Reservations vs Savings Plans: Budgeting and Anomaly Detection

Introduction

In today's cloud-centric world, effective cost management is crucial for organizations leveraging Azure services. Azure Reservations and Savings Plans are two critical tools provided by Microsoft Azure that help manage costs by allowing users to commit to a specific usage level over a defined period. Understanding the differences between these two options is essential for optimizing your cloud investments, especially in the context of the AZ-104 exam, which emphasizes cost management strategies.

Azure Reservations allow organizations to save up to 72% on compute costs by committing to a specific VM type, family, and region for one to three years. In contrast, Azure Savings Plans provide flexibility by enabling users to commit to a specific hourly spend across various VM types and regions, offering savings of up to 65%. Additionally, integrating budgeting and anomaly detection features into these cost management strategies can help organizations proactively monitor and control spending, ensuring financial accountability and optimal resource utilization.

In this tutorial, we will explore the core concepts, syntax, practical examples, and best practices related to Azure Reservations and Savings Plans while emphasizing budgeting, cost allocation tags, and anomaly alerts.

Prerequisites

To follow this tutorial, you will need:

• An Azure Subscription: This can be a free trial, pay-as-you-go, or any other subscription type.
• Appropriate RBAC permissions: Ensure you have sufficient permissions to manage cost management features (e.g., Owner, Contributor).
• Tools: Familiarity with Azure CLI, Azure PowerShell, and the Azure Portal.
• Services enabled: Ensure that Cost Management and Azure Advisor are available in your subscription.

Core Concepts

Reservations

• Definition: A commitment to use a specific type of compute instance (e.g., VM) in a specific region for a period of one or three years.
• When to Use: Best suited for stable and predictable workloads with no anticipated changes in instance type or region.
• Limitations: Reservations are less flexible since they apply only to specific services and regions.
• Pricing: Discounts can be significant, depending on the commitment type, up to 72% off the pay-as-you-go prices.

Savings Plans

• Definition: A commitment to spend a specific amount per hour on eligible compute services across all Azure regions for one or three years.
• When to Use: Ideal for dynamic workloads that require flexibility across different services and regions.
• Limitations: The hourly commitment must be consumed each hour; unused commitments do not roll over.
• Pricing: Discounts can reach up to 65%, based on committed hourly spend rather than specific resources.

Budgeting and Alerts

• Budgets: Helps organizations track and manage their spending against defined thresholds.
• Anomaly Alerts: Automatically notify users of unexpected cost spikes or spending anomalies, leveraging Azure's machine learning capabilities.

Syntax/Configuration

Azure CLI Commands

To manage Reservations and Savings Plans efficiently, you can utilize the following Azure CLI commands:

Command	Description
az reservations reservation list	Lists all reservations in your subscription
az reservations reservation create	Creates a new reservation
az savingsplan list	Lists all savings plans in your subscription
az savingsplan create	Creates a new savings plan
az consumption budget create	Creates a new budget
az consumption budget list	Lists all budgets for your subscription

PowerShell Commands

Command	Description
Get-AzReservation	Retrieves all reservations in your subscription
New-AzReservation	Creates a new reservation
Get-AzSavingsPlan	Retrieves all savings plans in your subscription
New-AzSavingsPlan	Creates a new savings plan
New-AzConsumptionBudget	Creates a new budget
Get-AzConsumptionBudget	Lists all budgets for your subscription

Azure Portal Steps

1. Creating a Budget:

   • Navigate to Cost Management + Billing in the Azure Portal.
   • Click on Budgets and then select Add.
   • Define the budget name, scope, and amount.
   • Set up alerts for budget thresholds.

2. Setting Anomaly Alerts:

   • Go to Cost Management + Billing.
   • Select Alerts under the Cost Management section.
   • Click on Add Alert and configure your anomaly detection preferences.

Practical Examples

Example 1: List Existing Reservations

Using Azure CLI:

az reservations reservation list --output table

This command retrieves a list of all reservations in your subscription.

Example 2: Create a New Reservation

Using Azure CLI:

az reservations reservation create --sku "Standard_DS1_v2" --term "P1Y" --billing "Monthly"

This command creates a one-year reservation for the Standard_DS1_v2 VM type.

Example 3: List Existing Savings Plans

Using PowerShell:

Get-AzSavingsPlan

This command retrieves all savings plans associated with your account.

Example 4: Create a New Savings Plan

Using PowerShell:

New-AzSavingsPlan -Name "ComputeSavingsPlan" -CommitmentAmount 5 -Term "P3Y" -Billing "Monthly"

This command creates a new savings plan with a commitment of $5 per hour for three years.

Example 5: Create a Budget

Using Azure CLI:

az consumption budget create --amount 1000 --time-grain "Monthly" --name "MonthlyBudget" --resource-group "MyResourceGroup"

This command sets a monthly budget of $1000 for the specified resource group.

Example 6: Set Up Anomaly Detection Alert

Using Azure CLI:

az consumption alert create --name "CostAnomalyAlert" --resource-group "MyResourceGroup" --criteria "GreaterThan" --threshold 500 --time-grain "Monthly"

This command creates an alert that triggers when costs exceed $500.

Example 7: Monitor Costs with Cost Analysis

Using Azure Portal:

• Navigate to Cost Management + Billing.
• Select Cost Analysis from the left menu.
• Adjust the filters to view costs by resource group, service, or tags.

Example 8: Analyze Unexpected Charges

Using Azure CLI:

az consumption anomaly list --time-grain "Daily"

This command retrieves a list of detected anomalies in your costs on a daily basis.

Real-World Scenarios

Scenario 1: Static Workload Optimization

A company running a critical application on Azure VMs is experiencing consistent usage patterns. By opting for Reservations, they commit to a specific VM type, resulting in significant savings while ensuring resource availability.

Scenario 2: Dynamic Workload Flexibility

An e-commerce platform experiences fluctuating demand during sales events. By utilizing Savings Plans, they can adapt to changing workloads and maximize cost efficiency across different VM types and regions.

Scenario 3: Proactive Cost Management

A startup employs Azure Cost Management tools to set budgets and anomaly alerts. By monitoring spending closely, they can address unexpected charges promptly, preventing budget overruns.

Best Practices

1. Evaluate Workload Stability: Choose Reservations for stable workloads and Savings Plans for dynamic environments.
2. Set Budgets and Alerts: Establish clear budgets and configure alerts to stay informed about spending anomalies.
3. Utilize Cost Allocation Tags: Implement tagging strategies to better analyze and allocate costs across teams and projects.
4. Regularly Review Usage: Periodically review your Azure usage to adjust your reservations and savings plans as needed.
5. Combine Strategies: Use a mix of Reservations and Savings Plans to optimize costs based on workload requirements.

Common Errors

1. Error: Insufficient permissions to create a reservation

   • Cause: Lack of required RBAC permissions.
   • Fix: Ensure you have Owner or Contributor access.

2. Error: Invalid SKU or region specified

   • Cause: The selected SKU or region does not support reservations.
   • Fix: Verify the SKU and region compatibility.

3. Error: Exceeded budget limit

   • Cause: Costs exceeded the predefined budget.
   • Fix: Adjust budgets or investigate usage trends.

4. Error: Unused Savings Plan commitment

   • Cause: Failure to utilize the committed hourly spend.
   • Fix: Analyze usage patterns and adjust commitments accordingly.

Related Services/Commands

Service/Command	Description
Azure Advisor	Provides recommendations for cost savings.
Azure Monitor	Monitors resources and alerts based on metrics.
Cost Analysis	Analyzes costs and usage trends in Azure.
Azure Budgets	Manages and tracks spending against thresholds.
Azure Policy	Enforces organizational standards and compliance.

Automation Script

The following PowerShell script automates the creation of a budget and sets up an anomaly detection alert:

# Define variables
$budgetName = "MonthlyBudget"
$budgetAmount = 1000
$alertName = "CostAnomalyAlert"
$alertThreshold = 500

# Create a new budget
New-AzConsumptionBudget -Name $budgetName -Amount $budgetAmount -TimeGrain "Monthly" -ResourceGroupName "MyResourceGroup"

# Set up an anomaly detection alert
New-AzConsumptionAlert -Name $alertName -ResourceGroupName "MyResourceGroup" -Criteria "GreaterThan" -Threshold $alertThreshold -TimeGrain "Monthly"

Conclusion

In this tutorial, we explored the key differences between Azure Reservations and Savings Plans, along with their respective benefits and use cases. By leveraging Azure's cost management tools, including budgeting and anomaly detection, organizations can effectively monitor and control their spending. Implementing best practices will further enhance financial accountability and resource optimization within your Azure environment.

For further learning, consider exploring the Azure Cost Management documentation and take advantage of the Azure Pricing Calculator to estimate costs effectively.

References

• Decide between a savings plan and a reservation
• What is Azure savings plan for compute?
• Create and manage budgets
• Monitor costs with alerts
• Analyze unexpected charges