Cost optimization flywheel

In today’s competitive and rapidly changing environment, economic instability is prompting enterprises to operate differently and find new ways of realizing cost efficiencies. Enterprises need to look at ways to accelerate investment in transformational IT capabilities, optimize and reinvest savings in programs catered to deliver continuous innovation.

However, before embarking on this journey, It is vital that enterprises understand where they are investing as well as spending. These cost transparencies and insights will help drive data-driven and informed decisions. This blog describes a flywheel approach that an enterprise can utilize to optimize their AWS spend and leverage those saving towards driving continuous innovation.

Cost optimization Flywheel

AWS recommends defining a cost optimization initiative using a flywheel framework. Each stage of the flywheel indicates initiation of an action, with the outcome feeding into the next stage. It is important to note that savings obtained from the optimization cycle can be re-invested in new technologies for business to continue evolving their cloud maturity. Each business unit or department within an organization can define their own flywheel.

While organizations gain financial benefits through optimization, AWS continuously innovates across virtually every solution area to improve performance while lowering costs for our customers. Further, some of these initiatives inherently provide sustainability optimization benefits as well. For example, right-sizing EC2 instances will save cost, and reduce energy consumption.

Figure 1. Cloud cost optimization flywheel

Finding cost optimization opportunities with AWS Tools

According the Gartner Magic Quadrant for Cloud Infrastructure and Platform Services report (October 2022), cost management is a weak spot for some major cloud providers. However, AWS provides various services, tools, and resource to organize and track cost and usage data, enable better planning through budgeting and forecasts, recommendation on optimization as well as tools to track optimization goals. It offers management tools that make it easier for customers to monitor and optimize their cloud costs.

AWS Cloud Financial Management (CFM) solutions help transform your business through cost transparency, control, forecasting and optimization. These solutions help enable cost-conscious culture. Customers can refer to the CFM Cost Optimization with AWS for use cases and AWS services that can help to achieve cost optimization benefits.

AWS customers can cost optimize their cloud environment by using the following four methods:

• Discounts: These are cost optimization opportunities tied to discounts through Savings Plans (SP), Reserved Instances (RI), and other customer unique terms. We can leverage Savings Plans and Reserved Instances for predictable workloads. Cost Explorer Savings Plans and Reservations Recommendations helps us to identity those cost optimization opportunities. These opportunities are low-hanging fruits and are easy to implement.
• Rightsizing: This method covers right sizing your resources to avoid over provisioning and underutilization. We can leverage tools like AWS Compute Optimizer to get right sizing recommendations for Amazon EC2, Amazon EBS, Amazon ECS on AWS Fargate, and AWS Lambda.
• Deleting: These are opportunities tied to cleaning up resources that are no longer needed. Deleting unattached EBS volumes and unused Elastic IP address are couple of examples. You can leverage Trusted Advisor Cost Optimization checks to identify and address these resources utilization opportunities.
• Suspending: This method is tied to leveraging cloud elasticity and shutting down resources when it’s not needed anymore. We can scale resources up and down based on our business need. You can leverage tools like EC2 Auto Scaling and solutions like Instance Scheduler to scale resources based on demand.

Cost-aware architectures will help to optimize cost further. Spot instances can be leveraged for fault-tolerant workloads to get higher discounts on EC2. Serverless services can be used for suitable workloads to reduce cost. We can use latest generation of EC2 instances or latest storage volume type or storage classes. We can achieve modernization cost benefits by migrating those workloads to new architectures which provides both cost and performance benefits.

Cloud Intelligent Dashboards (CID) provide prebuilt visualizations that can help you manage and optimize AWS costs. CID are a collection of Amazon QuickSight cost and usage visualization dashboards built on top of AWS CUR and other AWS datasets. These dashboards are built on native AWS services. Customers can refer to the CID dashboards here.

Organizations can achieve recurring savings through continuous cost monitoring and automation of some of these cost optimization opportunities.

You can also leverage AWS Well-Architected Labs which contains documentation and code in the format of hands-on labs to help you learn, measure, and build using architectural best practices focusing on cost optimization.

Maximize your Investment

AWS strives to drive continuous cost reductions for their end customers via offering strategic incentive programs and right sizing end user requirements to the appropriate AWS offering. Such cloud optimization can help customers accelerate realization of business value and achieve lower operating costs. Some of the key mechanisms and levers that can be explored by customers include:

• Migration Acceleration Program (MAP) – provides tools that reduce costs, automate and accelerate execution. MAP also uses a proven three-phased framework (Assess, Mobilize, and Migrate and Modernize) to help you achieve your migration goals. Through MAP, you can build strong AWS cloud foundations, accelerate and reduce risk, and offset the initial cost of migrations.
• AWS Cloud Economics – The value of cloud extends beyond Total Cost of Ownership (TCO) reduction. AWS customers also see significant improvements in other areas, including staff productivity, operational resilience and business agility.
• Consolidated billing for AWS Organizations – By consolidating your AWS accounts, you can combine the usage across all accounts in the organization to share the volume pricing discounts, Reserved Instance discounts, and Savings Plans. This can result in a lower charge for your project, department, or company than with individual standalone accounts.
• Reservation model for AWS Services – In addition to Amazon EC2, reservation models are available for Amazon RDS, Amazon ElastiCache, OpenSearch Service, Amazon Redshift, and Amazon DynamoDB.
• Savings Plans – AWS offers three types of Savings Plans: Compute Savings Plans, EC2 Instance Savings Plans, and Amazon SageMaker Savings Plans., a flexible pricing models that customers can use to save up to 72% compared to on-demand pricing.
• Enterprise Agreements – AWS Customers also have the option to enroll in an Enterprise Agreement with AWS. Enterprise Agreements give customers the option to tailor agreements that best suit their needs. For additional information on Enterprise Agreements, please contact your sales representative.

Please engage your AWS sales representative to check which program is available and suitable for you to start your cost optimization flywheel.

Continue the momentum

Start measuring and report cost optimizations to help executives make data-driven decisions for launching strategic initiatives, and investing into innovation for continuous and consistent business growth. Also, highlight how these cost optimization initiatives may have contributed to your organization’s sustainability goals.

Cloud Cost optimization is a continuous, business focused discipline aimed at maximizing business value while reducing costs. It involves multiple levers and data to manage, with a set of processes and governance to be managed over time. It requires a continuous focus on organizational priorities, redundancy of unused resources, rightsizing and optimal selection for the correct amount of capacity or service being paid for. Gather perspectives and functional strengths of management, finance, and engineering to drive cost efficiency and feed into innovation. For further information, engage with your AWS team for a comprehensive view of your cloud spend, opportunities for reduction, volume discounts and best ways to leverage enterprise agreements.