AWS Cost Optimization - Overview & Best Practices

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Cloudticity, L.L.C.

Amazon Web Services (AWS) offers organizations important cost advantages for building and running applications and storing data. However, despite the advantages of the cloud cost model, AWS costs can still escalate quickly.

In fact, a recent report showed that 82% of IT leaders are struggling with managing cloud spend.

Having a thorough understanding of cost optimization best practices and monitoring techniques can help you identify opportunities for cost reduction so you can reduce your overall cloud spending, without sacrificing performance.

What is AWS Cost Optimization?

AWS cost optimization is the process of minimizing the costs associated with using AWS services while maximizing the value that you get from those services. It involves using best practices and tools to identify areas for cutting costs so you can reduce your AWS spending without compromising on performance, availability, or security.

AWS cost optimization is an ongoing process that requires regular review and adjustments to ensure that you are using AWS services in the most cost-effective manner possible.

AWS Cost Optimization Best Practices

Right-sizing of resources

One of the most effective ways to optimize costs in AWS is to right-size your resources. This means ensuring that you are using resources that are appropriate for your workloads. AWS provides a variety of services and instance types to choose from, and selecting the right instance type can make a significant difference in cost savings. For example, using smaller instance types for non-critical workloads or using spot instances for batch processing can reduce costs.

Use Reserved Instances

Reserved Instances (RIs) allow users to reserve compute capacity for a period of one or three years. By committing to a term, users can benefit from significant cost savings. The upfront payment for the reserved instance is usually less than the on-demand pricing, and the overall cost of running workloads can be reduced by up to 75%.

Use AWS Cost Explorer

AWS Cost Explorer is a tool that helps users to understand and optimize their AWS costs. It provides detailed insights into usage and costs, and allows users to analyze costs by service, region, instance type, and other parameters. Using Cost Explorer can help businesses identify areas where they can reduce costs, such as unused or underutilized resources.

Enable Auto Scaling

Auto Scaling is a feature in AWS that allows users to automatically adjust the number of EC2 instances based on the workload. This can help businesses optimize their costs by scaling up or down resources based on demand. This can also help avoid over-provisioning resources, which can lead to unnecessary costs.

Use Spot Instances

Spot Instances are unused EC2 instances that can be purchased at a significantly reduced price. However, these instances may be terminated by AWS at any time if the spot price increases or if AWS needs the capacity for on-demand instances. Spot Instances can be used for non-critical workloads or batch processing that can be interrupted without significant impact.

Use AWS Cost Allocation Tags

AWS Cost Allocation Tags are a way to categorize and track costs in AWS. By using cost allocation tags, businesses can track costs by application, department, project, or any other parameter that makes sense for their organization. This can help businesses identify areas where costs can be reduced and make informed decisions about resource allocation.

Use AWS Savings Plans

AWS Savings Plans provide you with the flexibility to use the compute services that best suit your needs, while reducing costs and managing capacity.

Savings Plans offer two different types of commitment options:

Compute Savings Plans: These provide a commitment to use a specific amount of compute power, measured in dollars per hour, for a one or three-year term. Compute Savings Plans can be applied to EC2 instances or Fargate usage.

EC2 Instance Savings Plans: These provide a commitment to use a specific instance family in a particular region, measured in dollars per hour, for a one or three-year term. EC2 Instance Savings Plans can be applied to any EC2 instance type within the same instance family, regardless of size, AZ, OS, or tenancy.

Savings Plans automatically apply to your usage of EC2 and Fargate, and provide a discount on your compute usage up to the amount of the commitment. If your usage exceeds the commitment, you will be charged at the On-Demand rate for the additional usage.

What AWS Services can help with cost optimization?

AWS Cost Explorer: Provides you with a comprehensive view of your AWS spending and helps you to understand the cost and usage patterns of your AWS resources.

AWS Budgets: Allows you to set custom cost and usage budgets for your AWS resources, and it sends you alerts when your spending exceeds your budget.

AWS Trusted Advisor: Provides recommendations for optimizing your AWS infrastructure, such as identifying underutilized resources, or suggesting changes in EC2 instance types.

Amazon EC2 Spot Instances: These are spare compute capacity instances that AWS makes available at a discounted price. You can use them to run your applications and workloads, and save up to 90% compared to on-demand instances.

AWS Lambda: Allows you to run your code without provisioning or managing servers. With Lambda, you pay only for the compute time that you consume, which can help you to save money.

Amazon S3 Intelligent-Tiering: This service automatically moves data between different storage classes based on access patterns, which can help to reduce costs by optimizing the storage of infrequently accessed data.

What are the four pillars of cost-optimization for EC2?

  1. 1. Right-sizing: Ensuring that you are using the most appropriate instance size for your workloads can help you to optimize your EC2 costs. This involves periodically reviewing and adjusting your EC2 instance types to match your current needs, based on your usage patterns and performance requirements.

  2. 2. Purchasing options: AWS provides different purchasing options for EC2 instances, such as On-Demand, Reserved Instances, and Spot Instances. Choosing the right purchasing option can help you to optimize your EC2 costs, depending on your workload requirements, usage patterns, and budget.

  3. 3. Instance lifecycle management: Managing the lifecycle of your EC2 instances effectively can help you to optimize your costs. This involves monitoring and terminating instances that are no longer needed, such as instances that are idle or underutilized.

  4. 4. Managed services: AWS provides several managed services that can help you to optimize your EC2 costs, such as Amazon EC2 Auto Scaling, AWS Elastic Load Balancing, and AWS Lambda. These services can help you to automatically scale your infrastructure, improve availability, and reduce costs by only using the resources you need.

What are the three main pricing options for EC2?

The three main pricing options for EC2 are:

  1. 1. On-Demand Instances: With On-Demand Instances, you pay for compute capacity by the hour or second, with no long-term commitments or upfront payments. This pricing option is suitable for workloads that have unpredictable usage patterns or require short-term, temporary compute capacity.

  2. 2. Reserved Instances: Reserved Instances allow you to reserve EC2 instances for a period of one or three years, in exchange for a discounted hourly rate. This pricing option is suitable for workloads that have steady-state or predictable usage patterns, and can provide significant cost savings compared to On-Demand Instances.

  3. 3. Spot Instances: Spot Instances allow you to bid on unused EC2 capacity, and you pay the current Spot price. This pricing option can provide up to 90% cost savings compared to On-Demand Instances, but it comes with the risk of instances being reclaimed by AWS when the Spot price exceeds your bid. Spot Instances are suitable for workloads that are flexible and can be interrupted or stopped without affecting the overall outcome of the job.

What are the AWS cost optimization pillars?

The AWS cost optimization pillars are a framework of best practices for optimizing costs across your AWS environment. These pillars are:

  1. 1. Cost-effective design: This pillar focuses on designing your architecture in a way that maximizes the value you get from AWS services while minimizing costs. It includes using services that are cost-effective, leveraging automation, and making use of AWS pricing models to optimize your costs.

  2. 2. Right-sizing: This pillar involves matching your resource usage to your actual workload requirements. By selecting the right instance sizes and types, as well as optimizing your storage usage, you can reduce costs and improve performance.

  3. 3. Reserved Instances and Savings Plans: Reserved Instances and Savings Plans are a way to save on costs by committing to use AWS services for a specific period of time. By selecting the right instance types and terms, you can get significant discounts on your AWS usage.

  4. 4. Instance lifecycle management: This pillar involves managing the lifecycle of your instances, including regularly reviewing and terminating unused or underutilized resources. By doing so, you can reduce costs and optimize your capacity utilization.

  5. 5. Optimizing purchasing options: AWS offers multiple purchasing options, such as On-Demand, Reserved Instances, and Spot Instances. This pillar involves selecting the right purchasing options for your workload requirements and budget to optimize your costs.

  6. 6. Monitoring and analyzing: This pillar involves monitoring and analyzing your AWS usage to identify opportunities to optimize costs. This includes using tools such as AWS Cost Explorer, AWS Budgets, and AWS Trusted Advisor to identify and act on cost optimization opportunities.

What are AWS Savings Plans?

AWS Savings Plans are a flexible pricing model that allow you to save money on your AWS usage in exchange for committing to a consistent amount of usage over a one or three year period. Savings Plans provide discounts of up to 72% compared to On-Demand pricing, and can be used to reduce costs for EC2, Fargate, and Lambda usage.

With Savings Plans, you commit to a specific dollar amount per hour, for either a one-year or three-year term. You can choose between two types of Savings Plans: 

  • Compute Savings Plans: Provide flexibility for your compute usage, including usage of EC2, Fargate, and Lambda. 

  • EC2 Instance Savings Plans: Provide discounts for EC2 instance usage in a specific region, family, and size, providing the most savings when your usage patterns remain consistent over time.

Start Cost Optimizing in AWS Today

Optimizing costs in AWS is an ongoing process that requires careful consideration and monitoring of resources and usage patterns, as well as knowledge of how to leverage AWS services. 

If you want to learn more about how to optimize costs in AWS, download the full white paper “Reduce Your AWS Spending - 6 simple ways to cut monthly costs now.”

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