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Commitment Discounts

Introduction

Commitment discounts provide reduced rates for resources when a commitment is made to the vendor, either in usage or cost. Commitments should be viewed as investments, the investment is the cost of the commitment over the entire period, and the return is the savings provided. Risk can be measured by the time it takes to pay off the commitment through savings. Managing your commitments ensures you make the best decisions for your business, balancing the returns against the risks, with awareness of the goals and direction of the business.

Sample Implementation

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Common Approaches

  • Only purchase commitments that deliver more than 10% return on investment
  • To reduce risk, only purchase commitments that pay off within 8-9 months, exceptions being known static workloads – such as legacy workloads
  • Perform analysis and management at the consolidated account level, not each individual account level
  • Purchases discounts in a way that maximizes the discounts for the organization (such as at the management account level in AWS). Do not purchase in a sub-optimal way because of a lack of process, such as purchasing Savings Plans in a linked account in AWS due to not having a back-charge process.

Maturity Examples

How to get started and what great looks like.

  • Crawl = Analysis and purchases are performed across many business units in an ad-hoc manner. Purchases may be made in ways that do not provide the greatest overall discounts to the business
  • Walk = Centralized analysis and purchasing occurs in a semi-regular cadence. Adhoc reporting on KPI’s
  • Run = Frequent purchase cycles occur with automated allocation of discounts according to business requirements. Regular reporting occurs on KPI’s

Common KPIs

  • Ensure there is not more than $x of unpurchased discounts that provide more than y% return
  • Frequency of reviews
  • Effort to review and implement recommendations
  • RI Coverage
  • Savings Plan Coverage
  • Committed Use Discount coverage
  • Commitment/RI utilization
  • Willing to add your story - Contibute stories here or reach out in the FinOps Foundation Slack

Cautionary Tales

Depending on the discount levels between resource types, locations, operating systems, tenancy, pricing models, and vendors, targets for utilization and coverage may vary from workload to workload. Setting aspirational targets for coverage and utilization across an organization can assist to provide direction and measure progress of optimization. By actively monitoring utilization and coverage, customers can detect decreases in coverage or utilization, which could indicate a change occurred that resulted in a reduction in savings or additional expense.

Discounts can be applied to your bill in different ways month to month or even within a month, develop a process to take this variation and allocate discounts within your organization according to business rules if required.

Resources

These links are provided as potentially relevant industry resources. The FinOps Foundation does not recommend any individual technology vendor and is not responsible for the content below.

  • AWS: https://docs.aws.amazon.com/wellarchitected/latest/cost-optimization-pillar/select-the-best-pricing-model.html

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