Architecture for Cloud Cost Optimization
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How to Build Architecture for Cloud Cost Optimization

In order to optimize cloud costs, you need to identify mismanaged resources, eliminate waste, and reserve capacity. This sounds simple, but it requires singling out wasteful processes and reducing costs bit by bit. It’s not a one step process. However, its advantages are worth it.

Cloud computing offers scalability and a huge roster of services to its clients. However, that comes at a price. Amazon Web Services, Azure, Google’s Cloud services, all come at a price. You’re charged for the resources that you order. Whether you use them or not is a separate matter. Hence, to cut costs, you need to objectively look at your orders and cut down what you don’t need.

You may be surprise to learn that Gartner analysts say that 70% of cloud costs are wasted. That being said, there are a lot of best practices to avoid unnecessary excess. So here is how you can build architecture for cloud cost optimization.

Naming and Tagging Conventions

Tagging conventions allow you to gain visibility into your cloud spending and usage. It’s a tool that can be used to cut costs and improve efficiency at the same time. Tagging allows you to sort your resources in the cloud. However, it’s not related to your coding architecture. Tags are strings of characters without semantic meaning. Hence, they’re only meaningful to you, or the company. A tagging strategy is to be built on business and how your team makes sense of the cloud.

Tagging Questions

The point of tagging is to answer question about how the company uses the cloud. Hence, those questions need to be clearly defined and defined early on. They should reflect upon:

  • Which unit in the organization pays for which costs?
  • Which cost centers are driving the cost up or down?
  • What is the operating cost of a product?
  • Does a dev/test environment employ unused resources?

Tagging Nomenclature

Once the stakeholders agree to what needs to be targeted, specific tags and a consolidated billing structure should be constructed. This should be composed of terms that focus on your business and the structure. Some examples include:

  • Cost center
  • Product
  • Employee
  • Environment
  • Role
  • Software version
  • Project
  • Application
  • Service

Tracking Cost Allocation for Cloud Apps

After tagging and naming assets, cloud cost allocation can begin. This is more in line with the pay as you go model in cloud computing. The old practice of upfront investment has yielded negative results like wasteful spending. Optimizing cloud spending needs continuous monitoring of cloud assets.


Tagging will allow companies to continuously monitor assets and terminate unneeded resources. The lower the level of activity the lower the amount of resources that should be allocated. This will actively combat the bad practice of upfront investment and never terminating resources. These bad practices originate from never monitoring precious resource sand assets.

Financial tracking needs to be married to operational tracking as well, where developers and administrators are monitoring resources. Several metrics can arise here like evaluate use, use levels, potential design optimizations, and cost reductions. Paying attention to these metrics will allow for greater operational efficiency and better performance levels.

The next part is to set budgets for all the assets and monitoring whether they go over or under.

AWS Budgets Helps Cloud Cost Optimization

AWS budgets is a great tool to set custom budgets which alert you when your costs or usage exceed the budget. They also provide you with forecasts for different assets as well if they’re going to exceed any budgets.

AWS budgets also helps you to set reserve utilization or coverage targets. You can also receive alerts when your utilization drops below a defined threshold. Filters are also available to track costs or usage across dimensions. These include filters for Service, Linked Accounts, Region, tags, etc.

Furthermore, there are notifications attached to budgets which can be set to five thresholds. Each alert notifies up to 10 email recipients and publishes updates to Slack, Amazon Chime room, and Amazon SNS. This can be for the topic of your choice.

Spot Instances

AWS Cloud allows you to take advantage of unused EC2 capacity with Spot Instances. They can be used for stateless, fault-tolerant, flexible apps like big data, containerized workloads, or web servers. They can also be used for high-performance web computing, test, and development workloads.

Spot instances also offer you the options to combine them with RIs, savings plans, and on-demand instances. This will help to further optimize workload costs with performance. The operating scale of the AWS cloud allows for spot instances to run “hyper-scale workloads”. What that means is you will have the option to upscale workloads indefinitely.

Spot instances come with the options to terminate, or hibernate when EC2 reclaims the capacity. This occurs within 2 minutes of notice.

Reserved Instances

Reserved instances (RIs) are basically billing discounts. They allow you to save on usage costs. Once you’ve purchased a reserved instance, you can set several attributes. These include the instance type the tenancy, platform, or region. This also includes the availability zone. After the settings are done, on demand instances that match the selected attributes are charged at the reserved instance price.

However, reserved instances work for very specific circumstances due to which resource allocation and tagging is essential.

RIs carry long contract terms, for about 1-3 years. So you should only purchase reservations for instance specification that you use over long term. Also, they’re billed as a lump sum each month, for every hour in the month. RIs provide discounts for instance types that are used most often. Here is where you should focus on the tagging the most. For the most essential processes to your company, RIs will give you the highest discounts.

Using these tools and techniques, you can create an architecture for cloud cost optimization.

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