Software Licensing Compliance and Cost Optimization

Maintaining a balance between seemingly competing goals or circumstances is a common challenge in business management as well as life in general, and recognizing unbalance before it results in excessive losses frequently requires information gathering and assessment. Dangers lurk in many areas when too much attention is focused on one goal at the expense of losing perspective in management of another. Even within athletics, top performers and their coaches are experts at maximizing training intensity without crossing key boundaries which result in decreased performance or injury. This need to maintain balance correlates extremely well in to the area of software license management, where there are two desirable outcomes which can potentially compete. On one side is the need to stay compliant by maintaining licensing adequate for the needed usage, while on the other side is the need to control licensing costs which seem to creep higher over time. How to arrive at the properly balanced middle ground can be a daunting task for even experienced software and application managers, and tipping too far in either direction has consequences which may not be immediately recognizable.

Lack of compliance can come in various forms, all of which can result in added costs when violations are uncovered during a software vendor audit. Maintaining compliance is a multi-faceted endeavor encompassing numerous challenges. For instance, one caveat which is important to recognize is that motivated and capable employees will sometimes find unauthorized methods of gaining access to the software resources they need, and may knowingly or unknowingly fail to secure proper licensing in the process. While this is a problem, it must also be conceded that without access to proper computing tools, inadequately resourced employees and teams will not perform up to expectation or capability. The pressure to give employees the tools they need at whatever expense is required to stay compliant can compel an organization to tilt in the direction of excessive or imprudent spending, especially if robust means of measuring and tracking utilization is not part of the planning process.

Because software licensing compliance is fundamentally an issue of contract law, and non-compliance can result in large unplanned expenses, it is an aspect of software management which demands attention, and can cause varying levels of stress to those charged with responsibility in these areas. Information compiled by International Data Corporation (IDC) does an excellent job of highlighting the serious budgetary issues which organizations face as a result of software license audits. *The study shows that 37% of enterprises have been audited more than two times in the last 24 months, and 56% of audits resulted in additional charges to compensate for historical under-licensing and reach a state of compliance. Shockingly, the IDC report indicates that 21% of companies who were required to pay “true-up” charges to reach compliance were charged in excess of $1 million. Even for companies who budget for contingencies of unexpected risk expenditures, these sorts of spurious costs are never welcomed, especially in light of the extensive planning and effort otherwise expended on budgeting and cost control. Carrying consequences such as these, the dangers associated with non-compliance are compelling enough to cause many organizations to err on the side of caution, resulting in over-resourcing compared to actual license needs. The ability of an organization to access data demonstrating a solid grasp on their degree of compliance and prevent penalties for under-licensing can significantly simplify software management by facilitating faster and simpler audits while giving organizations a better ability to negotiate contracts by being certain of their true needs.

Since the drive to maintain compliance can cause an unbalance of resources toward over-expenditure, it must be recognized that adequately resourcing employees while preventing excessive and wasteful spending is a necessary counterbalance to the legal aspects of software license management. Just as in the case for non-compliant under-purchase, over-purchase of licenses and the associated misallocation of software budget can be difficult to recognize. While employees may vocalize their discontent if they are unable to access software when needed due to a license shortage, over-resourcing can result in a blissful state of ignorance where no one is necessarily complaining, but software costs are needlessly high. If there is no monitoring and analysis of software license usage, the prudent level of resourcing may remain unknown, and it may appear that resources are well utilized when efficiency is actually poor. Just as understanding software usage in light of available licenses is the key to proper compliance management, getting a solid understanding of true licensing needs is also the key achieving optimal minimization of licensing budgets.
Thus, balancing an organization’s software needs somewhere between compliance via adequate software license purchase and prevention of excessive and wasteful spending is the ideal state to be pursued. Reaching this middle ground is only realistically achievable by measuring usage to ensure compliance while at the same time optimizing licensing spend. However, when it comes to budget optimization, simply reducing license levels to achieve a high utilization rate is only a starting place. The process of creating a compliant and optimized environment can be iterated, or peeled back like an onion, with each layer revealing new possibilities for discovery of savings. Exploration into heightened levels of optimization involves such questions as: Is there software which seldom used or unused? Are there software packages in use which have overlapping capabilities? Are the selected and purchased software suites ideal based on what is needed and utilized?

In the backdrop of these questions, it is important to make note of a recent study by Constellation Research which concluded that fully 33% of software budgets are being wasted due to insufficient license management. Most IT departments are aware that there is wasteful spending on software, but the complexity of the environment can sometimes bewilder even argent attempts to stay balanced between compliance and efficiency. Remaining compliant requires navigating some of the finer details of license agreements, because options for different license types available from a given software vendor can specify a variety of different terms, such as limitations on numbers of distinct users, numbers of concurrent session per device, whether end-users can utilize multiple devices with a single license, geographical limitations on licenses, and rules regarding license transfer or redeployment. Having to track the licensing details for multiple software vendors with multiple license types and limitations requires significant effort and attention to details. A notable and important aspect of maintaining both compliance and efficiency is management of software usage entitlements, wherein user access to specialized software applications must be justified. Once entitlements have been properly controlled, it is necessary to implement usage metering. Given the sizes of true-up expenditures which have been reported and well established waste in software expenditure, devoting adequate time to compliance and efficiency is a recognized necessity, but managers must be armed with adequate analysis tools and focused information.

Optimization of software resources is an ongoing and interrelated task to be done in conjunction with maintaining compliance. Paring down software expenditure to a level where increased efficiency is achieved involves exploration into whether apparent usage is translating into actual “active” application usage. Looking only at license activity does not give the full picture, and can actually be deceiving for several reasons. For instance, if users have experienced license denials in the past when attempting to use a given software package, they may tend to open an application to “reserve” a license at the start of the day just in case they need it later. This translates into a high degree of inactivity for the license, and only further exacerbates the license availability problem. As increasing numbers of users experience denials they are incentivized to replicate the bad behavior or reserving or “camping” on a license, compounding the number users getting denials, and increasing overall frustration. Additionally, even the simple practice of closing applications when finished with them to free the license for use by others is common sense, but lack of attention to this is common in many organizations if usage practices are not monitored and specific measures taken to make users aware of the consequences of their carelessness. Another practice which can be a problem is simultaneous use of more than one license for the same application. There may be valid reasons for this at times, but if not monitored it can result in inefficient license usage and unnecessary license denials to other users.

There are numerous practices which reduce license efficiency but these examples of “camping” on a license without using the application, leaving applications open but unused, and “hogging” multiple licenses for the same application are several of the most common. Tackling user behaviors which are wasteful is greatly simplified with specialized software which allows logging and review of license usage, and sometimes real-time alerting of undesirable practices. Determining degrees of active versus inactive application license use requires collection at a deeper level, where reporting agents are placed on users’ computers or workstations to determine whether a user is interacting with the application. Passing along statistics regarding active usage to application users can greatly increase their level of consciousness about inefficient behavior, and this awareness alone can reduce the number of licenses needed for daily operations.

License management software typically comes with numerous specialized reports to assist with managing current operations and future planning. Usage histograms come in various flavors, and can be very useful for determining the economics of increasing or reducing numbers of licenses. By analyzing the how often all available licenses are checked out, or how many licenses are needed to cover a certain percentage of total usage, solid criteria can be established determining appropriate license expenditure by analyzing where diminishing returns make purchase of additional licenses impractical. Reports showing times where peak usage or license denials take place may also highlight potential license management options other than simply spending more for additional licenses. Gathering proper license usage data is the key to both management of license compliance as well as minimizing software budget expenditures.

Like most things in the current fast-paced IT world, it is ever important to stay abreast of available software resources in light of ever changing needs. It is not possible to arrive at a final destination where ongoing evaluation of compliance and cost optimization is unnecessary, and equipping decision makers with software license usage information is essential to arriving at balanced decisions which prevent costly audits while minimizing spending on unused or excessive software licenses.

*“2013-14 Key Trends in Software Pricing & Licensing Survey” The Library Book, 1 August 2016.

By Carl Leweke

Carl Leweke is an Account Manager for Open iT, Inc.