How to reduce AWS spend

The questions every finance leader should be asking

Aimee Manning | OCT 02, 2023

12 min read

AWS may well provide organizations with the means to significantly reduce their operational expenses, but with many spending significantly more than they could be – data indicates that as much as 32% of cloud spending goes to waste – there’s a serious question of how this can be prevented.

In other words, how can AWS spend be reduced, without compromising efficiency?

While as a finance leader you likely face a myriad of challenges when it comes to reducing your cloud expenditure, chances are you rely heavily on your DevOps team to demonstrate cloud efficiency.

The problem is, with the responsibility to reduce cloud spend largely remaining in your wheelhouse, it’s crucial that you have an understanding of not only how this budget is being spent, but also where the opportunities exist for driving down the cost.

Knowing what information to request from your colleagues is therefore imperative.

In this article, we’ll discuss the questions you should be asking and the reports you should be requesting in order to ensure your organization’s AWS spend is being kept under control.

How finance leaders can analyze AWS spend

If you’re wanting to reduce the amount you’re spending on AWS, you need to start by understanding what it is you’re currently paying for. Then you need to analyze it.

But what exactly does this entail? And what information should you be requesting?

Request your AWS billing report

Your organization’s AWS billing report will provide you with a high-level, consolidated view of your overall AWS charges and costs, and will include information such as total costs, breakdown by service and aggregated usage data.

Request your AWS Cost and Usage Report

While the AWS Cost and Usage Report is similar to the AWS billing report in that it tracks and analyzes costs, there are some notable differences.

The main one is that it provides far more detailed information, including specific usage records, resource IDs and pricing details for individual services and resources used within your account.

It’s also more customizable than the billing report, allowing you to tailor it based on your specific requirements.

Actionable tip: Choose which data elements to include, define your own report dimensions, specify filters and schedule automated report generation.

What’s more, you can receive reports that break down your costs by the hour, day or month, either by product or product resource, or by tags that you define yourself.

Actionable tip: Request that resources are tagged by department in order to track costs associated with different teams or business units. Alternatively, you could use them for specific projects.

Use AWS CloudWatch metrics

In addition to the two aforementioned reports, you can also make use of AWS CloudWatch metrics – a monitoring tool that can provide insights into the performance of your AWS resources and applications – enabling you to identify idle or underutilized resources that are either not being used or are underutilized.

These metrics are essentially a time-ordered set of data points that represent the values of a variable over time, allowing you to collect and track data on various aspects of your AWS environment, including compute, storage, network and application performance.

They can also be viewed in real-time or a specific time period.

Actionable tip: Create alerts to notify you when certain conditions are met, for example CPU utilization exceeding a certain threshold.

The questions you should be asking

While the reports can be incredibly useful for understanding your AWS spend, interpreting them is no easy feat.

This is why it also pays to ask your tech colleagues the right questions.

Questions such as:

  • What is the overall AWS budget allocation?

You may already know this, but if not, it doesn’t hurt to find out how much of the total budget is currently allocated for AWS services.

  • Which AWS services and resources are currently in use?

Request a breakdown of the AWS services and resources being utilized. This will help you identify areas where costs are incurred and prioritize cost optimization efforts.

You should specifically ask the tech team to explain:

1. Your service usage and how much you’re spending in each area

Gain a thorough understanding of which AWS services you are using and how much you are spending on each. This will not only provide you with some insight into the services that are driving up your costs, but it will also enable you to identify those that you’re either no longer using or that could be replaced by lower-cost alternatives.

2. How your resources are being used

This includes your data transfer, storage and compute usage. Again, use this insight to identify the specific usage types that are contributing most to your costs.

Data transfer costs in particular can be a significant contributor to your organization’s AWS spend, especially if you have high-volume data transfer requirements or are transferring data between different AWS regions.

By identifying how much you’re spending in this area – something that can also be ascertained through the billing reports – you can identify if there is an opportunity to reduce the costs. As an example, your data transfer patterns can provide invaluable insights into how you can potentially minimize the amount of data needing to be transferred.

Cloud Spend Report 2024

  • Are there any unused or underutilized resources?

It’s also worth inquiring about any idle or underutilized AWS resources that are incurring costs without providing value.

Oversized instances, for example, are often a significant contributor to AWS spend and when these instances – in other words, the virtual servers – are larger or have more capacity than necessary, it can quickly lead to wasted resources and increased costs. Oversizing typically occurs when companies prioritize speed and performance over cost optimization.

By ensuring that you’re right-sizing these instances to match your actual usage needs, you can maximize efficiency and ensure you’re only paying for what is needed.

  • What are the cost drivers for each service?

Ask for details on the main cost drivers for each AWS service. While this will include factors such as data transfer, storage usage and compute instances, there will also be other metrics driving up your spend. Understanding each of these cost drivers will enable you to focus on optimizing the most impactful ones.

  • Are there any reserved instances or savings plans in place?

It’s also worth determining whether your organization has taken advantage of AWS Reserved Instances or Savings Plans, both of which offer discounted pricing for long-term commitments and can significantly reduce costs for certain services.

Question is, how do they work?

AWS Reserved Instances essentially provide a discount on the hourly rate of Amazon EC2 instances – Amazon’s most widely used virtual server – in exchange for a commitment to use the same instance type in the same region for a one or three-year term.

There are several types of Reserved Instances available, each with different terms and flexibility. Standard Reserved Instances, for example, offer the highest cost savings but are the least flexible, whereas Convertible Reserved Instances offer more flexibility by allowing you to change instance families within the same instance type.

In contrast, Scheduled Reserved Instances offer a lower discount, but allow you to reserve capacity for specific time windows, such as business hours or weekends, providing cost savings for predictable workloads.

Ultimately, by understanding your usage patterns, you will be better equipped to choose the right Reserved Instance type for your organization.

  • Are there any scaling or auto-scaling mechanisms in place?

Another way to optimize your compute resources and reduce AWS spend is through the use of auto-scaling.

Auto-scaling specifically helps you avoid the costs associated with overprovisioning by automatically adjusting the number of Amazon instances to match the current demand. While auto-scaling is most commonly associated with Amazon EC2, it is possible to utilize it with some of AWS’s other services, however there are restrictions.

Assuming you’re using Amazon EC2, your organization will be able to set usage thresholds that trigger the addition or removal of these instances, ensuring you always have enough resources to handle incoming traffic without overspending on unused resources – something that is particularly helpful for workloads with unpredictable or variable traffic patterns.

  • Are you using the right database engine for your workload requirements?

With different database engines having varying pricing models and cost structures, it’s crucial that you select the one that best aligns with your organization’s workload requirements, in order to avoid overprovisioning or paying for unnecessary features.

Similarly, you should also be choosing the right one based on your scalability and performance requirements, your storage and access patterns, and whether you want the convenience of a managed service or would prefer a self-managed solution.

  • Are there any existing cost optimization initiatives or recommendations in place?

Check if there are ongoing efforts to optimize costs within the AWS environment. This can include rightsizing instances, implementing spot instances, choosing cost-effective storage options, or leveraging AWS cost management tools.

As an example, if your organization’s workloads can tolerate interruptions and do not require continuous availability, you may benefit from utilizing spot instances.

Spot instances essentially allow you to bid on unused EC2 capacity in your desired region and availability zone, with AWS then allocating the capacity to the highest bidder. This can be significantly cheaper than regular on-demand pricing – by as much as 90%.

The challenge is, if the spot price goes above the bid price, AWS will terminate the instance after a two-minute notification.

So, while this can be a great way to reduce costs, it’s only really ideal for workloads that can tolerate interruptions and do not require continuous availability.

Actionable tip: Monitor these spot instances closely and take action if instances are being terminated too frequently. This can be done by setting up CloudWatch alarms to notify administrators when they’ve been terminated.
  • Have any cost allocation tags been set up?

Cost allocation tags allow you to assign metadata to your AWS resources, making it easier to track your costs by project, department or applications. These tags can then be used to identify areas of overspending and to ultimately focus your optimization efforts.

Actionable tip: If your organization is already using these tags, review the billing reports to see how your costs are assigned to each tag. This will help you understand how different projects, departments or teams are contributing to your overall AWS spend. If they’re not yet being used, you should request that they are.
  • Is your company using lifecycle policies to manage data storage tiers?

The first step in optimizing your storage resources is to use lifecycle policies for AWS S3, Amazon’s widely used object storage service.

Lifecycle policies specifically allow you to define rules to automatically transition objects from one storage class to another. As an example, you could move older or less frequently accessed data to lower-cost storage classes such as S3 Glacier or S3 Intelligent-Tiering, which can be significantly cheaper than the standard S3 storage class.

AWS lifecycle policies can also be used to expire or delete objects that are no longer needed, which can deliver additional cost savings.

  • Is your company making use of AWS Budgets to set spending limits and receive alerts?

While cloud services such as AWS are designed to offer both scalability and flexibility, costs can easily spiral out of control if you aren’t keeping on top of your spend.

Actionable tip: Amazon’s AWS Budgets tool helps tackle this challenge, by allowing you to set custom cost and usage budgets to monitor your spend, while receiving alerts when they exceed or are forecasted to exceed your desired spending limit.
  • Are third-party cost optimization tools and services being utilized?

While both AWS Cost Explorer and AWS Budgets can provide valuable insights into your usage and spending, helping you identify areas for cost-savings, neither tool comes without its limitations. Namely, the lack of granularity and depth that is needed for a truly detailed analysis.

As an example, the AWS Budgets tool only allows you to set budgets at a monthly, quarterly or annual level, as opposed to a daily or hourly basis, which can limit the accuracy of cost tracking and forecasting for short-term projects or resource-intensive periods. Then, there’s the fact that it’s not possible to allocate costs to specific teams, projects or departments, making it difficult to perform detailed cost analysis.

There are similar limitations with AWS Cost Explorer. To start with, it relies on the use of cost allocation tags to assign costs to specific resources, however these tags have limitations in terms of the number of resources that are able to be tagged. There is also limited support for multiple accounts, making it difficult to analyze costs across two or more AWS accounts.

So, what’s the solution? How can you ensure you’re getting a comprehensive analysis of your AWS infrastructure, in order to identify every opportunity to drive down spend?

In short, with Vertice Cloud Cost Optimization.

Optimize your AWS spend with Vertice

By analyzing your cloud infrastructure with our proprietary suite of more than 75 optimization tests, covering areas such as Resource Specification, Commitment Allocation and Performance Efficiency, Vertice’s Cloud Cost Optimization (CCO) platform can automatically generate a number of cost saving recommendations, enabling you to save up to 25% on your annual cloud spend.

These recommendations are then structured into saving proposals, taking into account your bandwidth and resources, with each recommendation including an estimate on the savings that can be achieved by implementing it, enabling you to more effectively prioritize.

That’s not all it does though.

Vertice will also continue to actively monitor your cloud infrastructure, alerting you to anomalous increases in spending, while re-running the optimization score periodically for ongoing savings.

Ultimately, it provides you with the visibility you need as a finance leader, in order to ensure that your AWS infrastructure is optimized for maximum savings.

See for yourself how Vertice discovered $1.1 million in AWS savings potential for one company, or alternatively learn more about the benefits of partnering with a Cloud Cost Optimization provider.

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