Cloud Economics Basics Part Two
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1h 13m

This course covers the core learning objective to meet the requirements of the 'Implementing effective Cost Management solutions in AWS - Level 1' skill

Learning Objectives:

  • Understand aspects of AWS Cloud economics, including OpEX, CapEX and TCO
  • Understand the various AWS account structures in relation to AWS billing and pricing practices
  • Understand which operations will reduce costs by moving to the AWS cloud
  • Analyze and contrast the various pricing models for AWS, such as On-Demand EC2 Instances, Reserved Instances, and Spot Instance pricing

Welcome to the section about the basics of cloud economics. The value of cloud extends beyond cost savings for your infrastructure. Cloud users can see significant improvements in other areas, including staff productivity, operational resilience, and business agility.

Let's dig a little deeper into cloud economics to see what exactly is part of it, and where companies can improve their business. Of course, there's cost savings or a lower TCO. Or in other words, infrastructure cost savings, or avoidance, from moving to the cloud. This can be reached through: A better ability to match supply and demand, and improving utilization; Elastic cost base driven by usage patterns; And through the elimination of hardware refresh and maintenance programs. Example for this is 50% reduction to total TCO.

Then there's also the staff productivity, or efficiency improvement by function on a task-by-task basis. This can be reached through a higher maintenance efficiency through automation, the elimination of hardware-related tasks, and increased developer productivity. An example for this would be over 500 hours per year of server configuration time saved.

There's also operational resilience, or the benefit of improved availability, security, and compliance. This can be reached through the reduced cost of planned and unplanned outages, a reduced risk profile, or cost of risk mitigation, and an improved service level agreement. And an example for this is the critical workload that is run in multiple AZs and Regions for strong disaster recovery.

Last but not least, there is business agility, or the faster deployment of new features and applications, while reducing errors. And this is reached through reduced time to market, increased operational agility, and the reduce costs, and increased pace of innovation. An example for this is a 75% faster launch of a new product.

Now let's take a look at some real numbers to see what this means exactly. In 2018, IDC, one of the largest market research firms in the world, asked 27 major corporations how their use of AWS has impacted their business. And as we can see here, they had a 62% more efficient IT infrastructure staff, nearly three times more features delivered, and 94% less time lost to unplanned downtime.

This is of course only a sample of 27 companies. And of course, the perspectives are not supplied everywhere. But you get a good overview of what is possible when using cloud properly. Cloud economics is not only about cost savings. However, with the right usage the cloud can help your entire business become more efficient.

In the past, engineering teams needed the approval of the finance team to get new resources. This process works, but it's incredibly slow, and would destroy all of the agility in the cloud. So how can this process be adapted to the cloud? The biggest hurdle here is not to get financial issues in the way of IT teams, and to involve financial teams in planning, procurement, and forecasting.

Based on many companies' experience, AWS has created a high-level best practice framework that is also called the five pillars of cost optimization. The five cost optimization pillars apply, regardless of your workload or infrastructure across nearly all environments.

The pillars of cost optimization are defined by AWS as follows:

Right-sizing: Ensure that what you provision matches what you need. For example, for compute, you provision for CPU, memory, storage, and network throughput.

Increase elasticity: Traditional IT costs and hardware requirements are tailored for peak usage and are rarely turned off. In the cloud, you can optimize costs to meet dynamic needs and turn resources off when they are not needed. For example, you can usually turn off non-production instances for 70% or more of any given week.

Leverage the right pricing model: AWS provides a range of pricing models. For example, On-Demand and Spot Instances for variable workloads, and Reserved Instances for predictable workloads. Choose the right pricing model to optimize costs based on the nature of your workload.

Optimize storage: AWS provides multiple storage tiers at prices designed to meet performance. By identifying the most appropriate destination for specific data types, you can reduce Amazon Elastic Block Store and Amazon Simple Storage Service while maintaining the required performance and availability. For example, where performance requirements are lower, using Amazon EBS Throughput Optimized HDD typically cost half as much as the default General Purpose SSD.

Measure, monitor, and improve: To ensure that you extract the full economic potential of the AWS Cloud at any scale, you want to: Define and enforce cost allocation tagging. And you will hear me talking about tagging a lot within this course.

Forecast usage and costs: Define metric set targets and review at a reasonable cadence. Enable teams to architect for costs via training, visualization of progress goals, and a balance of incentives, and assign optimization responsibility to an individual or to a team.

About the Author
Learning Paths

Stuart has been working within the IT industry for two decades covering a huge range of topic areas and technologies, from data center and network infrastructure design, to cloud architecture and implementation.

To date, Stuart has created 150+ courses relating to Cloud reaching over 180,000 students, mostly within the AWS category and with a heavy focus on security and compliance.

Stuart is a member of the AWS Community Builders Program for his contributions towards AWS.

He is AWS certified and accredited in addition to being a published author covering topics across the AWS landscape.

In January 2016 Stuart was awarded ‘Expert of the Year Award 2015’ from Experts Exchange for his knowledge share within cloud services to the community.

Stuart enjoys writing about cloud technologies and you will find many of his articles within our blog pages.