Imagine this: You're the FinOps manager at a rapidly growing startup. Your team has been innovating non-stop, deploying new features, and scaling services to meet user demand. It's an exhilarating time, but as the dust settles each month, you're left staring at your AWS bill in disbelief. The numbers keep climbing, and you can't help but wonder, "Where are we going wrong?"
This scenario is far from unique. Across industries, professionals grapple with the complexities of AWS cost management, often encountering common yet avoidable pitfalls that can significantly impact their financial efficiency. From overprovisioning resources "just in case" to leaving idle instances running like forgotten lights in an empty office, the pitfalls are many.
That’s why we’ve built this comprehensive guide to AWS Cost Optimization for FinOps engineers, cloud cost managers, and anyone in between. Whether you're looking to cut unnecessary expenses, reallocate resources more effectively, or simply get a better handle on your cloud spending, you'll find actionable insights and proven strategies to help you achieve your goals.
AWS Cost Optimization 101: The Basics
What is Cost Optimization in AWS?
Cost optimization in AWS is the strategic process of reducing your AWS expenses while maintaining optimal performance, security, and reliability of applications. It entails choosing cost-effective resources, dynamically scaling services based on demand, and utilizing pricing models that best fit usage patterns. For FinOps engineers, it involves rigorous analysis, monitoring, and fine-tuning of resources to maximize the value of every dollar spent on AWS.
Who is Responsible for Cloud Cost Optimization?
Cloud cost optimization is primarily the responsibility of a cloud governance team that leverages its expertise in cloud services and financial management. They collaborate closely with IT, finance, and operations teams to ensure that cloud spending is not only efficient but also aligned with the organization's strategic goals.
Through continuous monitoring, analysis, and adjustment of cloud resources, the cloud governance team drives cost-effective cloud usage across the organization.
Is Cloud Cost Management the Same as Cloud Cost Optimization?
Cloud cost management and cloud cost optimization, while related, serve distinct functions. Cloud cost management is the comprehensive practice of overseeing, analyzing, and regulating expenditures across cloud services, incorporating budgeting, forecasting, and cost allocation.
Conversely, cloud cost optimization is a focused aspect of cost management aimed at minimizing expenses and enhancing efficiency in cloud spending. FinOps engineers are integral to both processes, ensuring financial prudence and operational effectiveness in cloud environments.
Why Optimize Costs on AWS?
Optimizing costs on AWS is crucial for maintaining competitiveness by minimizing unnecessary expenses and reallocating resources to more valuable areas. Optimizing costs on AWS is vital for:
- To maintain competitiveness: It reduces unnecessary expenses and reallocates resources to value-generating areas.
- To enhance scalability: It allows for resource adjustment based on demand, avoiding over-provisioning or underutilization.
- For strategic decision-making: It enables FinOps professionals to align cloud spending with business outcomes, going beyond simple cost reduction.
Leveraging the AWS Well-Architected Framework
Our cost optimization journey brings us to a critical tool in AWS: the AWS Well-Architected Framework. This framework is a guideline and a comprehensive approach to building and maintaining the most secure, high-performing, resilient, and efficient infrastructure possible for your applications on AWS.
The framework consists of five pillars: Operational Excellence, Security, Reliability, Performance Efficiency, and Cost Optimization.
As a FinOps engineer, focusing on the Cost Optimization pillar is crucial, but it's also important to consider how cost optimization strategies impact the other four pillars. Balancing cost with aspects like performance and security ensures that optimization efforts contribute to the overall well-being of your AWS environment, rather than compromising it.
By adhering to these foundational aspects of AWS cost optimization, you can drive significant value for your organization and allow you to make informed decisions that reduce costs and support your organization's broader operational and strategic objectives.
Read more about the AWS Well-Architected Framework in our blog.
Where is My AWS Cloud Spending Coming From?
Having explored the principles of AWS cost optimization, let’s understand where exactly your AWS cloud spending is originating. This knowledge is crucial for identifying the specific areas where cost-saving measures can be most effectively applied:
- Compute Costs: These include expenses for servers or CPU time, especially in serverless computing environments. Key drivers of unnecessary compute costs are operating too many instances, using instances with more capacity than needed, and leaving instances running when not in use.
- Storage Costs: Arising from Amazon Simple Storage Service (S3) and Elastic Block Store (EBS) Volumes, storage costs can escalate due to not cleaning up unused Amazon Machine Images (AMIs), snapshots, and volumes, along with inefficient S3 storage management.
- Data Transfer Costs (Bandwidth and Data Egress): Associated with moving data in and out of AWS and between AWS services, often labeled as bandwidth or data egress fees. Costs can increase due to unnecessary or inefficient data transfer practices, but optimizing your architecture to minimize redundant transfers can lead to significant savings.
A Comprehensive Breakdown of The AWS Cost Components in Your Bill
Here's an informational breakdown of AWS cost components, designed to provide a comprehensive understanding of how AWS pricing works and what factors into your bill:
Compute Costs
- Amazon EC2: Charges depend on compute capacity, instance type, and OS, with options like On-Demand, Reserved Instances, Savings Plans, and Spot Instances.
- AWS Lambda: Costs are calculated based on the number of requests and execution duration, billed in 100-millisecond increments.
- AWS Batch: Optimizes cost by dynamically provisioning compute resources based on job requirements.
- AWS Fargate (ECS): Offers a serverless compute engine for containers, reducing the need to manage servers or clusters.
- AWS App Runner: Manages deployment, scaling, and load balancing for containerized web apps and APIs.
- Amazon EC2 Auto Scaling: Adjusts compute capacity to maintain performance, charging only for the resources used.
- Amazon Lightsail: Provides a low-cost package of compute, storage, and networking for simpler projects.
- Amazon EC2 Spot Instances: Utilizes unused EC2 capacity at discounts, ideal for interruptible workloads.
- AWS Elastic Beanstalk: Automates the deployment and scaling of web applications, charging for the underlying resources used.
- Amazon EC2 Image Builder: Facilitates the creation and deployment of VM and container images without additional service charges.
Storage Costs
- Amazon S3: Pricing varies by data stored, access requests, and data transfer out, offering classes like S3 Standard and S3 Glacier.
- Amazon EBS: Charges are based on the volume of storage provisioned, with SSD and HDD options.
- Amazon Glacier: Provides low-cost archiving, with variable retrieval times and fees.
Data Transfer Costs
- AWS charges for data transfer out of its cloud services to the internet or between AWS regions. Transfers within the same region, especially between services like EC2 and S3, are typically free, but cross-region and internet transfers incur fees.
Database Services Costs
- Amazon RDS, DynamoDB, and Redshift: Pricing depends on resources used, with options for Reserved instances and on-demand pricing.
Networking Costs
- Amazon VPC and AWS Direct Connect: Basic VPC usage is free, but features like NAT Gateways and VPN connections incur fees.
Management and Governance Costs
- Services like AWS CloudTrail, AWS Config, and Amazon CloudWatch are billed based on usage metrics such as the number of events recorded, monitored, and the volume of log data ingested. These tools are essential for monitoring, compliance, and operational auditing.
Security and Identity Costs
- AWS Identity and Access Management (IAM) is generally offered at no additional charge, but services like AWS Key Management Service (KMS) for managing encryption keys and AWS Shield for DDoS protection are priced based on usage.
Support Plans Costs
- AWS provides different levels of support plans, including Basic (free), Developer, Business, and Enterprise. Each plan offers varying levels of support, access to experts, and response times, with costs increasing with the level of service.
Additional Services and Features Costs
- AWS offers varying levels of support plans, from Basic (free) to Enterprise, with costs increasing for higher levels of service.
Why is My AWS Bill So High? Common Mistakes That Skyrocket Your Bill
It is evident how each service and usage pattern contributes to the overall cloud expenditure. However, despite this knowledge, many organizations still find their AWS bills unexpectedly high, a situation often rooted in common yet avoidable mistakes.
Let’s analyze why these costs can escalate beyond anticipated budgets:
- Overprovisioning Resources: Allocating more compute (EC2, Lambda) and storage resources than necessary, leading to wasted capacity and higher costs.
- Leaving Idle Resources Running: Paying for resources like unused EC2 instances, EBS volumes, and Elastic Load Balancers that are not actively being used.
- Not Utilizing Reserved Instances or Savings Plans: Missing out on discounts of up to 75% by sticking to on-demand pricing for stable and predictable workloads.
- Underutilizing Spot Instances: Failing to take advantage of Spot Instances for flexible, interruption-tolerant workloads can lead to missed opportunities for cost savings.
- Inefficient Data Transfer Practices: Incurring unnecessary costs by not optimizing data transfer processes, such as excessive cross-region or internet data transfers.
- Suboptimal Storage Management: Using expensive storage options when cheaper ones would suffice, not deleting unneeded snapshots, and failing to leverage data lifecycle policies.
- Ignoring Cost Management Tools: Not using AWS Cost Explorer, Budgets, or Trusted Advisor to monitor and optimize spending.
- Poorly Configured Auto-Scaling: Auto-scaling resources without proper configuration can lead to over-scaling during low demand, driving up costs.
- Not Optimizing Lambda Functions: Overprovisioning memory and setting long execution timeouts for Lambda functions without analyzing actual usage can lead to higher costs.
- Choosing Expensive Regions Without Justification: Deploying services in more expensive AWS regions without specific business or regulatory requirements can unnecessarily increase costs.
- Running Expensive Services Unnecessarily: Using higher-cost services like RDS or DocumentDB for applications that could be efficiently supported by lower-cost alternatives like DynamoDB or S3.
- Not Reevaluating Resource Choices: Sticking with familiar instance types or services without considering newer, more cost-effective options provided by AWS.
- Failing to Implement Cloud-Native Architectures: Using traditional architectures that don't fully leverage cloud efficiencies, such as serverless, can lead to higher operational costs.
- Neglecting Proper Cleanup: Allowing "resource graveyards" of unused or abandoned resources to accumulate, which continues to incur costs.
- Overlooking Total Cost of Ownership (TCO): Focusing solely on direct AWS costs without considering the broader implications of operational and labor costs associated with managing certain services.
How AWS Empowers You to Take Control of Costs and Optimize Your Spend
Having outlined the most common pitfalls that contribute to AWS cloud expenditure, it's clear that a strategic approach is essential for leveraging the full potential of AWS services while maintaining control over your cloud spend.
AWS empowers organizations to effectively manage and optimize cloud costs through five key principles, ensuring a balance between cost efficiency and maintaining high performance:
1. Leverage Cloud Financial Management (CFM)
- Cost-Aware Approach: Emphasizes the necessity of adopting a mindset focused on cost efficiency when operating in the cloud.
- Inclusive Ownership: Advocates for involving engineers in cloud cost management, alongside the finance team, to foster a culture where technical decisions are made with cost implications in mind.
2. Adopt a Consumption Model or Pay-as-you-go
- Dynamic Resource Allocation: Encourages taking advantage of AWS's flexible pricing model to scale compute resources according to demand, optimizing costs by reducing resource consumption during off-peak hours.
- Flexible Billing: Reflects the billing nuances of AWS services, such as AWS Lambda functions billed per millisecond. This flexibility underscores the importance of managing resource usage to optimize costs across different billing intervals.
3. Embrace Managed Services
- Infrastructure Simplification: Suggests using AWS managed services to eliminate the need for physical data center management, allowing teams to focus on improving application code rather than infrastructure maintenance.
- Cost and Operational Efficiency: Managed services reduce the need for upfront hardware investments and ongoing maintenance, offering a path to both operational and cost efficiency.
4. Track, Analyze, and Attribute Expenditure Right
- Detailed Cost Tracking: Recommends monitoring cloud costs by workload, user, and revenue streams to accurately measure return on investment (ROI).
- Informed Decision-Making: By understanding the cost impact of each customer and project, organizations can make strategic decisions to minimize costs without compromising cloud solution performance.
5. Track Efficiency
- Measurable Optimization: Stresses that cost optimization efforts should be quantifiable and directly tied to business outcomes.
- Continuous Improvement: Encourages regular monitoring of cloud resource usage and costs, comparing over time to identify trends and make adjustments to optimize other workloads based on successful strategies.
These principles serve as the foundation for AWS cost optimization, providing a comprehensive approach that combines financial management, strategic resource usage, and continuous monitoring. By adhering to these guidelines, organizations can effectively manage their cloud costs, ensuring they maximize the value of their AWS investments while maintaining the necessary performance and scalability.
22 AWS Cost Optimization Strategies That Work
Strategic Resource Management
- Right-Size Resources: Continuously adjust the size of EC2 instances, RDS databases, and other resources to match actual usage.
- Utilize Reserved Instances and Savings Plans: Commit to Reserved Instances for predictable, long-term workloads and explore Savings Plans for broader coverage, including EC2, Fargate, and Lambda. Use RIs to reduce Amazon RDS, Amazon Redshift, Amazon ElastiCache, and Amazon OpenSearch Service costs.
- Experiment with Spot and Graviton Instances: Use Spot Instances for flexible, interruption-tolerant workloads and consider Graviton instances for compatible applications to enhance cost savings. Additionally, use Amazon Spot Instances to reduce Amazon EC2 costs, Compute Savings Plans for Amazon EC2, Fargate, and Lambda costs, and SageMaker Savings Plans for SageMaker costs.
- Optimize Storage Selection: Choose the right AWS storage solutions like Amazon EBS Throughput Optimized HDD (st1) for specific performance and cost requirements. Focus on selecting the most cost-effective storage options without compromising on the required performance levels.
Cost Monitoring and Optimization Tools
- Implement CloudWatch Log Expiry: Set log expiry policies to manage storage costs effectively.
- Clean Up Unused Resources: Regularly remove old AMIs, snapshots, S3 objects, and unattached EBS volumes to avoid paying for redundant storage.
- Deep Dive with Cost Explorer: Analyze AWS bills and usage patterns, focusing on high-cost areas and potential savings opportunities.
Architectural and Operational Efficiency
- Adopt Cloud-Native Services: Redesign applications to leverage serverless and managed services like Lambda, DynamoDB, S3, and Aurora Serverless for inherently cost-efficient infrastructure.
- Optimize Before Resizing: Prioritize efficiency in application code and database indexing before adjusting resource sizes.
- Move Workloads to Containers: Where suitable, use containerization and services like ECS and EKS to improve resource utilization and potentially reduce costs.
Governance, Accountability, and Culture
- Implement Detailed Tagging and Accountability: Use tagging to track resource usage and implement a chargeback or showback model to allocate costs appropriately across teams or departments.
- Establish a Cost-Aware Culture: Promote awareness of cloud costs and implement governance policies to control spending, integrating cost management into the organizational culture.
- Identify, Track, and Enhance with Metrics and Accountability: Define metrics, establish precise goals, and regularly review data to ensure ongoing cost optimization.
Advanced Cost Management Strategies
- Engage with AWS and Third-Party Experts: Consult AWS account managers, solutions architects, and utilize AWS Trusted Advisor. Consider third-party tools like Stratusphere™ FinOps by StratusGrid for nuanced insights and automation.
- Optimize Data Transfer Costs: Review and reduce costs associated with data transfer, especially across regions, and utilize services like Amazon CloudFront for content delivery. Additionally, review networking and reduce costs by deleting idle load balancers using the Trusted Advisor Idle Load Balancers check.
- Automate Resource Management: Use infrastructure-as-code for automatic resource tagging and cost management, and automate the shutdown of non-production resources during off-hours.
Continuous Improvement and Learning
- Monitor and Analyze Usage Regularly: Employ tools like AWS Cost Explorer to continuously identify underutilized resources and optimization opportunities. Additionally, analyze DynamoDB usage and reduce cost by leveraging AutoScaling or on-demand. Analyze Amazon S3 usage and reduce cost by leveraging lower cost storage tiers.
- Invest in Training and Community Engagement: Ensure your team is knowledgeable about AWS services and cost optimization techniques through official AWS training such as AWS re:Post and participation in community forums.
Additional Considerations
- Leverage S3 Lifecycle Policies: Automate the transition of data to cheaper storage classes and implement deletion policies for obsolete data. This strategy helps in managing storage costs by ensuring data is stored in the most cost-efficient manner possible.
- Consolidate Accounts: Use AWS Organizations to consolidate accounts and take advantage of volume discounts and simplified billing. Consolidating accounts can lead to better visibility over resource usage and costs, as well as potential savings through aggregated usage.
- Explore Serverless and Managed Database Options: Evaluate serverless databases and managed services for operational efficiency and cost savings. Serverless and managed services can significantly reduce the operational burden and cost by automatically scaling to match demand without the need for manual intervention.
- Use the Appropriate Pricing Model: Select the most suitable pricing model (Spot, Reserved Instances, On-Demand) based on workload demands to optimize costs effectively.
Tools for AWS Cost Optimization
AWS cost optimization requires a comprehensive toolkit designed to uncover, analyze, and optimize cloud expenditures. Let’s look at some of the top AWS cost optimization tools to look out for:
- AWS Trusted Advisor: This is a free service that analyzes your AWS resources and provides recommendations to help you save money.
- AWS Cost Explorer: This tool allows you to visualize, understand, and manage your AWS costs and usage.
- AWS Budgets: This service allows you to set custom budgets for your AWS costs and receive alerts when your costs exceed your budgeted amount.
- AWS Savings Plans: These plans allow you to save money on your AWS usage by committing to a consistent amount of usage over a one- or three year period.
- AWS Reservations: These allow you to purchase a reservation for a discounted rate on Amazon EC2 instances, Amazon RDS instances, and Amazon Redshift clusters.
- Amazon EC2 Auto Scaling: This service allows you to automatically scale your Amazon EC2 capacity up or down based on demand.
- Amazon CloudWatch: This service allows you to monitor your AWS resources and the applications you run on AWS in real-time.
- AWS Organizations: This service allows you to centrally manage and govern your AWS accounts.
- AWS Compute Optimizer: This service provides recommendations to help you optimize the performance and cost of your Amazon EC2 instances.
- AWS Lambda: This service allows you to run code in response to events, automatically scaling up or down based on demand.
- Cloud Cost Intelligence Solutions like Stratusphere™ FinOps: Stratusphere™ FinOps is a cloud cost optimization platform that offers actionable insights, portfolio-wide visibility, and strategic financial management tools to maximize savings across complex AWS environments. It was designed for private equity firms and enterprises with complex cloud environments across multiple companies, addressing the critical challenge of cloud cost visibility and optimization in such complex settings.
Stratusphere™ FinOps distinguishes itself from AWS's native cost optimization tools through a focused approach to comprehensive cloud cost management and optimization. It offers several key advantages designed to enhance visibility, strategic planning, and actionable insights across an organization's entire cloud portfolio.
Key differentiators include:
- Entire portfolio views: Provides a consolidated overview across multiple operating organizations, enabling broad visibility and strategic optimization across the entire portfolio.
- Better context of costs: Tailors its dashboard and analysis tools to support FinOps programs, offering finance-optimized views that facilitate deeper understanding and engagement in cost management by finance and leadership teams.
- Level-of-effort analysis: Categorizes optimization opportunities by the effort required, helping teams prioritize actions effectively and focus on high-impact, achievable savings.
- Single and multi-organization consolidated views: Enables analysis and optimization across many accounts and distinct organizations, even with separate payers, which is particularly valuable for complex organizations seeking to leverage data for better pricing negotiations and strategic decisions.
See Stratusphere™ FinOps in Action Here
Real-World Case Studies: Discover Crunchyroll's Success Story
Let’s analyze the success story of Crunchyroll, a leading player in the streaming industry, which offers a compelling example of how applying cost optimization strategies can lead to significant financial savings and operational efficiencies.
Crunchyroll achieved remarkable results in AWS cloud cost optimization with the help of StratusGrid’s cost optimization tool Stratusphere™ FinOps. From the initial assessment, a total savings potential of 5x the actual monthly expenses was identified, setting the stage for impactful cost-saving measures. By optimizing reserved instances and savings plans, Crunchyroll achieved 1.5x actual monthly savings in commitment-based expenses.
Further, configuration-based savings were realized at 3x the actual monthly costs through strategic infrastructure adjustments, including the elimination of unused resources and optimization of storage configurations. The net monthly savings, after considering the costs associated with employing Stratusphere™ FinOps and other tools, stood at an impressive 4x actual monthly costs, underscoring the effectiveness of the optimization strategies implemented.
Additionally, quick wins were identified on the first day of data review, leading to immediate savings of .2x total actual monthly expenses. This collaboration highlights the significant cost savings and efficiency improvements possible when leveraging targeted tools and expertise in cloud infrastructure management.
Read the complete case study here.
AWS Easy-To-Follow Cost Optimization Checklist
Check out the list below to see if you’ve got all your bases covered:
Strategic Resource Management
- Regularly review and adjust the size of EC2 instances, RDS databases, and other resources to ensure they match current usage.
- Evaluate and commit to Reserved Instances for workloads with predictable, long-term usage.
- Explore Savings Plans for broader coverage across EC2, Fargate, and Lambda.
- Utilize Spot Instances for flexible, interruption-tolerant workloads.
- Consider Graviton instances for compatible applications to enhance cost savings.
- Choose the right AWS storage solutions (e.g., Amazon EBS Throughput Optimized HDD) based on performance and cost requirements.
Cost Monitoring and Optimization Tools
- Clean up unused resources, including old AMIs, snapshots, S3 objects, and unattached EBS volumes.
- Use AWS Cost Explorer to analyze bills and usage patterns for high-cost areas and potential savings.
- Use Stratusphere™ FinOps by StratusGrid for advanced log management and cost optimization
Architectural and Operational Efficiency
- Redesign applications to leverage serverless and managed services for cost-efficient infrastructure.
- Optimize application code and database indexing before adjusting resource sizes.
- Move suitable workloads to containers to improve resource utilization and reduce costs.
Governance, Accountability, and Culture
- Implement detailed tagging for resource usage tracking and cost allocation.
- Promote a cost-aware culture within the organization and integrate cost management into governance policies.
- Define metrics and goals for cost optimization and regularly review data for ongoing optimization efforts.
Advanced Cost Management Strategies
- Engage with AWS account managers, solutions architects, and utilize AWS Trusted Advisor for expert insights.
- Consider third-party tools like Stratusphere™ FinOps by StratusGrid for advanced cost management.
- Review and optimize data transfer costs, especially across regions, and utilize Amazon CloudFront for content delivery.
- Automate resource management using infrastructure-as-code for resource tagging and cost management.
Continuous Improvement and Learning
- Regularly monitor and analyze usage with tools like AWS Cost Explorer to identify optimization opportunities.
- Invest in team training and community engagement to stay updated on AWS services and cost optimization techniques.
Additional Considerations
- Leverage S3 Lifecycle Policies to transition data to cheaper storage classes.
- Use AWS Organizations to consolidate accounts for volume discounts and simplified billing.
- Explore serverless and managed database options for operational efficiency and cost savings.
- Select the most suitable pricing model (Spot, Reserved Instances, On-Demand) based on workload demands.
Optimize Your AWS Investment with Stratusphere™ FinOps
Ready to take control of your AWS costs and unlock significant savings? Stratusphere™ FinOps by StratusGrid is your key to comprehensive AWS cloud cost optimization, designed specifically for private equity firms and enterprises managing complex cloud environments.
With Stratusphere™ FinOps, gain unparalleled visibility, actionable insights, and strategic financial management tools to optimize your AWS spending effectively.
Contact us now to learn how Stratusphere™ FinOps can transform your cloud financial management or start your free trial today.
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