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Azure and AWS Savings Plans: Smart What-if Analyses for Optimal Rate Discounts

by   in IT Operations Cloud

How to find the most cost-effective cloud savings plans - it’s easier than you think.

Learn how to optimize your Azure and AWS savings plans to obtain optimal rate discounts for your IT operations in the cloud, using HCMX, the FinOps solution from OpenTextTM.

As cloud spend continues to rise, organizations are increasingly looking for ways to optimize their costs. One of the most impactful ways to achieve this goal is to pay a lower rate for public cloud resources. Reservation-based pricing models, called savings plans, make that possible.

What are savings plans?

Azure and AWS savings plans are a subcategory of reservation-based commitments, commonly known as reservations. The idea behind savings plans is simple: In exchange for your commitment to spend a certain amount of money with your cloud provider, you’ll get a discount. The more you commit to spend, the more discount you’ll get. With savings plans, organizations can save up to 72 percent over regular on-demand prices. You can’t beat that for optimizing cloud costs.

How do Azure and AWS savings plans work?

Although the idea is simple, the implementation of saving plans is not always straightforward and calls for intricate planning. Purchasing a savings plan requires you to express your commitment in terms of a dollar amount per hour—such as “I’ll commit to spending $50.88 per hour for one year.” But how do you know what that dollar amount should be for each cloud account? How do you know if you should commit to just one year or to three years? Furthermore, cloud providers allow you to pay a portion, or all, of the commitment upfront. Should you do it? What are the trade-offs? And what about savings plan flavors? Which one is best suited for your situation?

Cloud vendors provide savings plan recommendations. But blindly following these recommendations without analyzing them in the context of your FinOps maturity and business requirements can lead to overpaying on the plan. And that hurts your ROI.

How FinOps from OpenText optimizes Savings Plans with smart what-if analyses

To help you take full advantage of savings plans, Hybrid Cloud Management X (HCMX), the FinOps solution from OpenText, offers smart what-if analyses that help you quickly identify the most suitable savings plans for your business—while ensuring that the lowest rates align with your business requirements.

The typical process involves taking one or more savings plans and then determining:

  • The upfront payment thresholds your organization is comfortable with,
  • Favorable discount percentages that exceed alternate investment options, and
  • Risks of not needing the resources committed to, for the full duration of the term.

Taking these factors into consideration, the OpenText FinOps solution serves as an ideal platform for consolidating these key aspects within a single interface. It enables you to conduct what-if analyses to intelligently and easily evaluate what the best course of action is.

Let’s take a look at how this works, in three simple steps.

Step 1: Getting your recommended savings plan information

When you start analyzing a saving plan recommendation with the OpenText FinOps solution, you’ll first get an overview of the plan details.

The term of this recommended savings plan is one year, which means that for a whole year you’ll commit to pay the cloud vendor a fixed amount of money per hour—in this case, $89.777. You’ll also commit to a payment schedule. You can choose monthly payments, one upfront payment, or a combination of an upfront payment and monthly payments. As you may have guessed, the more you pay upfront, the more discount you get.

What’s the discount for this recommendation? To answer that question, the OpenText FinOps solution shows you a breakdown of what you’re estimated to spend without the plan vs. what you’re estimated to spend with the plan. In this example, you’ll save $125,817.17 over the course of the term.


Step 2: Understanding the savings plan recommendation’s context

Should you purchase this savings plan as recommended—or should you make adjustments to it? The OpenText FinOps solution makes it easy to decide. You can add additional context in the form of spend history for the account, as shown in the image below. We can now see that the recommended savings plan has a coverage target of 89% (the dotted blue line in the image). 

Defining the terms: Coverage is the amount of your cloud spend covered by one or more savings plans, typically expressed as a percentage of your total cloud spend. Coverage target is the coverage you want to end up with after purchasing one or more new savings plans.

Almost 90 percent of the spend in this account will be covered by a savings plan after purchase. In reality, such high levels of coverage are extremely aggressive, appropriate only for organizations with near-perfectly optimized usage, with little to no cloud waste, and perfectly right-sized cloud resources.

If less-optimized organizations commit to such high coverage, they will end up paying to cover resources that will get eliminated through waste-cutting measures. These organizations should consider starting with more conservative coverage targets and then increasing those targets as their FinOps usage optimization practice matures.

Step 3: Selecting the optimal coverage target using what-if analysis

What coverage level should we choose in our example? The FinOps Foundation organization suggests that FinOps starters aim for 50–70 percent coverage and FinOps intermediates for 60–80 percent.

The OpenText FinOps solution makes it easy to visualize such coverage target ranges, with the default target range set to 60–80 percent (shown in the next image as the blue banner in the graph). If the coverage level (the dotted blue line) would coincide with the bottom of the banner, then 60 percent of the cloud spend would be covered. 80 percent would be covered if it would coincide with the top of the banner.

Let’s say we consider ourselves to be intermediate. This means a realistic coverage target could be 70 percent coverage. What does that mean in terms of hourly commitment? The OpenText FinOps solution can simulate this situation with a slider that allows you to manipulate your plan commitment level (i.e., how much of the recommended plan you’ll purchase).

Defining the terms: Commitment level is the percentage of the cloud vendor savings plan recommendation that you’ll purchase. 100% means you’ll purchase the plan completely as per the recommendation. 50% means you’ll purchase half.

 In the following image, the commitment level slider in the upper left starts out at 100 percent.


We then drag it to 77 percent, which puts us at our desired coverage level of 70 percent, right in the middle of our coverage target range.


In the next image we see that this commitment level of 77 percent corresponds to an hourly commitment of $70.026.

Providing you with this information is paramount. The hourly commitment amount can be easily ported into the AWS savings plan purchasing UI, which means you can purchase this plan with just a couple of clicks.

Purchasing optimized savings plans like this gives your organization the perfect ROI, striking an ideal balance between desired savings, FinOps maturity, and what you want to spend in terms of upfront payment.

Personalized views for engineering managers and other account owners

The OpenText FinOps solution is completely role-enabled, which means FinOps subject matter experts (SMEs) can expose savings plan what-if analyses to anyone who has direct or indirect financial accountability for cloud accounts—from engineering managers and project managers to individual engineers. These cloud accounts owners can then inspect their own cloud spend, consult relevant savings plan recommendations, analyze the appropriateness of these recommendations, tailor them for optimal cost-effectiveness like we just did, and then send these tailored recommendations to the FinOps SMEs or Finance to be purchased.

Next steps: Learn more or try it for free

Experience it for yourself. Try the OpenText FinOps Fast-Track Program—free of charge. Our dedicated team is ready to support every step of your FinOps implementation. To apply for the program or to learn more about it, contact us here.

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