Cost Optimization Strategies with Terraform on AWS

Cost optimization is crucial for maintaining efficient cloud infrastructure. This guide demonstrates how to implement cost optimization strategies using Terraform on AWS.

Video Tutorial

Learn more about Cost Optimization with Terraform in AWS in this comprehensive video tutorial:

Prerequisites

AWS CLI configured with appropriate permissions
Terraform installed (version 1.0.0 or later)
Basic understanding of AWS pricing
Access to AWS Cost Explorer

Project Structure

terraform-cost/
├── main.tf
├── variables.tf
├── outputs.tf
├── modules/
│   └── cost/
│       ├── main.tf
│       ├── variables.tf
│       └── outputs.tf
└── policies/
    └── budget.json

Cost Management Configuration

Create modules/cost/main.tf:

# AWS Budgets
resource "aws_budgets_budget" "monthly" {
  name              = "${var.project_name}-monthly-budget"
  budget_type       = "COST"
  limit_amount      = var.monthly_budget_amount
  limit_unit        = "USD"
  time_period_start = "2025-01-01_00:00"
  time_unit         = "MONTHLY"

  notification {
    comparison_operator        = "GREATER_THAN"
    threshold                 = 80
    threshold_type            = "PERCENTAGE"
    notification_type         = "ACTUAL"
    subscriber_email_addresses = var.notification_emails
  }

  notification {
    comparison_operator        = "GREATER_THAN"
    threshold                 = 100
    threshold_type            = "PERCENTAGE"
    notification_type         = "FORECASTED"
    subscriber_email_addresses = var.notification_emails
  }

  cost_filters = {
    TagKeyValue = "user:Environment$${var.environment}"
  }
}

# Cost and Usage Report
resource "aws_cur_report_definition" "main" {
  report_name                = "${var.project_name}-cost-report"
  time_unit                 = "HOURLY"
  format                    = "Parquet"
  compression               = "Parquet"
  additional_schema_elements = ["RESOURCES"]
  s3_bucket                 = aws_s3_bucket.cost_reports.id
  s3_region                 = data.aws_region.current.name
  additional_artifacts      = ["ATHENA"]
  report_versioning        = "OVERWRITE_REPORT"
}

# S3 Bucket for Cost Reports
resource "aws_s3_bucket" "cost_reports" {
  bucket = "${var.project_name}-cost-reports-${data.aws_caller_identity.current.account_id}"

  tags = merge(
    var.tags,
    {
      Name = "${var.project_name}-cost-reports"
    }
  )
}

# S3 Lifecycle Rules
resource "aws_s3_bucket_lifecycle_configuration" "cost_reports" {
  bucket = aws_s3_bucket.cost_reports.id

  rule {
    id     = "archive-old-reports"
    status = "Enabled"

    transition {
      days          = 90
      storage_class = "GLACIER"
    }

    expiration {
      days = 365
    }
  }
}

# Cost Allocation Tags
resource "aws_ce_tags" "main" {
  tags = [
    "Environment",
    "Project",
    "Owner",
    "CostCenter"
  ]
}

# Cost Category
resource "aws_ce_cost_category" "environment" {
  name         = "Environment"
  rule_version = "CostCategoryExpression.v1"

  rules {
    value = "Production"
    rule {
      tags {
        key    = "Environment"
        values = ["prod"]
      }
    }
  }

  rules {
    value = "Development"
    rule {
      tags {
        key    = "Environment"
        values = ["dev"]
      }
    }
  }
}

# Cost Anomaly Detection
resource "aws_ce_anomaly_monitor" "main" {
  name              = "${var.project_name}-anomaly-monitor"
  monitor_type      = "DIMENSIONAL"
  monitor_dimension = "SERVICE"
}

resource "aws_ce_anomaly_subscription" "main" {
  name      = "${var.project_name}-anomaly-subscription"
  threshold = 100
  frequency = "DAILY"

  monitor_arn_list = [
    aws_ce_anomaly_monitor.main.arn
  ]

  subscriber {
    type    = "EMAIL"
    address = var.cost_admin_email
  }
}

Cost Optimization Strategies

Resource Rightsizing

resource "aws_instance" "optimized" {
  instance_type = var.environment == "prod" ? "t3.medium" : "t3.micro"
  
  credit_specification {
    cpu_credits = "unlimited"
  }

  metadata_options {
    http_endpoint = "enabled"
    http_tokens   = "required"
  }

  root_block_device {
    volume_size = var.environment == "prod" ? 100 : 30
    volume_type = "gp3"
  }
}

Auto Scaling

resource "aws_autoscaling_group" "cost_optimized" {
  mixed_instances_policy {
    instances_distribution {
      on_demand_base_capacity                  = 1
      on_demand_percentage_above_base_capacity = 25
      spot_allocation_strategy                 = "capacity-optimized"
    }

    launch_template {
      launch_template_specification {
        launch_template_id = aws_launch_template.main.id
        version           = "$Latest"
      }

      override {
        instance_type     = "t3.micro"
        weighted_capacity = "1"
      }

      override {
        instance_type     = "t3.small"
        weighted_capacity = "2"
      }
    }
  }
}

Storage Optimization

resource "aws_s3_bucket_lifecycle_configuration" "main" {
  bucket = aws_s3_bucket.main.id

  rule {
    id     = "transition-to-ia"
    status = "Enabled"

    transition {
      days          = 30
      storage_class = "STANDARD_IA"
    }

    transition {
      days          = 90
      storage_class = "GLACIER"
    }

    expiration {
      days = 365
    }
  }
}

Cost Monitoring

Budget Alerts

resource "aws_budgets_budget" "service" {
  name              = "${var.project_name}-service-budget"
  budget_type       = "COST"
  limit_amount      = var.service_budget_amount
  limit_unit        = "USD"
  time_unit         = "MONTHLY"

  cost_filter {
    name = "Service"
    values = [
      "Amazon Elastic Compute Cloud - Compute",
      "Amazon Simple Storage Service"
    ]
  }

  notification {
    comparison_operator        = "GREATER_THAN"
    threshold                 = 90
    threshold_type            = "PERCENTAGE"
    notification_type         = "FORECASTED"
    subscriber_email_addresses = var.notification_emails
  }
}

Cost Explorer

resource "aws_ce_cost_category" "team" {
  name         = "Team"
  rule_version = "CostCategoryExpression.v1"

  rules {
    value = "Frontend"
    rule {
      tags {
        key    = "Team"
        values = ["frontend"]
      }
    }
  }

  rules {
    value = "Backend"
    rule {
      tags {
        key    = "Team"
        values = ["backend"]
      }
    }
  }
}

Resource Scheduling

EC2 Scheduling

resource "aws_autoscaling_schedule" "scale_down" {
  scheduled_action_name  = "scale-down"
  min_size              = 0
  max_size              = 0
  desired_capacity      = 0
  recurrence           = "0 20 * * 1-5"
  autoscaling_group_name = aws_autoscaling_group.main.name
}

resource "aws_autoscaling_schedule" "scale_up" {
  scheduled_action_name  = "scale-up"
  min_size              = 1
  max_size              = 4
  desired_capacity      = 2
  recurrence           = "0 8 * * 1-5"
  autoscaling_group_name = aws_autoscaling_group.main.name
}

RDS Scheduling

resource "aws_rds_cluster" "dev" {
  cluster_identifier  = "${var.project_name}-dev"
  engine             = "aurora-postgresql"
  engine_mode        = "serverless"
  
  scaling_configuration {
    auto_pause               = true
    max_capacity            = 4
    min_capacity            = 2
    seconds_until_auto_pause = 300
  }
}

Reserved Instances and Savings Plans

Reserved Instance Planning

resource "aws_ec2_capacity_reservation" "main" {
  instance_type           = "t3.medium"
  instance_platform       = "Linux/UNIX"
  availability_zone       = "us-west-2a"
  instance_count         = 5
  end_date_type          = "unlimited"
  end_date               = "2026-01-19T00:00:00Z"
  instance_match_criteria = "targeted"
}

Savings Plans Utilization

resource "aws_cloudwatch_metric_alarm" "savings_plan" {
  alarm_name          = "${var.project_name}-savings-plan-coverage"
  comparison_operator = "LessThanThreshold"
  evaluation_periods  = "1"
  metric_name        = "SavingsPlanCoverage"
  namespace          = "AWS/SavingsPlans"
  period             = "86400"
  statistic          = "Average"
  threshold          = 80
  alarm_description  = "Alert when Savings Plan coverage drops below 80%"
  alarm_actions      = [aws_sns_topic.cost_alerts.arn]
}

Cost Analysis and Reporting

Athena Integration

resource "aws_athena_workgroup" "cost_analysis" {
  name = "${var.project_name}-cost-analysis"

  configuration {
    enforce_workgroup_configuration    = true
    publish_cloudwatch_metrics_enabled = true

    result_configuration {
      output_location = "s3://${aws_s3_bucket.cost_reports.id}/athena-results/"
    }
  }
}

QuickSight Dashboard

resource "aws_quicksight_data_source" "cost" {
  name                = "${var.project_name}-cost-analysis"
  aws_account_id      = data.aws_caller_identity.current.account_id
  type                = "ATHENA"
  data_source_id      = "${var.project_name}-cost-analysis"

  parameters {
    athena {
      work_group = aws_athena_workgroup.cost_analysis.id
    }
  }
}

Best Practices

Tagging Strategy
- Implement mandatory tags
- Use cost allocation tags
- Track resources by project
- Monitor tag compliance
Resource Management
- Right-size resources
- Use auto scaling
- Implement scheduling
- Clean up unused resources
Storage Optimization
- Use lifecycle policies
- Implement tiered storage
- Delete unnecessary data
- Compress data when possible
Cost Monitoring
- Set up budgets
- Configure alerts
- Track anomalies
- Regular cost reviews

Conclusion

You’ve learned how to implement cost optimization strategies using Terraform in AWS. This setup provides:

Cost monitoring and alerting
Resource optimization
Budget management
Cost analysis capabilities

Remember to:

Monitor costs regularly
Review resource utilization
Optimize resource sizing
Implement cost controls

Cost Optimization Strategies with Terraform on AWS

Cost Optimization Strategies with Terraform on AWS

Video Tutorial

Prerequisites

Project Structure

Cost Management Configuration

Cost Optimization Strategies

Cost Monitoring

Resource Scheduling

Reserved Instances and Savings Plans

Cost Analysis and Reporting

Best Practices

Conclusion

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