# Best practices
**Topics**
+ [Practice Cloud Financial Management](cost-cfm.md)
+ [Expenditure and usage awareness](cost-aware.md)
+ [Cost-effective resources](cost-cereso.md)
+ [Manage demand and supply resources](cost-mandem.md)
+ [Optimize over time](cost-opti.md)
# Practice Cloud Financial Management
With the adoption of cloud, technology teams innovate faster due to shortened approval, procurement, and infrastructure deployment cycles. A new approach to financial management in the cloud is required to realize business value and financial success. This approach is Cloud Financial Management, and builds capability across your organization by implementing organizational wide knowledge building, programs, resources, and processes.
Many organizations are composed of many different units with different priorities. The ability to align your organization to an agreed set of financial objectives, and provide your organization the mechanisms to meet them, will create a more efficient organization. A capable organization will innovate and build faster, be more agile and adjust to any internal or external factors.
In AWS you can use Cost Explorer, and optionally Amazon Athena and Amazon QuickSight with the Cost and Usage Report (CUR), to provide cost and usage awareness throughout your organization. AWS Budgets provides proactive notifications for cost and usage. The AWS blogs provide information on new services and features to verify you keep up to date with new service releases.
The following question focuses on these considerations for cost optimization. (For a list of cost optimization questions and best practices, see the [Appendix](a-cost-optimization.md).).
| COST 1: How do you implement cloud financial management? |
| --- |
| Implementing Cloud Financial Management helps organizations realize business value and financial success as they optimize their cost and usage and scale on AWS. |
When building a cost optimization function, use members and supplement the team with experts in CFM and cost optimization. Existing team members will understand how the organization currently functions and how to rapidly implement improvements. Also consider including people with supplementary or specialist skill sets, such as analytics and project management.
When implementing cost awareness in your organization, improve or build on existing programs and processes. It is much faster to add to what exists than to build new processes and programs. This will result in achieving outcomes much faster.
# Expenditure and usage awareness
The increased flexibility and agility that the cloud provides encourages innovation and fast-paced development and deployment. It decreases the manual processes and time associated with provisioning on-premises infrastructure, including identifying hardware specifications, negotiating price quotations, managing purchase orders, scheduling shipments, and then deploying the resources. However, the ease of use and virtually unlimited on-demand capacity requires a new way of thinking about expenditures.
Many businesses are composed of multiple systems run by various teams. The capability to attribute resource costs to the individual organization or product owners drives efficient usage behavior and helps reduce waste. Accurate cost attribution permits you to know which products are truly profitable, and permits you to make more informed decisions about where to allocate budget.
In AWS, you create an account structure with AWS Organizations or AWS Control Tower, which provides separation and assists in allocation of your costs and usage. You can also use resource tagging to apply business and organization information to your usage and cost. Use AWS Cost Explorer for visibility into your cost and usage, or create customized dashboards and analytics with Amazon Athena and Amazon QuickSight. Controlling your cost and usage is done by notifications through AWS Budgets, and controls using AWS Identity and Access Management (IAM), and Service Quotas.
The following questions focus on these considerations for cost optimization.
| COST 2: How do you govern usage? |
| --- |
| Establish policies and mechanisms to validate that appropriate costs are incurred while objectives are achieved. By employing a checks-and-balances approach, you can innovate without overspending. |
| COST 3: How do you monitor usage and cost? |
| --- |
| Establish policies and procedures to monitor and appropriately allocate your costs. This permits you to measure and improve the cost efficiency of this workload. |
| COST 4: How do you decommission resources? |
| --- |
| Implement change control and resource management from project inception to end-of-life. This facilitates shutting down unused resources to reduce waste. |
You can use cost allocation tags to categorize and track your AWS usage and costs. When you apply tags to your AWS resources (such as EC2 instances or S3 buckets), AWS generates a cost and usage report with your usage and your tags. You can apply tags that represent organization categories (such as cost centers, workload names, or owners) to organize your costs across multiple services.
Verify that you use the right level of detail and granularity in cost and usage reporting and monitoring. For high level insights and trends, use daily granularity with AWS Cost Explorer. For deeper analysis and inspection use hourly granularity in AWS Cost Explorer, or Amazon Athena and Amazon Quick with the Cost and Usage Report (CUR) at an hourly granularity.
Combining tagged resources with entity lifecycle tracking (employees, projects) makes it possible to identify orphaned resources or projects that are no longer generating value to the organization and should be decommissioned. You can set up billing alerts to notify you of predicted overspending.
# Cost-effective resources
Using the appropriate instances and resources for your workload is key to cost savings. For example, a reporting process might take five hours to run on a smaller server but one hour to run on a larger server that is twice as expensive. Both servers give you the same outcome, but the smaller server incurs more cost over time.
A well-architected workload uses the most cost-effective resources, which can have a significant and positive economic impact. You also have the opportunity to use managed services to reduce costs. For example, rather than maintaining servers to deliver email, you can use a service that charges on a per-message basis.
AWS offers a variety of flexible and cost-effective pricing options to acquire instances from Amazon EC2 and other services in a way that more effectively fits your needs. *On-Demand* *Instances* permit you to pay for compute capacity by the hour, with no minimum commitments required. *Savings Plans and Reserved Instances* offer savings of up to 75% off On-Demand pricing. With Spot Instances, you can leverage unused Amazon EC2 capacity and offer savings of up to 90% off On-Demand pricing. *Spot Instances* are appropriate where the system can tolerate using a fleet of servers where individual servers can come and go dynamically, such as stateless web servers, batch processing, or when using HPC and big data.
Appropriate service selection can also reduce usage and costs; such as CloudFront to minimize data transfer, or decrease costs, such as utilizing Amazon Aurora on Amazon RDS to remove expensive database licensing costs.
The following questions focus on these considerations for cost optimization.
| COST 5: How do you evaluate cost when you select services? |
| --- |
| Amazon EC2, Amazon EBS, and Amazon S3 are building-block AWS services. Managed services, such as Amazon RDS and Amazon DynamoDB, are higher level, or application level, AWS services. By selecting the appropriate building blocks and managed services, you can optimize this workload for cost. For example, using managed services, you can reduce or remove much of your administrative and operational overhead, freeing you to work on applications and business-related activities. |
| COST 6: How do you meet cost targets when you select resource type, size and number? |
| --- |
| Verify that you choose the appropriate resource size and number of resources for the task at hand. You minimize waste by selecting the most cost effective type, size, and number. |
| COST 7: How do you use pricing models to reduce cost? |
| --- |
| Use the pricing model that is most appropriate for your resources to minimize expense. |
| COST 8: How do you plan for data transfer charges? |
| --- |
| Verify that you plan and monitor data transfer charges so that you can make architectural decisions to minimize costs. A small yet effective architectural change can drastically reduce your operational costs over time. |
By factoring in cost during service selection, and using tools such as Cost Explorer and AWS Trusted Advisor to regularly review your AWS usage, you can actively monitor your utilization and adjust your deployments accordingly.
# Manage demand and supply resources
When you move to the cloud, you pay only for what you need. You can supply resources to match the workload demand at the time they’re needed, this decreases the need for costly and wasteful over provisioning. You can also modify the demand, using a throttle, buffer, or queue to smooth the demand and serve it with less resources resulting in a lower cost, or process it at a later time with a batch service.
In AWS, you can automatically provision resources to match the workload demand. Auto Scaling using demand or time-based approaches permit you to add and remove resources as needed. If you can anticipate changes in demand, you can save more money and validate that your resources match your workload needs. You can use Amazon API Gateway to implement throttling, or Amazon SQS to implementing a queue in your workload. These will both permit you to modify the demand on your workload components.
The following question focuses on these considerations for cost optimization.
| COST 9: How do you manage demand, and supply resources? |
| --- |
| For a workload that has balanced spend and performance, verify that everything you pay for is used and avoid significantly underutilizing instances. A skewed utilization metric in either direction has an adverse impact on your organization, in either operational costs (degraded performance due to over-utilization), or wasted AWS expenditures (due to over-provisioning). |
When designing to modify demand and supply resources, actively think about the patterns of usage, the time it takes to provision new resources, and the predictability of the demand pattern. When managing demand, verify you have a correctly sized queue or buffer, and that you are responding to workload demand in the required amount of time.
# Optimize over time
As AWS releases new services and features, it's a best practice to review your existing architectural decisions to verify they continue to be the most cost effective. As your requirements change, be aggressive in decommissioning resources, entire services, and systems that you no longer require.
Implementing new features or resource types can optimize your workload incrementally, while minimizing the effort required to implement the change. This provides continual improvements in efficiency over time and provides you remain on the most updated technology to reduce operating costs. You can also replace or add new components to the workload with new services. This can provide significant increases in efficiency, so it's essential to regularly review your workload, and implement new services and features.
The following questions focus on these considerations for cost optimization.
| COST 10: How do you evaluate new services? |
| --- |
| As AWS releases new services and features, it's a best practice to review your existing architectural decisions to verify they continue to be the most cost effective. |
When regularly reviewing your deployments, assess how newer services can help save you money. For example, Amazon Aurora on Amazon RDS can reduce costs for relational databases. Using serverless such as Lambda can remove the need to operate and manage instances to run code.
| COST 11: How do you evaluate the cost of effort? |
| --- |
| Evaluate the cost of effort for operations in the cloud, review your time-consuming cloud operations, and automate them to reduce human efforts and cost by adopting related AWS services, third-party products, or custom tools. |