Introduction

A common question in cloud financial optimization is whether to choose a Reservation Plan or a Savings Plan. Despite the minimal cost difference, many organizations still opt for Reservation Plans. In this short note, we explore the reasons behind this choice and provide insights into why it might be the best decision for your organization.

Five Common Reasons to Pick Reservation Plans over Savings Plans

Organizations might choose Reservation Plans over Savings Plans for several reasons, even with minimal additional cost and less flexibility:

1. Workload Stability: For organizations with predictable and steady workloads, Reservation Plans can be more advantageous. They provide cost savings that align well with consistent usage patterns. According to IDC, organizations with stable workloads benefit more from the predictable savings of Reservation Plans.
2. Higher Guaranteed Discounts: While the immediate difference in cost may appear small (5%-10%), the guaranteed savings over time can be substantial, especially for organizations with high or consistent cloud usage. A Forrester study highlights that even minor percentage savings can result in significant cost reductions for large-scale cloud consumers.
3. Enterprise Agreements: Some organizations have enterprise agreements that include additional benefits for choosing Reservation Plans, such as enhanced support, additional credits, or other contractual incentives. As discussed in this Microsoft Azure blog, enterprise agreements often come with such perks that make Reservation Plans more attractive.
4. Accounting Benefits: Reservation Plans can sometimes be treated as capital expenses rather than operating expenses, which might be beneficial for the organization’s financial reporting and tax strategies. The Cloud Financial Management Guide by AWS explains how different cloud payment models can impact financial statements.
5. Cost Predictability: Reservation Plans provide stable, predictable costs, which can simplify budgeting and financial planning. This predictability can be crucial for organizations that need to manage long-term expenses. According to a Gartner report, predictability in IT spending is a significant advantage for many enterprises.

While Savings Plans offer greater flexibility, the predictable cost and potential long-term savings of Reservation Plans can be compelling for organizations with stable usage and specific financial strategies.

Summary

Choosing between a Reservation Plan and a Savings Plan is a common but crucial decision for organizations leveraging cloud services. Reservation Plans, despite their minimal additional cost and less flexibility, offer cost predictability, guaranteed discounts, and strategic benefits that can significantly impact an organization's financial planning and cloud strategy. 

References

1. Gartner Report on IT Spending Predictability
2. Forrester Study on Cloud Cost Management
3. Microsoft Azure Blog on Enterprise Agreements
4. AWS Cloud Financial Management Guide
5. IDC Report on Workload Stability in Cloud
6. Accenture Report on Cloud Strategy