The hidden cost of wasted software budgets

A recent report from Flexera Report has revealed that organisations have been unnecessarily wasting their enterprise software budget. Consider these statistics:

• 75% of enterprises are out of compliance with regards to at least some percentage of their software.
• 44% of enterprises (compared to only 25% the prior year) paid $100,000 or more in true-up costs to their software vendors as a result of non-compliant software use; and for 20% (up from only 9% in the prior year) the software audit true-up costs were $1,000,000 or more.
• 93% of organisations report spending money on shelfware.

Enterprises are now waking up to the fact that they are wasting as much as 25% of their software spend. However, there is still uncertainty on why this waste is occurring and what can actually be done about it.

The problem with licences

The software that contributes to an enterprise’s day-to-day functions is one of the most difficult types of assets to track, manage and optimise. This software is producing not only complexities but also hidden wastes. There are several causes that lead to this problem.

First, each of the licence agreements governing the thousands of applications that run within the enterprise contains dense and complex terms — Product Use Rights — outlining what organisations are entitled to do with the software. These rights must be tracked, managed and understood to ensure compliance and, if usage exceeds those terms, an organisation is out of compliance.

When the software vendor audits its customer and discovers this non-compliance, an enterprise is often subject to ‘true-up’ penalties that can and often do run into six and seven figures per application.

It is also true that if those licences or an organisation’s Product Use Rights aren’t being used, then the organisation has purchased shelfware — software that is sitting idle but still using up a portion of the enterprise software budget.

These two problems normally happen simultaneously — organisations are out of compliance with some of their software titles, while other titles are being underutilised.

New technologies such as the cloud, virtualisation and BYOD policies further complicate this scenario because their licensing consequences can have a serious impact on whether a company is in or out of compliance.

Additional factors that make software licence management more difficult include employee turnover, mergers and acquisitions, and the retirement of hardware.

Common mistakes

Here’s a list of the most common mistakes organisations make that commonly result in shelfware or non-compliant use:

1. Making ad hoc purchases: Lack of controls over purchases is common, even for when made under a volume agreement.
2. Not tracking installation and use: By tracking installations of software and its usage, organisations may be able to substantially reduce ongoing maintenance payments.
3. No central repository: A central repository holds proof of software licences, making them more easily accessible for review. It also enables organisations to quickly comply with vendor audit requests, saving time and money.
4. Not tracking renewal dates: Failing to keep track of software licence agreements and renewal dates makes organisations vulnerable to lapses in maintenance or loss-of-use rights, which can prove costly.
5. Not optimising spend by leveraging Product Use Rights: Accurately applying Product Use Rights can drastically reduce licence consumption and thus reduce the need to buy more licences.
6. No communication between departments: IT operations must work with procurement to ensure that software is installed and used in accordance with the respective licence agreements to avoid compliance issues.
7. Not ascertaining strategic requirements: Ordering licences without determining what the organisation is currently using and truly requires over the longer term could be an expensive mistake.
8. Assuming licensing rules don’t change: Licensing rules change frequently and failure to stay on top of these changes can result in being out of compliance.
9. Not purchasing maintenance at the right time: The right time to purchase maintenance is when organisations are looking to upgrade. If organisations buy maintenance before a release is announced, the price often is significantly lower and they will become automatically eligible for that product upgrade.
10. Not automating Software Licence Optimisation: An optimised licence environment cannot be achieved without people, processes and automation. Software Asset Management/Software Licence Optimisation solutions enable organisations to collect all the necessary data and apply licence entitlement rules to help ensure continual compliance and optimisation.

It is absolutely crucial for CIOs to have a great understanding of the challenges associated with software asset management. If they want to implement the right processes, technology and people to address this source of financial waste and corporate risk, they must have these insights and knowledge.

Image courtesy George Chernilevsky