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Cloud Economics Basics Part Two

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This course provides an introduction to cost management in AWS. It starts by looking at the economics of the cloud in general, including economies of scale and total cost of ownership, and you'll also learn why cost optimization is important.

We'll also cover the AWS Pricing Calculator and the AWS Well-Architected Framework and how these allow you to optimize your AWS environment and also calculate how much it will cost. We round off the course by taking a look at terminology across areas including software development, DevOps, finance, and general AWS terminology.

Learning Objectives

  • Get a foundational understanding of cost optimization in AWS
  • Learn the fundamentals of cloud economics including economies of scale, total cost of ownership, and why cost optimization is important
  • Learn about the AWS pricing calculator
  • Learn about the AWS Well-Architected Framework and how it can help to make your AWS environment more efficient and cost-effective
  • Understand a range of terminology linked to cost management in AWS

Intended Audience

This course is intended for cloud architects, business management, or anyone looking to manage their costs effectively in AWS.


To get the most out of this course, you should already have some experience with the AWS platform.


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
Oliver Gehrmann
FinOps Consultant & CEO of kreuzwerker Frankfurt

Oliver Gehrmann is a FinOps Consultant and CEO of kreuzwerker Frankfurt, a German consulting firm with a strong focus on AWS, software engineering, and cloud financial management. He's worked in IT for over 10 years, facilitating the migration from physical servers in data centers to modern cloud infrastructures.
He and his team have experienced first-hand that costs in the cloud are becoming more and more of a challenge when about 2.5 years ago more and more customers approached them with this topic. Costs ran out of control and could not be addressed to business values.
Since that time, we have worked extensively on the topic of cloud financial management and have already been able to save our customers many millions of dollars. He now shares this knowledge in order to help others.