Reserved Instances in Azure & OCI: Save Smart, Not Sorry
Got a workload that's always-on like your coffee addiction? Reserved Instances (Azure) and Commitment Plans (OCI) are your FinOps power-ups for predictable usage.
Table of Contents
- Introduction
- Why Use Reserved Instances
- Azure Reserved Instances
- Types of Azure Reservations
- Reservation Scope Options
- Exchange and Refund Options
- OCI Reserved Capacity
- Compute Capacity Reservations
- Universal Credits Commitments
- Bring Your Own License (BYOL)
- Implementation Strategy
- Reservation Analysis
- Reservation Automation
- Best Practices
- Common Challenges
Introduction
Reserved Instances (RIs) and capacity commitments are like cloud subscription plans — commit to a resource for a year or three, and the cloud gods reward you with sweet discounts (think 40–72% off vs. pay-as-you-go chaos).
This isn't about locking yourself into a cloud prison — it's about smart forecasting and budget control. Whether you're rolling with Azure or cooking with OCI, this guide gives you the lowdown on how to save big without breaking flexibility.
Cloud smarter, not harder. 💸⚙️
Why Use Reserved Instances
Cost Savings
Reserved instances provide significant discounts compared to on-demand pricing for predictable workloads.
Budget Predictability
Fixed pricing helps with accurate budgeting and forecasting for stable workloads.
Capacity Priority
Some reservation types provide capacity prioritization in addition to pricing benefits.
Operational Simplicity
Automatic application of discounts without changes to your resources or architecture.
While this guide focuses on reserved instances and capacity reservations in Azure and OCI, it's worth noting that some cloud providers offer alternative commitment-based discount models like Savings Plans. These alternatives typically provide more flexibility but potentially lower discounts compared to traditional reserved instances.
Azure offers Azure Savings Plans for compute, while OCI offers Universal Credits as a flexible commitment option.
Azure Reserved Instances
Azure offers several types of reservations that provide significant discounts on various Azure services, including virtual machines, database services, and storage.
Types of Azure Reservations
Azure offers reservations for multiple resource types, each with its own pricing model and commitment options.
| Reservation Type | Discount Range | Term Options | Key Benefits |
|---|---|---|---|
| Virtual Machine Reservations | Up to 72% | 1 or 3 years | Significant savings on predictable VM workloads |
| Azure SQL Database Reservations | Up to 55% | 1 or 3 years | Discounts on vCore-based SQL databases |
| Cosmos DB Reserved Capacity | Up to 65% | 1 or 3 years | Savings on provisioned throughput (RU/s) |
| App Service Stamp Fee | Up to 55% | 1 or 3 years | Discounts on Isolated tier App Service plans |
| Azure Synapse Analytics | Up to 65% | 1 or 3 years | Savings on dedicated SQL pools (formerly SQL DW) |
| Azure Dedicated Host | Up to 70% | 1 or 3 years | Discounts on physical servers hosting VMs |
Azure: VM Reservation Example
Here's an example of potential savings with Azure VM reservations:
Scenario: D8s v3 VM in East US region
- On-demand price: ~$280/month
- 1-year reserved instance: ~$190/month (32% savings)
- 3-year reserved instance: ~$120/month (57% savings)
Annual savings with 3-year reservation: ~$1,920 per VM
These savings can be substantial when applied across multiple VMs in your environment.
Reservation Scope Options
Azure offers three scope options for reservations, which determine how the reservation discount is applied.
Azure: Reservation Scope Options
Shared Scope
Reservation discount applies to matching resources in any subscription within the enrollment/billing context.
Best for: Centralized FinOps teams managing multiple subscriptions
Single Subscription
Reservation discount applies only to matching resources in a specific subscription.
Best for: Departmental subscriptions with dedicated budgets
Single Resource Group
Reservation discount applies only to matching resources in a specific resource group.
Best for: Project-specific resource groups with dedicated budgets
The shared scope option provides the most flexibility, as the discount can be applied to any matching resource across your organization, maximizing utilization of the reservation.
Exchange and Refund Options
Azure provides flexibility to adjust your reservations as your needs change.
Azure: Reservation Flexibility
Exchange Options
You can exchange an existing reservation for another reservation of equal or greater value. The remaining prorated value of the original reservation is applied to the new reservation.
Common exchange scenarios:
- Changing VM size or series to match changing workload requirements
- Switching between regional and zonal reservations
- Changing the term length (e.g., from 1 year to 3 years)
Refund Options
Azure allows you to return reservations for an early termination fee (12% of the remaining reservation value, up to $50,000 per year).
Refunds are limited to $50,000 per year per enrollment/billing account.
OCI Reserved Capacity
Oracle Cloud Infrastructure (OCI) offers several commitment-based discount options that provide significant savings compared to on-demand pricing.
Compute Capacity Reservations
OCI Compute Capacity Reservations allow you to reserve compute capacity in a specific availability domain.
OCI: Compute Capacity Reservations
Key features of OCI Compute Capacity Reservations:
- Capacity Guarantee - Ensures capacity is available when you need it
- No Upfront Commitment - Pay only for the capacity you reserve
- Flexible Duration - Create reservations for as long as you need
- Specific Availability Domain - Reservations are AD-specific
Unlike Azure RIs, OCI Compute Capacity Reservations are primarily focused on capacity guarantees rather than pricing discounts. For pricing discounts, OCI offers Universal Credits commitments.
Universal Credits Commitments
OCI Universal Credits provide a flexible way to commit to OCI spending and receive significant discounts.
OCI: Universal Credits
Key features of OCI Universal Credits:
- Flexible Spending - Credits can be used for any OCI service
- Significant Discounts - Up to 60% off on-demand pricing
- Commitment Terms - 1-year or 3-year options
- Payment Options - Monthly or upfront payment
- Overages - Usage beyond commitment is charged at discounted rates
Universal Credits Discount Example
- 1-year commitment, monthly payment: ~33% discount
- 1-year commitment, upfront payment: ~40% discount
- 3-year commitment, monthly payment: ~50% discount
- 3-year commitment, upfront payment: ~60% discount
Universal Credits provide more flexibility than traditional reserved instances, as they can be applied to any OCI service, not just specific resource types.
Bring Your Own License (BYOL)
OCI offers additional savings through its Bring Your Own License (BYOL) program for Oracle software.
OCI: BYOL Benefits
Key benefits of OCI BYOL:
- License Mobility - Use existing Oracle licenses in OCI
- Additional Savings - Up to 50% off the already discounted Universal Credits prices
- Flexible Deployment - Use licenses across different deployment options
- License Management - Centralized license management through My Oracle Support
When combined with Universal Credits commitments, BYOL can provide substantial savings for workloads running Oracle software.
Implementation Strategy
Implementing reserved instances and capacity commitments requires careful planning and analysis to maximize savings while maintaining flexibility.
6-Step Implementation Process
- Analyze Historical Usage
Review 3-6 months of usage data to identify stable, predictable workloads that are good candidates for reservations.
- Forecast Future Needs
Consider upcoming projects, application changes, and business growth that might affect resource requirements.
- Start Conservative
Begin with reservations for 60-70% of your stable workload to avoid over-committing. You can always add more later.
- Mix Commitment Terms
Use a mix of 1-year and 3-year terms based on confidence in workload stability and potential for change.
- Implement Governance
Establish clear ownership, review processes, and reporting for reservation management.
- Monitor and Optimize
Regularly review reservation utilization and adjust as needed to maximize savings.
Consider a phased approach to reservation implementation:
- Phase 1: Reserve core infrastructure that rarely changes (e.g., domain controllers, database servers)
- Phase 2: Add reservations for stable application workloads with predictable usage
- Phase 3: Optimize and expand reservations based on utilization data and changing needs
Reservation Analysis
Regular analysis of your reservation portfolio is essential to maximize savings and ensure optimal utilization.
Azure Analysis Tools
- Azure Cost Management - Built-in reservation utilization reports
- Azure Advisor - Provides reservation purchase recommendations
- Reservation Utilization API - For custom reporting and analysis
- PowerBI Templates - For advanced visualization and analysis
OCI Analysis Tools
- Cost Analysis - Built-in cost analysis and reporting
- Usage Reports - Detailed usage data for all resources
- OCI Console - Reservation management and monitoring
- Oracle Analytics Cloud - For advanced visualization and analysis
Key Metrics to Monitor
| Metric | Description | Target | Action if Below Target |
|---|---|---|---|
| Reservation Utilization | Percentage of reserved capacity being used | >90% | Adjust reservation scope or exchange for different resources |
| Coverage | Percentage of eligible usage covered by reservations | 60-80% of stable workloads | Purchase additional reservations for stable resources |
| Savings Rate | Percentage saved compared to on-demand pricing | Depends on commitment term | Consider longer terms or different reservation types |
| Expiration Forecast | Upcoming reservation expirations | No gap in coverage | Plan renewals or replacements 30-60 days before expiration |
Don't confuse utilization with coverage:
- Utilization measures how much of your purchased reservations are being used
- Coverage measures how much of your eligible usage is covered by reservations
Low utilization suggests you've over-purchased or have mismatched reservations. Low coverage suggests opportunity to purchase more reservations for additional savings.
Reservation Automation
Automating reservation management can help optimize utilization, reduce administrative overhead, and maximize savings.
Azure Automation Options
- Azure PowerShell - Script reservation management tasks
- Azure Functions - Create serverless automation workflows
- Logic Apps - Build visual automation workflows
- Azure CLI - Command-line automation for reservations
OCI Automation Options
- OCI CLI - Command-line automation for reservations
- OCI SDK - Programmatic access to OCI APIs
- Terraform Provider - Infrastructure as code for reservations
- OCI Functions - Serverless automation for reservation management
Automation Use Cases
- Utilization Monitoring - Automated alerts for under-utilized reservations
- Expiration Management - Notifications and renewal workflows for expiring reservations
- Recommendation Processing - Automated analysis and implementation of reservation recommendations
- Reservation Rightsizing - Periodic adjustment of reservations based on changing usage patterns
- Reporting - Automated generation and distribution of reservation utilization reports
# Example Azure PowerShell script to get reservation recommendations
$recommendations = Get-AzReservationRecommendation -LookBackPeriod "Last7Days" -Term "P1Y" # 1 year term
# Filter for high-confidence recommendations
$highConfidence = $recommendations | Where-Object { $_.Confidence -ge 0.9 -and $_.RecommendedQuantity -ge 1 }
# Output recommendations
$highConfidence | Select-Object ResourceType, SkuName, RecommendedQuantity, CostWithNoReservedInstances, CostWithReservedInstances, SavingsBest Practices
Planning
- Start with stable, predictable workloads
- Consider business cycles and seasonal variations
- Align reservation terms with application lifecycles
- Document reservation strategy and governance
Implementation
- Use shared scope for maximum flexibility
- Start with 1-year terms to minimize risk
- Consider instance size flexibility options
- Implement in phases to validate approach
Management
- Review utilization monthly
- Establish clear ownership and responsibilities
- Create a reservation calendar for expirations
- Automate monitoring and reporting
Reservation management typically evolves through these maturity stages:
- Basic - Manual purchase of obvious reservation candidates
- Intermediate - Regular analysis and optimization of reservation portfolio
- Advanced - Automated monitoring, recommendations, and adjustments
- Optimized - Fully integrated with financial planning and application lifecycle management
Common Challenges
| Challenge | Impact | Solution |
|---|---|---|
| Workload volatility | Underutilized reservations when workloads change | Start with shorter terms; use instance size flexibility; maintain a mix of reserved and on-demand resources |
| Over-commitment | Wasted spend on unused reservations | Begin with conservative coverage (60-70%); gradually increase based on utilization data |
| Reservation management overhead | Administrative burden of tracking and optimizing reservations | Implement automation for monitoring, reporting, and recommendations |
| Organizational resistance | Reluctance to commit to long-term reservations | Start with 1-year terms; document and share savings achievements; create clear governance |
| Expiration management | Coverage gaps when reservations expire | Create a reservation calendar; set up automated alerts for upcoming expirations |
Reserved instances often face resistance due to concerns about long-term commitments. To overcome this:
- Start small with a pilot program focused on stable workloads
- Document and share savings achievements to build confidence
- Create clear governance and approval processes
- Educate stakeholders on flexibility options (exchanges, refunds)
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