Creating a business case for Reserved Instances

Elastic Compute Cloud (EC2) is one of the most used services on the AWS cloud. To give you a clear idea of how often this service is used within Nordcloud’s customer base, EC2 represents more than 60% of spend, providing businesses with many opportunities to reduce cost. Organisations that invest in this may see significant discounts of up to 75%, especially when comparing to On-Demand pricing, and will provide reserved capacity when used in a specific availability zone.

On the surface, Reserved Instances look simple enough, and who doesn’t like to reduce their costs! However, getting down into the nitty-gritty of Reserved Instances (RIs) can sometimes feel overwhelming. Here is a summary of the different types you can invest in, and how you can create a solid business case.

The different types of Reserved Instances

Standard RIs: These provide the most significant discount (up to 75% off On-Demand) and are best suited for steady-state usage.

Regional RI’s are just a change in the attributes applied to the tokens you purchase, moving the location attribute from the Availability Zone to the Region, allowing an instance of a given type, size and OS to be deployed anywhere within a region and always have RI coverage. Unlike a Standard RI, when purchasing a Regional RI you lose the capacity reservation so you are only benefiting from the cost savings. From March 2017, regional RIs now provide instance size flexibility in addition to AZ flexibility. With instance size flexibility, your regional RI’s discounted rate will automatically apply to usage of any size in the instance family, and in any AZ.

Convertible RI’s require a three-year term but offer a lot more flexibility – so you need to be confident that you are going to be using at least the same number of EC2 Instances (or more!) over the next three years. Consider this type of RI carefully. If you are planning to move workloads to PaaS or to re-architect and go Serverless, these might not be for you.

Convertible RI’s can be exchanged for any other type of RI (size, region, family, OS) so allows for future proofing changes in your infrastructure, or for changes to new instance families which AWS have not yet announced. If you initially purchased a convertible RI for an m4.2xlagre after two years you could swap this for a c4.2xlarge for RI for the final year. When converting the value of your RI’s has to remain at least the same – you may not have a 1:1 cost match with your new RI’s so you might need to buy a little bit more each time to ensure that you maintain the value.

Why should I make a business case?

Evaluating your need correctly will allow you to make the biggest savings and you’ll also be able to drastically reduce the risk associated with purchases simply by knowing how to analyse your usage. Reserved Instances are billed hourly and in order to get the best results of your usage analysis, you’ll have to analyse the data in the same way AWS bills it. Try to analyse at least the last six months in order to have a bigger picture of your usage, note the differences, and find trends.

If you aim for 100% coverage it is very easy to start losing money, because you end up with no On Demand usage left. However, because EC2 usage can be unpredictable, (especially if you’re using autoscaling) you would probably end up paying more than if you left some of your usage for On-Demand instances. If you keep track of utilisation you’ll be able to see early on whether you’re not using some of your purchased Reserved Instances, (you can see your coverage and utilisation data in the AWS Cost Explorer). You’ll then be able to react immediately. A way to repair this kind of situation is changing the usage of your projects to use the instance you have just bought. If you have bought a zonal Reserved Instance you might want to change the zone or modify the instance for regional scope. You might also want to change the size of the instance to cover your current usage.

To find out everything you need to know about optimising Reserved Instances, we’ve created a helpful, in-depth guide.

Aarne TalmanGlobal Machine Learning Practice Lead @ Nordcloud

Get in Touch.

Let’s discuss how we can help with your cloud journey. Our experts are standing by to talk about your migration, modernisation, development and skills challenges.

Ilja Summala
Ilja Summala LinkedIn
Ilja’s passion and tech knowledge help customers transform how they manage infrastructure and develop apps in cloud.