The FairShare Cost type is an advanced solution for the fair distribution of discounts from Reserved Instances (RIs), Spot Instances, and Savings Plans (SPs), as well as On-Demand costs, across Amazon EC2, AWS Lambda, Amazon ECS, and Compute Savings Plans, RDS, Elasticache, DynamoDB, and RedShift. Designed for organizations managing commitments centrally, it addresses the complexities of AWS’s discount allocations and provides transparency and control over cloud expenses.

FairShare Cost eliminates the randomness often seen in AWS's default cost allocation by ensuring discounts are applied accurately across all relevant resources according to actual usage and commitments. This structured approach resolves misaligned costs and inaccurate showback reports, offering a logical and equitable way to allocate savings in environments with multiple teams, regions, and services.
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Let’s start with a simple story…

Two brothers buy apples daily, and each apple typically costs $1. They receive a total 40% discount allocation for both apples; however, the store allocates this discount randomly, which varies daily.

On the first day, Alex’s apple gets a 30% discount, costing $0.70, while Jon’s apple only receives a 10% discount, costing $0.90. While the apples are identical, the discounts applied to them vary.

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The next day, the discounts are reversed: Jon’s apple receives the 25% discount, costing $0.75, while Alex’s apple only gets the 15% discount at $0.85. While the apples are identical, and the total discount remains the same, the discount allocation per apple vary.

This pattern continues daily, with the total discount remaining the same and the brothers buying identical apples. However, each brother sometimes pays significantly less or more for the same apple. By the end of the week, both brothers are confused—their apples are identical, but their costs fluctuate unpredictably due to the varying discounts applied each day.

The story of these two brothers mirrors the challenges faced by different development teams with identical usage in managing cloud costs, where unpredictable discount allocation creates confusion and unfair distribution, much like the fluctuating discounts on identical apples. Imagine you’ve carefully rightsized your EC2 instances, expecting a reduction in costs, but the next month’s bill unexpectedly increases. Upon closer inspection, you discover that while Reserved Instances (RIs) and Savings Plans (SPs) were applied, the distribution of these discounts varied unpredictably. Some resources received discounts on certain days but not others, causing the anticipated savings to fluctuate.

This issue is compounded by AWS’s discount allocation system, where RIs and SPs may be applied arbitrarily, sometimes with little connection to actual resource usage. For example, discounts meant for production might apply to unrelated environments, such as development, leading to inaccurate budget attribution and distorted cost tracking. This misalignment can inflate costs for the teams requiring savings and disrupt finance teams’ forecasting, budgeting, and reporting. By using FairShare Cost, teams can address these issues, ensuring more predictable and equitable discount distribution across resources.

AWS Pricing Structure Challenges:

Story Continued…

To resolve the confusion, the brothers introduced a predictable discount system with a set price for red apples and a set price for green apples.

Red Apple Discount: The brothers buy two red apples and receive a total 40% group discount, which is evenly divided to provide a 20% discount per apple. This lowers the price of each apple from $1 to $0.80, ensuring consistent pricing and eliminating unexpected price fluctuations.
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Green Apple Discount:
After receiving the discount on red apples, the brothers also decided to buy green apples as well. All green apples have a total 30% discount, the discount is distributed equally between the 3 apples so that each gets 10% reducing its price from $1 to $0.90, making it predictable for buyers.
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​Apples Plan:
In addition to the group discounts, the store decided to add a 35% global discount (equivalent to SP and not EDP) applied to all apples regardless of their color. Since the apples are the same size and there are a total of 5 apples, the global discount of 35% is distributed equally, resulting in a 7% discount per apple.
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​Summary of final apple prices:

The brothers finally have a fair and predictable discount allocation for all apples.

Red Apples:

Green Apples :

Both brothers now enjoy a stable, predictable cost structure for their apples. The total discount is permanent, and with the new system, the allocation is also predictable. Similarly, Finout’s FairShare Cost model offers a solution to the AWS discount confusion by providing consistent discount allocation across Amazon EC2, AWS Lambda, Amazon ECS, Compute Savings Plans, RDS, Elasticache, DynamoDB, and RedShift. Each resource will get a fair share of its eligible discounts (RIs, Spot Instances, and Savings Plans) based on usage. This helps teams track and optimize cloud spending without surprises, providing the same predictability and stability the friends now experience with their apples.

FairShare Cost Solutions:

An apple stand sells red and green apples. Each type of apple has unique qualities, and discounts need to be allocated fairly across both types according to specific criteria.

This scenario, along with the various commitment combination types, highlights the similarities and differences between FairShare and Amortized costs, using an apple as a metaphor for a resource.

There are four types of commitment combinations in cost calculations: No Commitments, Group Commitments Only, Global Commitments Only, and Group and Global Commitments, each defining how FairShare and AWS Amortized costs are applied based on eligible discounts and allocation methods.

Summary of Fairshare Cost and AWS Amortized Cost Comparison:

The Fairshare cost for individual resource groups may differ from the AWS Amortized cost. Still, the total price of all resources combined will remain the same for both cost types because the total discount is the same; it’s allocated differently between these cost types.
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​Visualization of Finout’s Fairshare vs. AWS’s Net Amortized cost allocation:

Using Fairshare, you can accurately allocate 100% of each discount to its owner, making showback and chargeback straightforward and efficient.

Inconsistent discount allocation in AWS cloud services presents challenges for organizations across various roles. When Reserved Instances (RIs), Savings Plans (SPs), and Spot Instance discounts are applied unpredictably, it disrupts accurate financial reporting, stable budgeting, and reliable cost tracking. For FinOps managers, finance leaders, developers, and DevOps engineers alike, these fluctuations can lead to inefficiencies, and budget disputes, making it challenging to optimize and manage cloud costs effectively. The following use cases illustrate how unpredictable AWS discount distribution impacts each role and highlight the need for a consistent cost allocation model.

FinOps

Use Case: Ensuring Accurate Showback and Chargeback Reporting

As a FinOps manager, I’m responsible for generating accurate showback and chargeback reports for each team based on their cloud usage. This reporting helps allocate costs fairly and allows teams to track their spending against their budget. However, AWS’s unpredictable discount allocations, where RIs and SPs may apply randomly to different resources, cause inconsistencies in the cost data. For instance, in one month, Team A’s instances received discounts that Team B’s identical instances didn’t receive, making it appear that Team A’s costs are lower despite similar usage. This creates disputes between teams and makes it challenging to allocate budgets fairly, requiring manual adjustments and reducing the accuracy of our financial reports.

Finance:

Use Case: Forecasting Cloud Expenses for Budget Planning

As a finance manager, I need reliable cost data to forecast expenses and plan budgets accurately. However, AWS’s fluctuating discount allocations make this problematic. For example, when preparing the quarterly budget, I notice that cloud spending in one month was significantly lower than in the next, despite stable usage. After investigating, I found that the first month benefited from more RI and SP discounts than the second. These unpredictable shifts mean that projected costs can deviate widely from actual cost, complicating financial planning and making it harder to meet budget goals.

Development:

Use Case: Tracking Cost Savings Through Instance Rightsizing

As a developer focused on reducing my team’s EC2 costs, I regularly rightsize instances to match cloud usage better. I recently adjusted our instances, expecting a drop in costs for the following month. To my surprise, the costs remained high and sometimes even increased. After investigating, I found that AWS had inconsistently applied RI and SP discounts to our resources, with some instances receiving discounts and others not, despite identical configurations. This inconsistency makes it challenging to assess the impact of my optimization efforts and accurately communicate cost savings to my manager.

DevOps:

Use Case: Stabilizing Cloud Costs for Resource Optimization

As a DevOps engineer, I aim to stabilize cloud costs by monitoring usage and adjusting resources as needed. However, AWS’s variable discount allocations make this problematic. For instance, I track our EC2 usage closely, but in one week, our costs spike without any change in demand. Upon investigation, I found that fewer instances received RI or SP discounts that week compared to the previous one. This irregularity in discount distribution complicates my cost management efforts, as it’s hard to pinpoint actual areas for optimization when costs fluctuate unpredictably.

The FairShare Cost cost type is built to allocate cloud discounts fairly and accurately, ensuring that each resource receives the appropriate cost reductions based on usage and eligible commitments. This sophisticated cost type guarantees thatdiscounts from Reserved Instances (RIs), Spot Instances, and Savings Plans (SPs), as well as On-Demand costs, are distributed equitably across all relevant resources. It addresses the complexities of AWS pricing mechanisms by clearly defining how different types of cost commitments are applied across various services.

FairShare Calculation Group A

FairShare Cost for Group A = 0.896 per hour
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Relative Group Cost:

Discount Allocation:

FairShare Calculation Group B:

FairShare Cost for Group B = 0.886 per hour
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