Savings Plans represent a significant evolution in cloud cost optimization strategies. Introduced by Amazon Web Services in 2019, these plans offer a more flexible alternative to the traditional Reserved Instances model. They allow organizations to commit to a consistent amount of compute usage (measured in dollars per hour) in exchange for lower prices than On-Demand rates.
In FinOps, Savings Plans are important to balance cost efficiency with operational flexibility. They enable organizations to optimize their cloud spend while maintaining the agility to adapt to changing workload requirements. As cloud adoption continues to grow, understanding and effectively utilizing Savings Plans has become an essential skill for FinOps professionals and cloud architects alike.
Types of Savings Plans
There are three main types of Savings Plans, each catering to different usage patterns and offering varying levels of flexibility:
Compute Savings Plans
- Most flexible option
- Apply to EC2 instances regardless of instance family, size, AZ, region, or OS
- Also covers Fargate and Lambda usage
EC2 Instance Savings Plans
- Provide the highest discount (up to 72% off On-Demand rates)
- Apply to specific instance families in a chosen region
- Less flexible than Compute Savings Plans but offer greater savings
SageMaker Savings Plans
- Specifically designed for machine learning workloads
- Apply to SageMaker instance usage across all regions
When choosing between these types, organizations must consider their specific needs, usage patterns, and desire for flexibility. Compute Savings Plans offer the most versatility but at a slightly lower discount rate compared to EC2 Instance Savings Plans. SageMaker Savings Plans are ideal for organizations heavily invested in machine learning workflows.
How Savings Plans Work
Savings Plans operate on a commitment-based model. Customers agree to a specific hourly spend over a one—or three-year term. This commitment is applied automatically to eligible resources, providing savings without the need for manual management.
Key aspects of how Savings Plans function include:
- Hourly spend commitment: Users commit to spending a certain amount per hour, which is then applied to eligible services.
- Automatic application: The discount is automatically applied to the highest cost resources first, maximizing savings.
- Multi-service coverage: Depending on the plan type, discounts can apply across multiple services and regions.
- Flexibility: Unlike Reserved Instances, Savings Plans don’t require committing to specific instance types or configurations.
The primary difference between Savings Plans and Reserved Instances lies in their flexibility. While Reserved Instances require committing to specific instance types and attributes, Savings Plans allow for more adaptability in resource usage while still providing significant discounts.
Benefits and Considerations
Implementing Savings Plans can offer several advantages:
- Substantial cost reduction: Discounts can reach up to 72% compared to On-Demand pricing.
- Increased flexibility: Ability to change instance types, sizes, and even services without losing the discount.
- Simplified management: Automatic application of discounts reduces administrative overhead.
However, organizations should also consider:
- Usage patterns: Savings Plans are most beneficial for predictable, steady-state workloads.
- Commitment length: One or three-year terms require careful planning and forecasting.
- Integration with existing strategies: How Savings Plans complement or replace current cost optimization methods.
Implementation Strategies
To effectively implement Savings Plans, organizations should follow these steps:
- Analyze current usage and spend:
- Review historical data to understand usage patterns
- Identify steady-state workloads suitable for long-term commitments
- Select appropriate Savings Plan types:
- Choose between Compute, EC2 Instance, or SageMaker plans based on workload characteristics
- Consider the trade-off between flexibility and discount rates
- Balance commitment levels:
- Start with a conservative commitment to avoid over-committing
- Gradually increase commitments as confidence in usage patterns grows
- Monitor and adjust plans:
- Regularly review utilization and savings
- Adjust commitments or purchase additional plans as needed
Utilizing AWS Cost Explorer or third-party FinOps tools can greatly assist in this process, providing insights and recommendations for optimal Savings Plan selections.
Maximizing ROI with Savings Plans
To get the most out of Savings Plans, consider the following best practices:
- Combine with other cost optimization strategies: Use Savings Plans alongside Reserved Instances, Spot Instances, and rightsizing efforts.
- Implement governance policies: Establish clear guidelines for purchasing and managing Savings Plans across the organization.
- Leverage automation: Use AWS APIs or third-party tools to automate Savings Plan purchases and management.
- Regular review and optimization: Continuously monitor usage and adjust plans to ensure maximum coverage and savings.
Integrating Savings Plans into overall FinOps processes is crucial. This involves:
- Incorporating Savings Plan analysis into regular cost reviews
- Training teams on how to effectively use and manage these plans
- Aligning Savings Plan strategies with broader financial and technical objectives
By following these strategies and best practices, organizations can significantly reduce their cloud costs while maintaining the flexibility needed to support dynamic business requirements.