Increasing Savings and Mitigating Risks with Amazon EC2 Convertible Reserved Instances

By Aditya Datta, CEO at Cloudwiry

When managing Amazon Web Services (AWS) spending, you want to mitigate risks and costs wherever possible.

One way to do this is to increase your coverage of Amazon EC2 Reserved Instances, which can result in significant discounts and increased savings. However, constantly improving technology and the evolving needs of your company can render your committed Reserved Instances (RI) obsolete.

Managing the downsides of high RI coverage enables you to maximize cost savings and flexibility by reducing lock-in risk. Doing so requires specialized resources to manage the complex process of determining when to exchange Convertible RIs. Without proper planning, the exchange operation can have a high true-up cost.

The Cloudwiry cost management platform specializes in this cost-recovery practice by optimizing Reserved Instance coverage for ROI. Cloudwiry is an AWS Partner Network (APN) Advanced Technology Partner with the AWS Cloud Management Tools Competency.

Optimizing only for Reserved Instance use can cause ROI and operational needs to suffer, but the Cloudwiry team can explain how to increase RI savings up to 32 percent while focusing on your corporate strategy, policies, and changing resource requirements.

By setting up a weekly review and exchange of Amazon EC2 Convertible RIs, you can begin to see benefits quickly.

Covering Reserved Instance Spend by Managing Downsides

If you spend $1 million monthly on Amazon Elastic Compute Cloud (Amazon EC2) instances, you might only cover $600,000 of that with Reserved Instance discounts—and that’s only if you’re concerned about commitment risks.

If you have a way to manage risks, you might be able to cover $950,000 with RIs, only paying On-Demand Instance rates for the remaining $50,000 of your AWS spend.

In this post, I will detail five risks that can become opportunities for huge savings and increased IT flexibility through strategic Convertible Reserved Instances management.

Cost and complexity of Reserved Instance conversions.
Under-used and unused RIs.
Low ROI with aging RIs.
Seasonal and uncertain compute needs for non-production resources.
Decrease in future Amazon EC2 spending.

Risk 1: Cost and Complexity of RI Conversions

If you don’t want to spend more money for each conversion, you can exchange a Convertible RI for another one of equal or greater value, but only in whole units. For those reasons, the exchange typically comes with a true-up cost.

By exchanging larger RIs for small t3.nano instances, you gain the flexibility to exchange the number of instances that most closely matches your actual operational needs. Then, you can allocate smaller instance types however you need.

That’s why, with the Cloudwiry methodology, the cost of exchanging RIs is at most $20 per year for each t3.nano, rather than thousands of dollars per year.

Risk 2: Under-Used and Unused RIs

You may outgrow Reserved Instances before their terms end. As your application architecture evolves, the RIs you have today may go unused—unless you exchange them.

Ongoing monitoring and frequent-but-strategic Convertible RI exchanges can keep you on the instances that fit your current needs. With higher coverage, you may find exchange opportunities daily.

Again, this represents a chance to minimize true-up costs using t3.nano instances.

Risk 3: Low ROI with Aging RIs

If you launch new Amazon EC2 instances with higher discounts, you don’t want to get stuck with old RIs and On-Demand Instances that are undiscounted.

As your Amazon EC2 usage and needs evolve, you still want to maximize savings. With Convertible RIs, you can exchange instances for new products that are more appropriate for your current operational requirements—and with higher discounts.

For example, you can exchange one r5.24xlarge Windows SQL Server Enterprise Convertible RI (with a 6 percent discount and three-year no up-front cost) for 449 m5.xlarge Linux instances (49 percent discount).

The following table shows how the three-year cost is the same—no added commitment—but with an additional $1 million net savings.

Cloudwiry focuses on finding the best Convertible RI discounts that match your compute needs and simplify the otherwise complex exchanges.

Risk 4: Seasonal and Uncertain Compute Needs for Non-Production Resources

If you don’t want to use RIs for development and testing environments, you can easily benefit from Convertible RI savings with the more stable instance-type mix typically used for production resources.

But what about the compute associated with non-production and seasonal workloads? For those, a changing instance mix and seasonal usage can be a deterrent to making RI commitments.

AWS allows you to exchange small t3.nano three-year Convertible RIs with three months remaining to scale up for your larger seasonal workloads (for example, 450 m5.large instances). In effect, you can get three-year discounts with a three-month commitment, enabling you to recoup even more savings for short-term workloads.

Risk 5: Decrease in Future Amazon EC2 Spend

If your compute needs are decreasing, you can exchange remaining contract time for a lesser amount of compute spread over three years.

For example, let’s say you have one-and-a-half years remaining on a $200,000 per year contract for a resource you no longer need. You can exchange the remaining $300,000 commitment (1.5 years × $200,000) for a $100,000 per year resource spread over a three-year contract.

Conclusion

With a greater understanding of how to maximize ROI while mitigating the risks of three-year Reserved Instance commitments, you can manage your AWS spend with the following best practices:

Set up a daily review and exchange of Convertible RIs that fit your company needs.
Set up ongoing processes that identify the highest savings for your existing Convertible RIs.
Plan your exchange operations so you can minimize your true-up costs.
Increase your RI coverage to maximize savings.

Cloudwiry optimizes Reserved Instance coverage for ROI. For a faster path to savings, Cloudwiry RI Maximizer analyzes usage, and then continuously recommends and performs Convertible RI exchanges that maximize savings based on that usage—even as it changes, grows, or shrinks.

Get started by creating a free Cloudwiry account >>

If you think of your AWS spending as an expense, this methodology greatly shrinks that cost. If you think of your AWS spending as an investment, this methodology gets you the most return. The flexibility of the resulting compute resources serves as the foundation of a more stable IT organization in the face of fast-paced changes in markets and technology.

The content and opinions in this blog are those of the third party author and AWS is not responsible for the content or accuracy of this post.

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