This chapter covers Azure Reserved Instances (RIs), a cost-saving option for predictable workloads. Understanding RIs is critical for the 'Azure Architecture and Services' objective (2.2) of the AZ-900 exam, which typically accounts for 15-20% of the exam. You will learn what RIs are, how they work, their key components, and how to choose the right reservation for your needs.
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Imagine you run a ski resort. You have two types of customers: occasional skiers who buy daily lift tickets and dedicated skiers who buy a season pass. The season pass gives the resort upfront cash and guaranteed usage, but at a discount per day. The resort must commit to keeping the slopes open for the season, regardless of weather. Similarly, Azure Reserved Instances (RIs) let you commit to using a specific virtual machine (VM) configuration for one or three years in exchange for a significant discount (up to 72% compared to pay-as-you-go). Just as the resort uses season pass revenue to plan staffing and maintenance, Azure uses your commitment to optimize resource allocation and offer you lower prices. However, if you buy a season pass but only ski a few days, you may not save money — same with RIs if you underutilize them. Also, the resort may offer different pass tiers (e.g., blackout dates) — Azure offers flexibility through instance size flexibility and exchange/cancellation policies. The mechanism: you select a VM series, region, and term; Azure reserves capacity in that region for your use, and you pay a discounted hourly rate for the duration. If you stop using the VM, you still pay for the reserved capacity — like owning a season pass you never use.
What Are Azure Reserved Instances and What Business Problem Do They Solve?
Azure Reserved Instances (RIs) are a pricing model that offers a significant discount on virtual machine (VM) costs in exchange for a commitment to use a specific VM configuration for a one-year or three-year term. The business problem they solve is cost unpredictability and high expenses for workloads that run continuously or predictably. Organizations with steady-state workloads (e.g., production databases, always-on web servers) can save up to 72% compared to pay-as-you-go pricing. RIs also provide capacity reservation, meaning Azure guarantees compute capacity in a specific region, which is crucial for disaster recovery or mission-critical applications.
How Do Azure Reserved Instances Work?
When you purchase an RI, you specify the following attributes: - VM Series and Size: e.g., D2s_v3 - Region: e.g., East US - Term: 1 year or 3 years - Payment Option: Upfront, monthly, or partially upfront - Instance Size Flexibility: Enables the discount to apply to any VM in the same size series group (e.g., D2s_v3 discount can apply to D4s_v3 at a different rate)
Azure then reserves the compute capacity for that VM configuration in the specified region. The discount is applied automatically to any VM that matches the attributes. You are billed the discounted rate for every hour of the term, regardless of whether the VM is running. If you deallocate or delete the VM, you still pay for the reservation — it's a financial commitment, not a resource.
Key Components and Tiers
Scope: You can set the scope to a single subscription or a billing account (shared scope across multiple subscriptions).
Instance Size Flexibility: When enabled, the discount applies to any VM in the same VM size series family. For example, a reservation for Standard_D2s_v3 can cover Standard_D4s_v3 (which consumes 2 units of the reservation) or Standard_D1s_v3 (consumes 0.5 units). The unit is the number of vCPUs.
Exchange and Refund: You can exchange an RI for another RI of the same type (e.g., VM RI for another VM RI) at any time, but you may incur a prorated fee. Refunds are possible within 12 months of purchase, but limited to a certain amount per year.
Renewal: You can set automatic renewal to purchase a new RI when the current term expires.
Discount Stacking: RIs are applied before Azure Hybrid Benefit (AHB) and other discounts. You can combine RIs with AHB for even greater savings.
Comparison to On-Premises Equivalent
On-premises, you buy hardware upfront (capital expenditure) and then run it for years. The hardware is a fixed cost regardless of utilization. Azure RIs are similar in that you commit upfront, but you avoid the operational overhead of maintaining hardware. Unlike on-premises, you can exchange or cancel RIs (with penalties) and you don't need to worry about hardware failures. However, on-premises gives you full control over the hardware lifecycle, whereas RIs lock you into a specific VM family — if your needs change, you may need to exchange or purchase a new RI.
Azure Portal and CLI Touchpoints
You can purchase and manage RIs in the Azure Portal under Reservations. The CLI command to purchase a VM RI is:
az reservations purchase \
--reservation-order-id "new-reservation-order" \
--reserved-resource-type "VirtualMachines" \
--sku "Standard_D2s_v3" \
--location "eastus" \
--term "P1Y" \
--quantity 1 \
--billing-scope "Single" \
--display-name "MyRI"To view existing reservations:
az reservations listIn the portal, you can also see utilization reports to determine if your RIs are being fully used.
Identify Workload Suitability
Evaluate your workloads to determine which ones run continuously (24/7) or predictably for at least one year. Typical candidates include production databases, enterprise applications, and always-on web servers. Avoid RIs for short-lived or elastic workloads that scale up and down frequently. Use Azure Cost Management to analyze usage patterns and identify VMs with high utilization.
Choose VM Series and Region
Select the specific VM series (e.g., D, E, F) and size (e.g., D2s_v3) that matches your workload. Also choose the Azure region where the VM will run. The reservation is region-specific — if you move the VM to another region, the discount won't apply. For disaster recovery, you may need separate RIs in the secondary region.
Select Term and Payment Option
Choose a one-year or three-year term. Three-year terms offer higher discounts (up to 72%) but lock you in longer. Payment options: upfront (pay all at once, highest savings), monthly (pay each month, slightly lower savings), or partially upfront (e.g., 50% upfront, rest monthly). Upfront payment yields the best discount because Azure gets cash early.
Configure Scope and Flexibility
Set the scope: 'Single subscription' applies the discount only to that subscription; 'Shared' applies to any subscription in the same billing account. Enable instance size flexibility to allow the discount to apply to any VM in the same size series family. This is useful if you might resize VMs later. Without flexibility, the discount only applies to the exact VM size.
Purchase the Reservation
In the Azure Portal, navigate to 'Reservations', click 'Add', select 'Azure Reserved VM Instance', and fill in the details. Review the estimated savings and terms. Confirm purchase. The reservation becomes active immediately. You can also purchase via CLI, PowerShell, or API. After purchase, Azure automatically applies the discount to matching VMs.
Monitor and Optimize Utilization
Use the Reservations page in the portal to view utilization reports. Aim for 100% utilization — if you have unused RIs, consider exchanging them for a different size or region, or scope them to a different subscription. Set up automatic renewal if you expect to continue using the same VM configuration. Track savings vs. pay-as-you-go to validate ROI.
Scenario 1: E-commerce Platform with Predictable Traffic A medium-sized e-commerce company runs its production database on a Standard_D8s_v3 VM in East US. The database runs 24/7 and is critical for operations. The company purchases a three-year RI for that VM with upfront payment, saving 65% compared to pay-as-you-go. They also enable instance size flexibility so that if they need to scale up to D16s_v3 during holiday seasons, the discount partially applies (the reservation covers two units). Without RIs, their monthly VM cost would be $800; with RIs, it drops to $280. The team monitors utilization via Azure Cost Management and sees 95% utilization. They set up automatic renewal to avoid missing the discount.
Scenario 2: Disaster Recovery Site A financial services firm maintains a disaster recovery (DR) site in West US that replicates data from the primary site in East US. The DR VMs are only started during drills or actual failovers, but they need capacity reserved to guarantee availability. The firm purchases RIs for the DR VMs to ensure capacity is reserved and to get a discount even though the VMs are not running full-time. However, they realize that RIs charge even when VMs are deallocated, so they only reserve the minimum number of VMs needed for DR. They also use Azure Hybrid Benefit to further reduce costs by using existing Windows Server licenses.
Scenario 3: Development/Test Environment (Misconfiguration) A startup buys a one-year RI for a development server that they expect to run 24/7. However, after three months, they change their architecture and decommission the VM. They still pay for the RI for the remaining nine months. They could exchange the RI for a different VM size, but they have no other VMs. The RI becomes a sunk cost. To avoid this, they should have used pay-as-you-go or a shorter commitment. This scenario highlights the importance of only committing to RIs for stable, long-lived workloads.
What AZ-900 Tests on This Objective (2.2) The exam focuses on understanding the purpose of Reserved Instances, the discount ranges, term lengths, and the concept of capacity reservation. You are expected to know that RIs are for predictable workloads, that they offer up to 72% discount, and that terms are 1 or 3 years. The exam does not test detailed configuration steps or CLI commands — it tests conceptual knowledge.
Common Wrong Answers and Why Candidates Choose Them 1. 'Reserved Instances are for short-term, unpredictable workloads.' Candidates confuse RIs with spot instances. Spot instances are for short-term, interruptible workloads, while RIs are for steady-state. 2. 'Reserved Instances provide a discount only if the VM is running 100% of the time.' Actually, you pay the discounted rate whether the VM is running or not. The discount is not conditional on uptime. 3. 'You can cancel a Reserved Instance at any time without penalty.' In reality, you can only exchange or refund within certain limits, and early cancellation is not allowed (you pay the full term). 4. 'Reserved Instances are available for all Azure services.' RIs are primarily for VMs, but also for SQL Database, Cosmos DB, and other services. The exam focuses on VM RIs.
Specific Terms and Values That Appear Verbatim on the Exam - 'Up to 72% discount' (vs. pay-as-you-go) - '1-year or 3-year term' - 'Capacity reservation' (guaranteed compute capacity) - 'Instance size flexibility' (allows discount to apply to other sizes in the same series) - 'Payment options: upfront, monthly, partially upfront'
Edge Cases and Tricky Distinctions - RIs vs. Savings Plans: Both offer discounts for commitment, but Savings Plans are more flexible (apply to any VM in a region, not just a specific size). The exam may ask which to recommend for varying workloads. - RIs vs. Azure Hybrid Benefit: AHB allows using existing Windows Server or SQL Server licenses to reduce costs. RIs can be combined with AHB. The exam might ask which provides a discount without a license. - Scope: 'Shared' scope applies to all subscriptions in a billing account; 'Single' scope applies to one subscription. The exam may test the difference.
Memory Trick 'R-I = Reserve & Invest' — Reserve capacity, Invest upfront for discount. Think of it like a season pass: you pay upfront to ski any day, but you commit for the whole season.
Azure Reserved Instances offer up to 72% discount compared to pay-as-you-go pricing.
Available for 1-year or 3-year terms; longer terms yield higher discounts.
Capacity reservation ensures compute resources are available in the chosen region.
Instance size flexibility allows the discount to apply to other VM sizes in the same series family.
Payment options: upfront (highest discount), monthly, or partially upfront.
RIs are primarily for virtual machines, but also available for other services like SQL Database and Cosmos DB.
You cannot cancel an RI; you can exchange or refund within policy limits.
Combine RIs with Azure Hybrid Benefit for additional savings on licensed software.
These come up on the exam all the time. Here's how to tell them apart.
Reserved Instances
Up to 72% discount
Requires 1 or 3 year commitment
Capacity reservation included
Billed even if VM is stopped
Best for steady-state workloads
Pay-As-You-Go
No upfront commitment
Pay per hour of usage
No capacity guarantee
No charge when VM is deallocated
Best for short-term or variable workloads
Mistake
Reserved Instances are only for large enterprises with huge budgets.
Correct
RIs are available to any Azure customer, including small businesses. You can purchase a single RI for one VM. The minimum commitment is one year, which can be cost-effective even for small workloads.
Mistake
If I stop my VM, I stop paying for the Reserved Instance.
Correct
You continue to pay the discounted hourly rate for the entire term, even if the VM is deallocated or deleted. The reservation is a financial commitment, not a resource that can be paused.
Mistake
Reserved Instances lock you into a specific VM size forever.
Correct
You can exchange an RI for a different VM size in the same series (e.g., from D2s_v3 to D4s_v3) at any time. You can also change the region or scope, though fees may apply.
Mistake
The discount from Reserved Instances applies to all VMs in my account automatically.
Correct
The discount only applies to VMs that match the attributes of the RI (series, size, region, scope). You must purchase RIs for specific configurations.
Mistake
Reserved Instances are the same as Azure Hybrid Benefit.
Correct
They are different. AHB allows you to use existing licenses to reduce costs, while RIs provide a discount for committing to a term. They can be combined, but they are separate programs.
An Azure Reserved Instance is a pricing model where you commit to using a specific VM configuration for 1 or 3 years in exchange for a significant discount (up to 72%) compared to pay-as-you-go. It also reserves capacity in the chosen region. It's ideal for predictable, steady-state workloads.
Savings can be up to 72% off pay-as-you-go prices for VMs. The exact discount depends on the VM series, region, term length, and payment option. Three-year terms and upfront payment yield the highest discounts.
You cannot cancel an RI once purchased. However, you can exchange it for another RI of the same type (e.g., VM for VM) at any time, or request a refund within 12 months of purchase (subject to a limit of $50,000 per year). Early termination is not allowed.
Both offer discounts for committing to spend, but RIs are tied to a specific VM series and region, while Savings Plans offer more flexibility — they apply to any VM in a region, regardless of series. Savings Plans are better for dynamic workloads; RIs are better for stable, specific configurations.
Yes, RIs include capacity reservation. Azure guarantees that compute capacity for the reserved VM configuration will be available in the specified region. This is important for disaster recovery or mission-critical applications.
Yes, you can combine Azure Hybrid Benefit (using your existing Windows Server or SQL Server licenses) with RIs for even greater savings. The discounts stack: RI discount is applied first, then AHB reduces the remaining cost.
You can exchange the RI for a different VM size in the same series (e.g., D2s_v3 to D4s_v3) at any time. If you enable instance size flexibility, the discount automatically applies to any VM in the size series family, so you don't need to exchange.
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