#cur #finops If you know what a commitment is, and want more technical data, jump to [[commitments#For geeks]] # Analogy to explain the concepts of commitments Note: in finance, this is known as *forward buying* a fancy name to say if you pay upfront, you get a discount. Let's assume that you are in London in a hotel at £100/day, so £3000/month, you can leave at any time, and you will always only pay for the time you stay. The hotel is the equivalent of on-demand pricing. Now let's say that you know that you will stay in London for at least one full year. Then you would go to the hotel management and negotiate a 12-monthly guarantee agreement. The hotel offers you a discounted price of £1000 per month for the next 12 months, and this commitment changes your monthly fee from £3000 to £1000, which is fantastic progress. Then the hotel manager offers you the possibility of additional discounts: - **Full upfront** 25% discount (£9000/y equivalent to £750/m) if you pay all the year upfront. So by paying £9000 all in one go, you can live in that flat for 12 months. - **Partial upfront**12.5% discount (£10500/y equivalent to £875/m) if you pay half the year upfront and the rest each month. So you can stay in the flat by paying £5250 now and £437.5 each month for 12 months. - **No upfront** and no additional discount over the reduction from hotel price. You pay monthly (£12000/y and £1000/m). So £0 now and £1000 for the following 12 months. ## Analogy -> AWS - The hotel without commitment is like a service at on-demand pricing - The guarantee of staying for 12 months is the commitment that entitles you to a discount. [[Reserved Instances]] or [[Savings plans]]. - The possible pre-payment increases the discount and is available to RI and SP. # For geeks - Commitments are a way to access a discount in exchange for the guarantee of payment. - Commitments are a billing construct and are not tied to any instance. - The name [[Reserved Instances]] is rubbish as no instance is involved. In financial terms, it is a forward payment: paying early to get a discount. - The earlier you pay, the higher the discount - No upfront, ie. I will pay each month, gives the base discounts - Partial upfront, i.e. 50% now, 50% over the term, gives some additional % of discount - All upfront, i.e. all paid now, gives the best discount - The longer you commit, the higher the discount. AWS offers two terms: - **1 year** 24\*365 -> 8760 hours as explained in the footnotes on [this page](https://aws.amazon.com/ec2/pricing/reserved-instances/pricing/) - **3 years **or 24\*365\*3 -> 26280 hours. It seems that leap years are ignored. - The start and end dates of a commitment are available in the following CUR fields - [[reservation_StartTime]] and [[reservation_EndTime]] for [[Reserved Instances]] - [[savingsPlan_StartTime]] and [[savingsPlan_EndTime]] for [[Savings plans]] ## Examples of different commitments ![[Commitment scenarios.png]] - The example is for a 12 months commitment - OD cost per hour: how much are the on-demand prices without commitment - Discount: what is the discount over the OD cost in per cent - Reduced cost per hour: this is the OD cost minus the discount per cent - OD cost for term: *OD price*\*730\*12 considering 730 hours per month ([[why 730 hours]]) - Committed cost for the term: this is the new price over the 12 months. *Reduced cost per hour*\*730\*12 - Savings over the term: the difference between *OD cost for term* and *Committed cost for the term* - Cost at time of purchase: how much do I pay when starting the commitment? - the full *Committed cost for the term* for all-upfront - 50% of the *Committed cost for the term* for partial-upfront - nothing for nothing-upfront - Cost each month: how much do I pay each month for the commitment - nothing for all upfront. All have been paid on day one - 50%/12 of the *Committed cost for the term* for partial-upfront - *Committed cost for the term*/12 for nothing upfront ### Excel with the 12 and 36 months examples ![[Commitment scenario 1.xlsx]] # Related Notes - [[Reserved Instances]] an AWS commitment that works in the same way - [[Savings plans]] an AWS commitment that works in the same way - [[amortisation]] A way to account for commitment usage without having big spikes in your graphs. ## Thank you - Baps Hirani - Ashley Hromatko - Matt Shover - Mike Fuller - Stephen Old