Best Practices for AWS Cost Optimisation & Financial Management

Introduction

Organisations should review and reduce their AWS spending as we enter a new year to improve business health. In this blog post, we will discuss best practices for AWS FinOps guidance, including aggregate scorecards, proactive cost monitoring, monthly variance analysis, guardrails and enforcement, cost anomaly detection, alerts based on budget overruns, consolidated performance reporting, reporting on historical SP/RI purchases and utilisation, and customer management of third-party licenses on AWS.

We will also explore how cost optimisation is directly related to sustainability.

Aggregate Scorecard & Recommendations

Aggregate scorecards and recommendations are essential for assessing performance, facilitating strategic planning, managing risks, making data-driven decisions, and promoting continuous improvement in various domains. They provide a structured, comprehensive way to measure, evaluate, and enhance performance and outcomes.

Here are general guidelines on how to create an aggregate scorecard of cost savings opportunities and recommendations in AWS.

• Identify all the cost-saving opportunities available in the AWS account. This can include identifying idle resources and underutilised instances and taking advantage of AWS pricing models. You can leverage AWS tools such as?Cost Optimisation Hub ?and?Trusted Advisor .
• Once all opportunities have been identified, create a scorecard listing each opportunity and potential cost savings.
• Assign a score to each opportunity based on its potential cost savings, complexity, and impact on your workload.
• Prioritise the opportunities with the highest scores and create an action plan to implement these recommendations.
• Regularly review and update the scorecard as you implement cost-saving measures and new opportunities arise.

Proactive Cost Monitoring & Alerting of Forecasted to Actual Spend

Proactive cost monitoring and alerting of forecasted to actual spending are essential components of effective financial management. They provide the necessary insights for timely decision-making, budget adherence, resource optimisation, and overall financial stability, contributing to the long-term success of an organisation.

Here are general guidelines on how to perform proactive cost monitoring and alerting of forecasted spend to actual spending in AWS.

• Set up AWS Budgets. AWS Budgets ?is a free service that allows us to set custom cost and usage budgets for our AWS account. Use AWS Budgets to set up alerts to notify you when your actual spending exceeds your forecasted budget.
• Create custom alerts. In addition to using AWS Budgets, you can set up custom alerts using?CloudWatch Alarms . You can create alarms to notify yourself when your spending exceeds a certain threshold or when there is a sudden surge in usage.
• Monitor usage. Use the?AWS Cost Explorer ?or a third-party cost management tool to monitor your actual AWS spending daily or weekly. This helps identify any unexpected spikes in usage and take corrective measures before they affect the budget.
• Analyse spending. At the end of each month, compare the actual AWS spending with the forecasted spending. Identify any areas where there is a variance and analyse the reasons for the variance. This helps identify cost optimisation opportunities and take corrective action to reduce your AWS spend.

Monthly Variance Analysis

Monthly variance analysis is critical for financial management, performance evaluation, and decision-making. It enables organisations to control their finances, make informed strategic decisions, and continually improve their financial planning processes.

Here are general guidelines for performing a monthly variance analysis for AWS spend that does not match the forecast.

• Determine the forecasted spend. Review the past usage patterns, trends, and growth projections to develop a forecasted spend for the upcoming month.
• Monitor the actual spend. Keep track of your actual AWS spending daily or weekly using the AWS Cost Explorer or a third-party cost management tool.
• Compare the actual vs. forecasted spend. At the end of each month, compare the actual AWS spend with the forecasted spend. Identify the areas where there is a variance and calculate the percentage of variance.
• Analyse the reasons for variance. For each area with a variance, dig deeper to understand its reasons. It could be due to changes in usage patterns, new projects, infrastructure, or pricing.
• Take corrective actions. Once you have identified the reasons for variance, take the necessary actions to adjust the budget or optimise the AWS usage. Consider using reserved instances, spot instances, or optimising the instance sizes to reduce the AWS spend.

Guardrails & Enforcement

In AWS cost management, guardrails and enforcement mechanisms are vital components of a well-architected approach to ensure cost control, governance, and compliance. Implementing guardrails helps organisations set boundaries and guidelines for AWS resource usage, while enforcement mechanisms ensure these guidelines are followed.?

Here are general concepts and strategies for guardrails and AWS cost management enforcement.

• AWS Budgets
• AWS Service Control Policies (SCPs)
• Reserved Instances (RIs) ?and?Savings Plans (SPs)
• Tagging Policies
• IAM Policies and Roles
• Resource Lifecycle Management
• AWS Cost Explorer and Reports
• Educational Programs

Consider adopting approaches used in this?AWS Cloud Financial Management blog post .

Cost Anomaly Detection & Mitigation Recommendations

AWS cost anomaly detection and mitigation recommendations are essential for organisations seeking to optimise their cloud spending. These features empower organisations to identify, understand, and address cost anomalies, improving cost efficiency, budget adherence, and overall financial management in the cloud.

Leveraging the?Cost Anomaly Detection ?feature helps automatically identify unexpected or unusual spending patterns in your AWS accounts. This feature uses machine learning (ML) algorithms to analyse usage and cost data and automatically identifies anomalies that deviate from your expected spending patterns.

Once an anomaly is detected, AWS generates a Cost Anomaly Detection alert that provides you with details about the anomaly and recommendations on how to mitigate it. These recommendations include modifying resource usage or purchasing Reserved Instances to reduce costs.

AWS Cost Anomaly Detection helps improve cost efficiency, identify cost optimisation opportunities, and avoid unexpected charges.

Alerts Based on Budget Overruns

Alerts based on AWS budget overruns are vital for maintaining financial control, preventing overspending, optimising resource usage, and fostering a culture of cost-conscious decision-making. They provide organisations with the tools and information to manage their cloud finances effectively and align their spending with business objectives.

In addition to using Cost Anomaly Detection, you can set up alerts based on budget overruns using AWS Budgets. You can create a budget for AWS usage and set up alerts to be sent via email, your ITSM solution, etc.

Consolidated Performance Reporting Across Cost, Utilisation & SP/RI Management

Consolidated performance reporting across cost, utilisation, and SP/RI management in AWS is essential for organisations seeking to optimise their cloud environment. It promotes efficient resource usage, supports strategic decision-making, ensures budget adherence, and aligns technical metrics with broader business objectives. This integrated approach is pivotal to achieving a well-managed and cost-effective cloud infrastructure.

To consolidate performance reporting across cost, utilisation, and SP/RI management, use the?AWS Cost and Usage Report (CUR) ?and Cost Explorer tool. The CUR provides detailed information on the usage and costs of AWS services in an account, which is used to create custom reports and dashboards.

The Cost Explorer tool provides a comprehensive view of AWS usage and spending patterns over a specific period. In the Cost Explorer, we view the RI utilisation report, showing how much purchased RIs were used over the selected period. We also view the RI coverage report, showing how much of your total usage was covered by your purchased RIs.

Additionally, you can view the purchase history report, which details all RI purchases, including the date of purchase, the type of RI purchased, the payment option selected, and the term length. You can track and report AWS usage and spending using these tools and identify cost optimisation opportunities.

Reporting on Historical SP/RI Purchases & Utilisation

Reporting on historical SP/RI purchases and utilisation in AWS is integral to informed decision-making, effective budget planning, resource optimisation, and overall cost management in the cloud. It enables organisations to learn from past experiences, make data-driven decisions, and continually refine their cloud usage strategies.

Using the AWS Cost Explorer tool, you can report on historical SP/RI purchases and utilisation. This tool provides a comprehensive view of AWS usage and spending patterns over a specific period.

In the Cost Explorer, you can view the RI utilisation report, showing how much purchased Reserved Instances were used over the selected period. You can also view the RI coverage report, showing how much of your total usage was covered by your purchased RIs.

Additionally, you can view the purchase history report, which details all RI purchases, including the date of purchase, the type of RI purchased, the payment option selected, and the term length.

Customer Management of Third-party Licenses on AWS

Managing third-party licenses on AWS involves several considerations to ensure compliance, optimise costs, and efficiently utilise the licensed software.

Here are general guidelines on how to manage third-party licenses on AWS.

• Understand Licensing Terms. Review and understand the licensing terms and conditions of the third-party software you intend to use on AWS. Each software vendor may have specific licensing models, restrictions, and requirements.
• Check AWS Marketplace. Explore the AWS Marketplace to see if the third-party software you need is available there. Many software vendors offer pre-configured Amazon Machine Images (AMIs) with their software, and licensing may be included in the AWS Marketplace pricing.
• BYOL (Bring Your Own License). If the software vendor allows BYOL, you can bring your existing licenses to AWS. Ensure compliance with the vendor's policies, then install and configure the software on AWS instances as needed.
• License Mobility. Some third-party vendors offer license mobility options, allowing you to move existing licenses to the AWS cloud. Check with the software vendor to understand their policies on license mobility.
• Leverage AWS License Manager.?AWS License Manager ?helps you manage your software licenses, whether acquired through AWS Marketplace or brought to the cloud (BYOL). It provides a central location to track and control license usage to ensure compliance.
• Use Dedicated Hosts for License Compliance. If your third-party software requires specific host-level licensing and compliance, consider using?Amazon EC2 Dedicated Hosts . This allows you to run instances on a physical server with dedicated resources, which may be necessary for some licensing models.
• Auto Scaling & Elasticity. Consider how auto scaling and elasticity may impact your licensing costs. Some third-party licenses may be based on the number of instances or the amount of resources used. Plan accordingly to optimise costs while maintaining compliance.
• Periodic License Audits. Periodically audit your software licenses to ensure compliance with the terms and conditions. AWS provides tools like?AWS Config ?and AWS License Manager to help you track and manage your licenses effectively.
• Track License Usage Metrics. Monitor and track metrics related to your software usage.?AWS CloudWatch ?can help you gather and analyse data related to instances, resources, and performance metrics, which can be helpful for license optimisation.
• Stay Informed About Changes. Keep abreast of any changes in the licensing terms of your third-party software. Software vendors may update their licensing models or policies, and staying informed will help you adapt your AWS environment accordingly.
• Consult with AWS Partners. Consider engaging with AWS consulting partners who specialise in license optimisation and compliance. They can provide expertise and guidance on managing third-party licenses on AWS best.

Remember that specific steps may vary based on the software vendor and the licensing model. Always consult with the software vendor to ensure compliance and understand the best approach for managing licenses on the AWS cloud.

Sustainability

I'll end with my topic of passion, sustainability.

Cost is a proxy of sustainability. Using AWS resources is directly related to the sustainability of an organisation. Essentially, the more cost-efficient an organisation uses AWS resources, the more sustainable it becomes. This is because efficient use of resources translates into reduced energy consumption, minimised carbon footprint, and reduced waste. Therefore, organisations focusing on cost optimisation and cost management in their AWS deployments and operational management can achieve financial benefits and environmental sustainability goals. Through the adoption of practices such as proactive cost monitoring, organisations can improve their AWS cost efficiency and sustainability.

Summary

AWS FinOps guidance is crucial for organisations seeking to optimise their cloud spending. The best practices discussed in this blog cover various AWS cost management aspects, including proactive cost monitoring, monthly variance analysis, and guardrails and enforcement.

We also discuss how AWS Cost Anomaly Detection and alerts based on budget overruns can help organisations maintain financial control and prevent overspending.

Furthermore, we explore the importance of consolidated performance reporting and reporting on historical SP/RI purchases and utilisation. Finally, we discuss customer management of third-party licenses on AWS and its relationship with sustainability.

About Me

As an experienced AWS Ambassador and Technical Practice Lead, I have a substantial history of delivering innovative cloud solutions and driving technical excellence in dynamic organisations.

With deep expertise in Amazon Web Services (AWS) and Microsoft Azure, I am well-equipped to enable successful design and deployment.

My extensive knowledge covers various aspects of cloud, the Internet, security technologies, and heterogeneous systems such as Windows, Unix, virtualisation, application and systems management, networking, and automation.

I am passionate about promoting innovative technology, sustainability, best practices, concise operational processes, and quality documentation.

Note: These views are those of the author and do not necessarily reflect the official policy or position of any other agency, organisation, employer or company mentioned within the article.