Q. How do you calculate the optimized number of Reserved Instances?

Our system analyzes the hourly usage history during the previous calendar month across all consolidated accounts. The system calculates the number of running instances in each Availability Zone and for each type of instance. An hourly cost is determined by aggregating the cost of all instances that ran the previous month, whether they ran as On-Demand or as a Reserved Instance. In addition to the hourly usage charges, the system calculates a fixed charge by amortizing the one-time upfront fees for each Reserved Instance already purchased.

By adding the aggregated hourly charges and the amortized upfront fees, the system is able to determine your baseline cost for the month. The system then incorporates the hourly and amortized upfront costs for additional Partial Upfront Reserved Instances, and the amortized upfront costs of any existing Reserved Instances into the calculation. Given the baseline cost based on the previous usage, and the costs for adding additional Partial Upfront Reserved Instances, the system uses a simple gradient descent algorithm to determine the number of Partial Upfront Reserved Instances that would result in the lowest overall cost.