AWS Reserved Instances and Savings Plans, optimized.

AWS Reserved Instances and Savings Plans are the principal commitment frameworks for the AWS customer base, with the cumulative effect that the commitment framework anchors the AWS run rate against the on demand pricing baseline. The frameworks deliver discounts in the twenty to seventy two percent range against the on demand rate, with the discount level tied to the commitment term, the payment framework, and the commitment scope. Most enterprise AWS estates run sub optimal commitment frameworks, with the cumulative effect that the customer leaves five to fifteen percent of the AWS run rate on the table relative to the optimal commitment framework. This article is the buyer side framework for the commitment optimization conversation, drawn from AWS engagements across the Redress Compliance AWS practice. Read the related AWS advisory practice, the AWS vendor management playbook, and the AWS EDP negotiation framework.

Reserved Instances and Savings Plans

AWS Reserved Instances are the original commitment framework, introduced in 2009 as the discount mechanism against the EC2 on demand rate. The Reserved Instance framework commits the customer to a defined EC2 instance family, region, operating system, and tenancy across a one or three year term.

The framework has three principal RI types.

• Standard RIs. Commit to the full instance specification at the upper discount tier.
• Convertible RIs. Commit to a defined dollar value at a slightly lower discount tier, with the optionality to convert across instance families.
• Regional RIs. Commit to a defined instance family across the region rather than the specific availability zone, with the cumulative effect that the regional RI framework provides additional deployment flexibility within the region.

AWS Savings Plans are the broader commitment framework introduced in 2019 as the consolidation of the prior RI framework into a more flexible framework. The Savings Plan framework commits the customer to a defined hourly compute spend across a one or three year term, with the discount applied automatically against the matching usage.

The framework has two principal Savings Plan types.

• Compute Savings Plan. Covers EC2, Fargate, and Lambda across any region, instance family, operating system, and tenancy.
• EC2 Instance Savings Plan. Covers EC2 within a defined instance family and region but provides flexibility across instance size, operating system, and tenancy.

The Compute Savings Plan delivers a slightly lower discount than the EC2 Instance Savings Plan, with the trade off being the broader commitment flexibility.

The trade off

The trade off between Reserved Instances and Savings Plans runs across three dimensions: the discount dimension, the flexibility dimension, and the workload coverage dimension.

The framework that maximizes the discount is the framework that matches the workload mix, with the cumulative effect that the buyer side framework needs to anchor the commitment framework to the actual workload mix rather than the publisher's preferred commitment framework.

The commitment sizing framework

The commitment sizing framework is the load bearing strategic conversation at the AWS commitment framework. The framework anchors the commitment level to the customer's actual stable consumption baseline rather than the publisher's preferred consumption growth assumption. The framework requires the customer to map the actual hourly compute spend across the past twelve months, identify the stable consumption baseline, and commit only against the stable baseline. The marginal consumption above the stable baseline runs at on demand rates with the option to increase the commitment level at the next true up point. The framework typically produces a commitment level that sits at the seventy to eighty percent coverage range of the actual baseline, rather than the publisher's preferred ninety to ninety five percent coverage framework.

The framework has three sub elements that compound across the commitment framework.

• Baseline analysis framework. Maps the actual hourly compute spend across the past twelve months and identifies the stable consumption baseline.
• Growth assumption framework. Sets the consumption growth assumption against the customer's actual consumption trajectory rather than the publisher's preferred consumption growth assumption.
• True up framework. Sets the cadence and the framework for the commitment level adjustment across the commitment term.

The cumulative effect is a commitment level that matches the actual consumption rather than the publisher's preferred commitment framework.

The hybrid framework

The hybrid framework is the buyer side recommended commitment framework for most enterprise AWS estates. The framework combines the Compute Savings Plan as the baseline commitment layer and the Reserved Instance framework as the additional discount layer for the stable workloads. The framework typically deploys the Compute Savings Plan at the seventy to eighty percent coverage range of the actual consumption baseline, with the Compute Savings Plan covering the EC2, Fargate, and Lambda workload mix at the upper discount tier. The Reserved Instance framework is then deployed against the specific EC2 workloads that have stable instance family, region, and tenancy, with the Reserved Instance providing the additional discount layer above the Compute Savings Plan baseline.

The hybrid framework delivers two compound effects. First, the framework captures the broad commitment flexibility of the Compute Savings Plan across the full workload mix. Second, the framework captures the additional discount tier of the Reserved Instance framework for the stable EC2 workloads. The cumulative effect is a commitment framework that delivers the upper end of the discount range across the broad workload mix while preserving the deployment flexibility across the broader AWS estate. The framework typically delivers a fifteen to twenty percent improvement in the AWS run rate against the all on demand baseline and a five to ten percent improvement against the all Reserved Instance framework.

RI, Savings Plan, and the EDP framework

The AWS Enterprise Discount Program is the load bearing commercial framework for the upper enterprise customer scale. The EDP framework commits the customer to a defined dollar level of AWS spend across a one to five year term, with the discount applied as a percentage off the on demand rate across the EDP scope.

The EDP framework intersects with the Reserved Instance and the Savings Plan framework in three principal ways.

1. EDP discount stacks on top of the commitment framework discount. The upper enterprise customer benefits from both the EDP discount and the commitment framework discount.
2. EDP commitment level needs sizing against the post commitment consumption. The EDP commitment level reflects the post commitment consumption framework rather than the on demand consumption framework.
3. EDP renewal intersects with the RI and Savings Plan renewal cycle. The cycles align the discount tier, the commitment level, and the EDP scope against the broader commitment framework.

The EDP renewal cycle is the principal commercial event for the upper enterprise AWS customer base. Read the deeper framework in our AWS EDP negotiation framework and the related AWS EDP negotiation guide download. The framework intersects with the broader cloud commitment framework set out in our AWS, Azure, and GCP competitive framework.

Common mistakes

• Over committing on the consumption growth assumption. The publisher's preferred commitment framework over delivers on the consumption growth assumption, with the cumulative effect that the customer commits against a consumption growth that does not materialise. The buyer side framework anchors the commitment level to the actual stable consumption baseline rather than the publisher's preferred growth assumption.
• Concentrating commitments on the Reserved Instance framework. The Reserved Instance framework delivers the highest discount tier but the lowest deployment flexibility, with the cumulative effect that the customer locks in the deployment framework against the commitment term. The buyer side framework deploys the Compute Savings Plan as the baseline commitment layer, with the Reserved Instance framework as the additional discount layer for the stable workloads.
• Failing to true up the commitment level. The commitment framework needs a structured true up cadence across the commitment term, with the commitment level adjusted against the actual consumption framework. The absence of a structured true up framework produces commitment over coverage at the upper consumption tiers.
• Treating the EDP renewal as a procurement event. The EDP renewal cycle is the principal commercial event for the upper enterprise AWS customer base, with the EDP renewal framework intersecting with the Reserved Instance and the Savings Plan renewal cycle. The EDP renewal needs the structured buyer side framework rather than the procurement event treatment.
• Ignoring the data transfer egress framework. The data transfer egress framework intersects with the broader AWS commercial framework, with the cumulative effect that the egress framework can offset the commitment framework discount. Read the related AWS data transfer egress negotiation framework.

The buyer side moves

The buyer side framework for the AWS commitment optimization has eight moves that compound across the AWS commercial framework.

1. Baseline the actual hourly compute spend. Map the past twelve months and identify the stable consumption baseline. The baseline analysis framework is the load bearing input to the commitment sizing framework.
2. Set the consumption growth assumption against the customer's actual trajectory. Anchor the commitment level against the realistic consumption framework rather than the publisher's preferred growth assumption.
3. Deploy the Compute Savings Plan at the seventy to eighty percent coverage range. The Compute Savings Plan covers the EC2, Fargate, and Lambda workload mix at the upper discount tier.
4. Deploy the Reserved Instance framework as the additional discount layer. Targets the stable EC2 workloads above the Compute Savings Plan baseline.
5. Set the commitment term against the deployment horizon. Three year all upfront for the most stable workloads, one year for the workloads with material deployment flexibility.
6. Set the structured true up cadence across the commitment term. Adjust the commitment level against the actual consumption framework at every six or twelve month interval.
7. Anchor the EDP framework against the post commitment consumption. The EDP commitment level reflects the post commitment consumption rather than the on demand consumption.
8. Run the AWS commitment framework against the broader cloud commercial framework. Integrate the AWS commitment framework into the broader cloud cost optimization framework. Read the adapting your licensing strategy for cloud services framework for the broader cross cloud framework.

The eight moves compound across the AWS commercial framework. The cumulative effect at the enterprise customer scale is a twenty to thirty percent improvement in the AWS run rate against the all on demand baseline, with the framework anchored to the customer's actual consumption framework rather than the publisher's preferred commitment framework. Read the related midwestern US bank AWS case study, the global technology company AWS case study, and the German online services AWS case study for the engagement framework in practice.

How we engage

• AWS commitment optimization. Six week engagement that maps the AWS estate, sizes the commitment framework, and identifies the immediate commercial moves at the next commitment cycle. AWS advisory practice.
• AWS EDP negotiation. Renewal negotiation engagement that handles the EDP framework, the commitment framework, and the broader AWS commercial conversation across the renewal cycle. AWS EDP negotiation.
• Vendor Shield. Always on multi vendor management posture that covers the AWS framework alongside the broader enterprise software estate. Vendor Shield.
• Run the calculator. The AWS EDP commitment calculator sizes the EDP commitment framework against the customer's actual consumption baseline.