“Every time we make an investment decision at Fedex, we ask ourselves: What is the return on this investment?”
Software Asset Management practitioners frequently claim that implementing a SAM project is an investment because it leads to cost savings and efficiency benefits yet few organizations actually have measures to show the return on investment. This article takes issue with the widely held assumption that SAM automatically delivers an ROI and explores the reasons behind this and what can be done to measure the ROI on a SAM project
Does SAM deliver cost efficiencies?
“When you’re surrounded by people who share the same set of assumptions as you, you start to think that’s reality”
Do not assume SAM delivers efficiency. There is no automatic correlation between implementing a SAM program and delivering software licensing cost savings, in fact research indicates the opposite.
In co-operation with Portsmouth University Business School, The Business Software Centre (TBSC) surveyed 400 local government organizations in the UK and found that on average the councils using SAM tools actually spent more on software licenses per user than the nationwide average. In addition a similar survey of 107 City Governments in California revealed exactly the same result, the organizations with SAM tools were spending more on software licenses per user than the average city.
What is Licensing Efficiency?
“There are only two qualities in the world: efficiency and inefficiency, and only two sorts of people: the efficient and the inefficient”
George Bernard Shaw
Of course not every organization with a SAM project is automatically inefficient but it is wrong to assume that efficiencies automatically result when you implement a SAM tool or project. You will only gain efficiency benefits when you have a focus on efficiency as well as compliance, after all the easiest way to comply is to just buy too many licenses and then you are covered.
First you must define software licensing efficiency vs software licensing effectiveness. Essentially in SAM there are three key measures:
a) Entitlement – how many licenses have you purchased?
b) Deployment – how many licenses have you deployed?
c) Usage – how many licenses are you actually using?
Effectiveness is when Deployment = Entitlement i.e. you are compliant
Efficiency is when Usage = Entitlement i.e. you are using what you have paid for and paying for what you have used.
It is quite possible to be 100% effective but only 20% efficient. Therefore you need to measure how you perform against both.
How do we measure efficiency?
“One accurate measurement is worth a thousand expert opinions”
Efficiency is not an opinion it is a measurement. In business if we spend money on something then we want to know what the benefit will be of doing this. The measurement of this is called “Return on Investment” or ROI. If you are running a SAM program then you should measure your ROI. If you are paying for a SAM program then you should be asking to see the ROI.
The calculation for an ROI is simple and everyone I business knows this as:
Gain-Cost = ROI
For example $100 saved – $25 spent = 3 x ROI
Is it possible to calculate SAM ROI?
“Whether you think you can, or think you cannot. You are right.”
Most SAM practitioners will point out the difficulties of measuring SAM ROI because effective SAM delivers efficiency benefits in some ways that are not easy to quantify. However it is possible to implement ROI measure if you have this as a key deliverable to assess your SAM program.
The primary cost efficiencies can be split into the following three groups:
a) Reducing IT costs. Examples of these savings can be reduction of the number of licenses paid for in a contract renewal or “re-harvesting” of unused licenses and reallocating them to users who need them, thereby avoiding the need to purchase additional licenses. These types of savings can be measured and quantified but may take a considerable amount of manual tracking.
b) Cost efficiencies from improved services. An examples of this can be improved service from a helpdesk because they have better information about the assets used by users. Another case could be the identification and retraining of users who have a new system to work with but they have had difficulties coming to terms with it. In these cases it is harder to make an assessment of the value that a SAM program delivers in accurate financial numbers.
c) Risk reduction. There are risk if IT assets are unknown. These can be penalties for being outside of license agreements or even security breaches where IT assets and software access fall into the wrong hands. Risk assessments should be part of any SAM project but it would not be appropriate to count these as savings unless a specific cost saving can be identified and quantified.
In addition to the cost benefits you will also need to identify the investment costs. These are much easier to calculate than the cost savings. Key components are:
a) Staff costs. These include staff direct working on the project with all the additional costs and benefits such as pensions, tax, sick days and admin costs. Also you will need to add in a proportion of the cost for other workers who contribute towards the project.
b) Cost of outside services, outsourcing and contract staff.
c) SAM tools or other technology used to make assessments required by the SAM project.
As ROI on a SAM project is so important you would think that someone would have come up with a tool that automatically calculates the ROI for you. A search of the internet will reveal a number of organizations claiming to offer SAM ROI tools however they fall into the following categories:
a) Teasers for sales leads. These are basically gimmicks that have a few questions and maybe some output graphs. You enter very basic information and then get a bland generalisation that the company in question can help you save costs if you complete a lead form.
b) Spreadsheet or .pdf examples of what to track for calculating ROI in your ROI. These can be informative but you still have the task of finding all the information and working out how to do it. Of course the providers have the answer for you which is usually to buy their consultancy which can be one way of getting the information providing you can check the validity of their work.
c) Optimization options for SAM tools. These can be valuable in revealing the best licensing position for the software licenses that you have deployed. However if you have not done an efficiency assessment based on actual usage then you will just end up with the best licensing model for software that you are not using.
d) Business intelligence analysis combined with SAM data. There is a new area which helps SAM practitioners make decisions faster and more effectively than doing manual analysis. By automating techniques such as Pareto analysis, Six Sigma and Kaizen continuous improvements it is possible to deliver and quantify savings and business benefits. Business Intelligence tools for SAM projects make it easier to calculate the ROI on your SAM projects and track the actual improvements you make over time.
When should SAM ROI be measured?
“The scariest moment is just before you start”
There is only one time when you should start measuring the ROI on your SAM project and that is NOW. If you are spending money or other resources on SAM then you should know your ROI. If you do not know what your return is on your investment, then why are you doing it?