS Cost and Usage Report provides a comprehensive set of data about an organization’s AWS costs and usage. It generates reports that break down costs by service, allowing for an in-depth analysis of where and how resources are being consumed. Users can customize these reports to identify trends, detect inefficiencies, and adjust resource utilization.
By accessing granular data, including the usage of individual services and the associated costs over time, organizations can pinpoint exactly where their cloud budget is going. This visibility is useful for identifying potential savings opportunities, such as underutilized resources that can be downsized or shut off.
5. AWS Pricing Calculator
The AWS Pricing Calculator helps users estimate the cost of their AWS services before they deploy any resources. This allows for precise budget planning and financial forecasting. By inputting configurations for various AWS services, users can receive detailed cost estimates that include both direct and indirect expenses, such as data transfer fees, which often go overlooked in initial planning stages.
The Pricing Calculator also supports scenario-based planning, allowing users to compare different deployment options to find the most cost-effective solution. This is particularly useful for evaluating the costs of different architectures or configurations before making a commitment.
Learn more in our detailed guide to AWS cost optimization tools (coming soon)
Common Challenges in AWS Cost Optimization
There are several factors that can make it challenging to optimize costs in AWS.
Billing Complexity
Each AWS service has its own pricing structure, which may include multiple variables such as on-demand rates, reserved instances, spot instances, and data transfer costs. This complexity can make it difficult to track and predict expenses accurately. Additionally, the frequent updates and changes in AWS pricing require continuous monitoring and adjustments.
Low-Cost Visibility
Without detailed insights, it becomes difficult to identify the sources of inefficiencies or unnecessary expenditures. AWS-provided cost management tools can help, but they provide limited data analysis and customization capabilities.
Difficulty in Forecasting Cloud Costs
Forecasting cloud costs accurately is challenging due to the dynamic nature of cloud usage and the complexity of AWS pricing models. Usage can vary significantly based on demand, application behavior, and organizational changes. Additionally, new services or features introduced by AWS can alter cost structures.
Lack of Accountability
In many organizations, the lack of clear accountability for AWS spending can lead to unchecked costs. Without defined ownership and responsibility for managing cloud resources, it’s easy for expenditures to spiral out of control. Many organizations lack a consistent tagging system for cloud resources, which makes it difficult to connect resources to their owners.
6 Pro Tips for Effective AWS Cost Optimization
Here are some of the ways that organizations can optimize their AWS spending.
1. Right-Size Your Instances
Right-sizing instances help ensure you are not overpaying for unused resources. It involves analyzing your instance usage and performance metrics to identify instances that are either too large or too small for their workload. By resizing these instances to more appropriately match their utilization, you can optimize performance and reduce costs.
AWS offers tools like AWS Compute Optimizer that provide recommendations based on historical usage patterns for right-sizing instances. Implementing these recommendations can lead to significant cost savings, especially when applied across a large number of instances or when downsizing over-provisioned resources.
2. Implement Auto Scaling Policies
AWS Auto Scaling automatically adjusts the number of instances in response to real-time demand, ensuring that you have sufficient capacity to handle workload spikes without maintaining idle or underutilized resources during periods of low demand.
By using Auto Scaling, you can define scaling policies based on a variety of metrics like CPU utilization or network traffic. This ensures that the application maintains optimal performance and availability while minimizing costs.
3. Regularly Audit EBS Volumes
Many organizations find that over time they accumulate EBS volumes that are either no longer in use or are underutilized, leading to unnecessary storage costs. By conducting regular audits, you can identify these volumes and take appropriate actions, such as deleting unattached or obsolete volumes, or resizing them to better match their workload requirements.
Tools like AWS Trusted Advisor or third-party cost management solutions can automate the process of identifying underutilized EBS volumes. These tools can provide detailed reports on volume utilization, highlighting opportunities for cost savings.
4. Use EC2 Spot Instances
EC2 spot instances offer an opportunity to reduce Amazon EC2 costs by allowing you to bid on spare compute capacity at a fraction of the cost of on-demand instances. This can lead to savings of up to 90% compared to on-demand prices, making it suitable for workloads that are flexible in terms of timing and can tolerate interruptions.
To maximize savings with spot instances, design your applications to be resilient to spot instance interruptions. AWS provides a two-minute warning before reclaiming these instances, which can be used to gracefully save state and shut down applications. Suitable workloads include batch processing jobs, development environments, and non-critical background tasks.
5. Use or Sell Underutilized Reserved Instances
Reserved instances (RIs) offer significant discounts compared to on-demand pricing, but sometimes organizations find themselves with underutilized RIs due to changes in their computing needs. Periodically review reservations to compare them against actual usage.
To optimize costs, consider selling unused RIs on the AWS Reserved Instance Marketplace or modifying them to better match current usage patterns. Selling allows you to recoup some of the initial investment, while modification can align RIs more closely with your actual compute requirements, helping minimize wastage of resources.
6. Use Compute Savings Plans
By committing to a consistent amount of compute usage (measured in dollars per hour) for a one or three-year term, you can save up to 66% compared to on-demand instance pricing. This helps you save across compute services such as Amazon EC2, AWS Lambda, and AWS Fargate without being tied to specific instance types, regions, or operating systems.
To benefit from compute savings plans, assess your organization’s long-term compute needs and commit to a minimum usage level. This approach is particularly suitable for workloads with predictable usage patterns.
Anodot for AWS Cost Management
Cutting AWS costs means eliminating waste. Anodot offers cloud cost management solutions with real-time monitoring and tailored recommendations that help businesses gain control of their cloud spend.
Robust visibility features allow spending and usage tracking across multi-provider cloud stacks with highly intuitive custom reports and dashboards. AI and ML-based anomaly detection and correlation quickly identify the source of anomalies and spikes and provide real-time alerts to help companies avoid unnecessary expenses. Robust forecasting features autonomously analyze cloud usage data to provide accurate and yearly forecasts and easy-to-use savings recommendations.
Written by Perry Tapiero
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