Why your org needs a Reserved Instances czar
The FinOps Journey:
(EDITORIAL NOTE – Annotated in 2019 to show this post’s role on the path to the FinOps cloud operating model.)
The idea of the RI Czar is less about a specific title and more about the importance of centralized cloud discount control. Over the last few years, this has evolved into the practice of the FinOps Team, a core concept for FinOps. With a FinOps Team, discount management (including RIs or Committed Use Discounts) is centrally controlled to take full advantage of discounts and secure the best rate. Find out more by reading FinOps: A New Approach to Cloud Financial Management.
If you’re spending more than $100k a month on AWS, it’s about time you appointed a Reserved Instances czar. What’s an RI czar, you ask? Well, here’s the definition of a regular czar (to liberally paraphrase Wikipedia):
Czars run or organize governmental departments, and may devote their expertise to a single area of work. Advantages cited for the creation of czar posts are the ability to go outside of formal channels and find creative solutions for problems, the ability to involve a lot of players in big issue decision-making, and the ability to get a huge bureaucracy moving in the right direction. Problems can occur with getting all the parties to work together and with managing competing power centers.
So it follows that an RI Czar would be someone like this:
A person focused on looking at their company’s AWS billing data each month to identify opportunities for lowering their cloud costs using Reserved Instances. They are empowered to coordinate across multiple departments involved with cloud (engineering, ops, finance, product owners, etc) and have clearly defined purchasing authority within certain limits. They ensure that monthly iterative RI purchases actually happen while others are distracted by running the business and infrastructure. The RI czar may also work with the cloud provider to access volume or enterprise discounts.
In small companies, the RI czar may be a single person. In companies spending six figures or more a month, there can be multiple people on a small team. In either case, this person or group acts as an unbiased 3rd party, serving as liaison between the various stakeholders in the company to ensure that the right data is being analyzed, the right conversations are being had and ultimately the right purchases and modifications are being made to ensure maximum savings.
Does the person really do RIs as their full time job?
This role seems to work best when Reserved Instances are a key part of someone’s job description, and when they’re measured on the results of their RI buys. Is this person dedicated to RIs full time? They can be, but are usually not. That being said, the numbers do support dedicating a material amount of an FTE’s time to the process. Consider the math:
– Properly purchased RIs can save 30–60% (1 to 3 year reservations) off the portions of your bill that are reservable (EC2, RDS, etc).
– Assuming a $1M/yr spend on these services, there’s a potential savings of $300K+ year.
That’s a lot of savings…enough to pay for committing someone’s time to the process. Do keep in mind that RIs do not save money on your entire bill, so it’s important to set expectations around their actual savings in your organization. For discounts on everything else, ask your cloud provider about volume or enterprise discounts.
Who should you appoint as RI czar?
It might be surprising, but this person generally doesn’t usually sit in the technology sphere. We’ve seen the role taken on by technically-minded individuals in the finance, procurement or vendor management organizations. They may have a title like “Cloud Financial Analyst,” “Vendor Management Analyst” or “Cloud Cost Analyst”—note the common theme of analysis.
Remember, RIs are a billing construct—literally a coupon—that are applied after the technology decisions are made around your infrastructure’s makeup of instance types. RIs are simply a rate optimization on resources that are already being used. This makes them well-suited to be tended to by someone focused on managing costs already.
That’s not to say the RI czar doesn’t need to work closely with the technology organization to vet purchases. It’s critical that they be in lock step with near term plans for infrastructure changes. The most effective cost optimization responsibility structures tend to have engineering and ops focused on optimizing resource usage, and the RI czar focused on optimizing the rate paid for the infrastructure used.
How do you measure the RI czar’s success?
Use consistent RI coverage and waste metrics for reporting each and every month in a cloud audit session. Many companies target 70-80% RI coverage and get there through a series of monthly reservation purchases, intermixed with bi-weekly RI modifications. It’s an iterative process; they start with a small and uncontroversial buy, measure their ROI, then learn from the results for the next month’s purchase.
Going beyond the RI czar
For companies running cloud at scale, it make financial sense to appoint a broader Cost Management czar to look at all angles of cost optimization, visibility and efficiency. If you need help training your czar or want a third party to take on the role, Cloudability can help with our Managed Support program. In addition to on-site training, we’ll run a monthly cloud audit session for you to layout recommendations and report on progress. Reach out to get started.