Cost Management


  • CapEx (Capital Expenses)
  • OpEx (Operational Expenses)
  • Total Cost of Ownership (TCO)
    • A comprehensive look at the entire cost model of a given decision or option often including both hard costs and soft costs.
  • Return on Investment (ROI)
    • The amount an entity can expect to receive back within a certain amount of time given an investment.

CapEx vs OpEx CapEx:

  • Assets purchased with a useful life beyond the currently year
  • Lump sum paid up front
  • Accounted for over 3-10 year lifespan while asset depreciates
  • Listed as property or equipment
  • Tax treatment is deducted over time as asset depreciates


  • Ongoing costs to run a business
  • Paid monthly or annual recurring
  • Account for in the current month or year
  • Listed as operating cost
  • Tax is deducted in the current tax year

Cost Optimization Strategies

Appropriate Provisioning

  • Provision the resources you need and nothing more
  • Consolidate where possible for greater density and lower complexity (multi-database RDS, containers)
  • CloudWatch can help by monitoring utilization


  • Using lowest-cost resource that still meets the technical specifications.
  • Architecting for the most consistent use of resources is best versus spikes and valleys.
  • Loosely coupled architectures using SNS, SQS, Lambda and DynamoDB can smooth demand and create more predictability and conistency.

Purchase Options

  • For permanent applications or needs, Reserved Instances provide the best cost advantage.
  • Spot instances are best for temporary horizontal scaling.
  • EC2 fleet lets you define target mix of On-Demand, Reserved and Spot instances to meet your needs.
  • AWS Pricing can vary from region to region
  • Consider potential savings by location resources in a remote region if local access is not required.
  • Route53 and CloudFront can be used to reduce latency of a remote region.

Managed Services

  • Leverage managed services such as MySQL RDS over self-managed options such as MySQL on EC2
  • Cost savings gained through lower complexity and manual intervention (saving on soft costs)

Optimized Data Transfer

  • Data going out and between AWS regions can become a significant cost component.
  • Direct Connect can be a more cost-effective option given data volume and speed.

Tagging and Resource Groups

Resource Groups

  • Tags are arbitrary name/value pairs that you can assign to virtually all AWS assets to serve as metadata.
  • Tagging strategies can be used for Cost Allocation, Security, Automation, and many other uses.
    • Example: tag used in IAM policy to implement access controls to certain resources.
  • Enforcing standardized tagging can be done via AWS Config Rules or custom scripts
  • Most resources can have up to 50 tags.

Resource Groups

  • Resource Groups are grouping of AWS assets defined by tags.
  • Create custom consoles to consolidated metrics, alarms and config details around given tags.

Common Resource Groupings:

  • Environments - DEV,QA,PRD
  • Project Resources
  • Collection of resources supporting key business processes
  • Resources allocated to various departments or cost centers

Spot Instances and Reserved Instances

Reserved Instances

  • Purchase usage of EC2 instance in advance for a significant discount over On-Demand pricing
  • Provides capacity reservation when used in a specific AZ
  • AWS Billing automatically applies discounted rates when you launcgh an instance that matches your purchased RI.
  • EC2 has three RI types: Standard, Convertible and Scheduled.
  • RIs can be shared across multiple accounts within Consolidated Billing.
  • If you find you don’t need your RI’s, you can try to sell them on the Reserved Instance Marketplace.

Standard vs. Convertiable Reserved Instances

  • Terms: 1 / 3 year(s)
  • Average Discount: Standard - 40%-60%, Convertible - 31%-54%
  • Change AZ, Instance Size, Networking Type: yes
  • Change instance family, OS, Tenancy, Payment Options: Standard - no, Convertible - yes
  • Benefit from Price Reductions: Standard - no, Convertible - yes
  • Sellable on RI Marketplace: Standard - yes, Convertible - coming soon

RI Attributes:

  • Instance type
  • Platform
  • Tenancy - Defaul / shared
  • Availability Zone (optional)
    • if zone is selected, discount applies to AZ - Zonal RI
    • if no zone is specified, no reservation is created but the discount is applied to any instance in the family in any AZ in the region - Regional RI
    • Zonal RI can be changed to Regional RI via console or AWS API
    • Instance size flexibility is only available for Linux/Unix Regional RIs with default tenancy. Not available for Windows, RHEL, or SLES.

Spot Instances

  • Excess EC2 capacity that AWS tries to sell on a market exchange basis
  • Customer creates a Spot Request and specifies AMI, desired instance types, and other key information
  • Customer defines highest price willing to pay for instance. If capacity is constrained and others are willing to pay more, your instance might get terminated or stopped.
  • Spot request can be a “fill and kill”, “maintain” or “duration-based”
  • For “One-Time Request”, instance is terminated and ephemeral data is lost.
  • For “Request and Maintain”, instance can be configured to Terminate, Stop or Hivernate until price point can be met again.
  • Price and demand fluctuate between AZs

Dedicated Instances and Hosts Dedicated Instances:

  • Dedicated instance is virtualized instances on hardware just for your AWS account
  • May share hardware with other non-dedicated instances in the same account
  • Available as On-Demand, Reserved Instances and Spot Instances
  • Cost additional 2# per hour per region

Dedicated Host:

  • Physical serveres dedicated to just your use
  • You then have control over which instances anre deployed on that host.
  • Available as On-Demand or with Dedicated Host Reservation
  • Useful if you have server-bound software licenses that use metrics like per-core, per-socket or per-VM
  • Each dedicated host can only run one EC2 instances size and type

Cost Management Tools

  • AWS Budgets
    • Set predefined limits and notifications
    • Can be based on Cost, Usage, Reserved Instance Utilization or RI Coverage
    • Useful as a method to distribute cost and usage awareness and responsibility to platform users
  • Consolidated Billing
    • Enable a single Payer account that’s locked down to only those who need access.
    • Economies of scale by bringing together resource consumption across accounts.
  • Trusted Advisor
    • Run a series of checks on your resources and proposes suggested improvements
    • Can help recommend cost optimization adjustments like RIs or scaling adjustments
    • Core checks are available to all customers
    • Full Trusted Advisor benefits require a Business or Enterprise support plan