Reserved Instances and Savings Plans in AWS - Mini Project: Build & Apply

Reserved Instances and Savings Plans Setup

📖 Scenario: You are managing cloud costs for a small company using AWS. You want to save money by using Reserved Instances and Savings Plans for your EC2 instances.

🎯 Goal: Build a simple AWS configuration that defines EC2 Reserved Instances and Savings Plans to reduce costs for your cloud infrastructure.

📋 What You'll Learn

Create a dictionary to hold EC2 instance types and their hourly costs.

Add a configuration variable to specify the number of Reserved Instances to purchase.

Calculate the total hourly cost after applying Reserved Instances discounts.

Add a final configuration to define a Savings Plan with a fixed hourly commitment.

💡 Why This Matters

🌍 Real World

Companies use Reserved Instances and Savings Plans to reduce cloud costs by committing to usage in advance.

💼 Career

Cloud architects and cost managers need to understand how to configure and calculate savings from Reserved Instances and Savings Plans.

1

Create EC2 instance types and hourly costs

Create a dictionary called ec2_instances with these exact entries: 't3.micro': 0.0104, 't3.small': 0.0208, 't3.medium': 0.0416 representing the hourly cost for each instance type.

AWS

# Create the ec2_instances dictionary with the specified instance types and costs
# Your code here

Hint

Use a Python dictionary with keys as instance types and values as hourly costs.

2

Add Reserved Instances purchase count

Create a variable called reserved_instances_count and set it to 3 to represent the number of Reserved Instances you want to buy.

AWS

ec2_instances = {'t3.micro': 0.0104, 't3.small': 0.0208, 't3.medium': 0.0416}
# Set reserved_instances_count to 3
# Your code here

Hint

Just assign the number 3 to the variable reserved_instances_count.

3

Calculate total hourly cost with Reserved Instances discount

Create a variable called total_hourly_cost and calculate the total hourly cost for reserved_instances_count of 't3.small' instances applying a 40% discount on the hourly cost. Use the formula: total_hourly_cost = reserved_instances_count * ec2_instances['t3.small'] * 0.6

AWS

ec2_instances = {'t3.micro': 0.0104, 't3.small': 0.0208, 't3.medium': 0.0416}
reserved_instances_count = 3
# Calculate total_hourly_cost with 40% discount for reserved_instances_count of 't3.small'
# Your code here

Hint

Multiply reserved_instances_count by the hourly cost of 't3.small' and then by 0.6 to apply the 40% discount.

4

Define Savings Plan hourly commitment

Create a variable called savings_plan_hourly_commitment and set it to 0.025 to represent the fixed hourly commitment for your Savings Plan.

AWS

ec2_instances = {'t3.micro': 0.0104, 't3.small': 0.0208, 't3.medium': 0.0416}
reserved_instances_count = 3
total_hourly_cost = reserved_instances_count * ec2_instances['t3.small'] * 0.6
# Set savings_plan_hourly_commitment to 0.025
# Your code here

Hint

Assign 0.025 to savings_plan_hourly_commitment to represent your Savings Plan commitment.

Practice

1. What is the main benefit of using AWS Reserved Instances or Savings Plans?

easy

A. They provide free support from AWS

B. They increase the speed of your instances

C. They reduce cloud costs by committing to usage over time

D. They automatically scale your instances

Solution

1. Step 1: Understand the purpose of Reserved Instances and Savings Plans

   Both are pricing models that offer discounts in exchange for a commitment to use AWS resources for a period.

2. Step 2: Identify the main benefit

   The main benefit is cost savings by committing to usage, not performance or support features.

3. Final Answer:

   They reduce cloud costs by committing to usage over time -> Option C

4. Quick Check:

   Cost savings = C [OK]

Hint: Focus on cost savings through commitment [OK]

Common Mistakes:

• Thinking Reserved Instances improve instance speed
• Confusing cost savings with free support
• Assuming automatic scaling is included

2. Which of the following is the correct way to describe a Savings Plan in AWS?

easy

A. A flexible pricing model that applies to compute usage regardless of instance type

B. A commitment to use a specific instance type in a specific region

C. A one-time payment for on-demand instances

D. A free trial period for new AWS users

Solution

1. Step 1: Recall Savings Plan characteristics

   Savings Plans offer flexible discounts that apply to compute usage regardless of instance type or region.

2. Step 2: Match the correct description

   A flexible pricing model that applies to compute usage regardless of instance type correctly describes Savings Plans as flexible pricing models, unlike Reserved Instances which are specific.

3. Final Answer:

   A flexible pricing model that applies to compute usage regardless of instance type -> Option A

4. Quick Check:

   Savings Plans = Flexible pricing = A [OK]

Hint: Savings Plans are flexible, not tied to instance type [OK]

Common Mistakes:

• Confusing Savings Plans with Reserved Instances
• Thinking Savings Plans are one-time payments
• Assuming Savings Plans are free trials

3. Given the following scenario: You purchase a 1-year Standard Reserved Instance for an m5.large instance in us-east-1. Later, you launch an m5.xlarge instance in the same region. How does the Reserved Instance discount apply?

medium

A. The discount applies partially, covering the m5.large portion of the m5.xlarge

B. The discount applies to any instance type in any region

C. The discount does not apply to the m5.xlarge instance

D. The discount applies fully to the m5.xlarge instance

Solution

1. Step 1: Understand Reserved Instance scope

   Standard Reserved Instances apply to specific instance types and regions. m5.large is different from m5.xlarge.

2. Step 2: Check discount application

   The discount partially applies because m5.xlarge is double the size of m5.large; the RI covers the equivalent of one m5.large unit.

3. Final Answer:

   The discount applies partially, covering the m5.large portion of the m5.xlarge -> Option A

4. Quick Check:

   RI discount partial for larger instance = D [OK]

Hint: RI discounts apply by instance size equivalence [OK]

Common Mistakes:

• Assuming full discount on different instance sizes
• Thinking discount applies across regions
• Believing discount applies to any instance type

4. You configured a Savings Plan but notice your billing does not reflect the expected discount. Which of the following is the most likely cause?

medium

A. You purchased a Reserved Instance instead of a Savings Plan

B. You purchased a Compute Savings Plan but launched instances outside supported services

C. You did not enable multi-region support in your Savings Plan

D. You launched instances only in the free tier

Solution

1. Step 1: Understand Savings Plan coverage

   Compute Savings Plans apply discounts to supported compute services like EC2, Fargate, and Lambda.

2. Step 2: Identify billing mismatch cause

   If instances run on unsupported services or outside the plan scope, discounts won't apply, causing billing to be higher than expected.

3. Final Answer:

   You purchased a Compute Savings Plan but launched instances outside supported services -> Option B

4. Quick Check:

   Discounts apply only to supported services = A [OK]

Hint: Check if instances use supported services for Savings Plans [OK]

Common Mistakes:

• Confusing Reserved Instances with Savings Plans
• Assuming multi-region must be enabled always
• Ignoring service eligibility for discounts

5. Your company has a steady workload running 10 m5.large instances in us-west-2 for 24/7 use. You want to minimize costs while keeping flexibility to change instance types later. Which option is best?

hard

A. Purchase 1-year Standard Reserved Instances for 10 m5.large instances

B. Use On-Demand instances only to keep flexibility

C. Purchase 3-year Convertible Reserved Instances for 10 m5.large instances

D. Purchase a 1-year Compute Savings Plan covering the equivalent usage

Solution

1. Step 1: Analyze workload and flexibility needs

   The workload is steady and predictable, so committing to usage saves money. Flexibility to change instance types is important.

2. Step 2: Compare options

   Standard RIs are less flexible; Convertible RIs allow changes but require longer commitment. Compute Savings Plans offer flexibility across instance types and families with 1-year commitment.

3. Step 3: Choose best option

   Compute Savings Plan balances cost savings and flexibility best for this scenario.

4. Final Answer:

   Purchase a 1-year Compute Savings Plan covering the equivalent usage -> Option D

5. Quick Check:

   Flexibility + cost savings = Compute Savings Plan = B [OK]

Hint: Choose Savings Plans for flexibility with steady workloads [OK]

Common Mistakes:

• Choosing Standard RIs despite flexibility needs
• Ignoring commitment length impact
• Assuming On-Demand is cheapest for steady workloads