Three risks of poor software licence management

By Susan Lang*
Thursday, 31 October, 2013

Three risks of poor software licence management

With an increasing number of devices being used across the enterprise and the eagerness with which many individuals, departments and branches tend to pursue their own software purchasing plans, is it any wonder that few organisations are able to easily identify their true software licensing costs? Even fewer, it seems, are aware of the risk posed by their unmanaged software licence assets.

The exposure to risk is threefold. First and most obviously, there is the issue of non-compliance. Few business users outside of IT or finance pay any attention to the state of their software licences. Inconvenient questions such as whether a licence is current or even whether the software has been legitimately purchased are often ignored. If a vendor seeks an audit, however, and non-compliance is discovered, the penalties can be severe.

At some point, you will be audited

Organisations need to be aware that audits do happen. Software companies rely on licence fees and they are therefore keen to protect their revenue base. An audit may be a totally random occurrence, but more often than not they are initiated because the software vendor has received intelligence from a disgruntled employee or an unimpressed business associate.

The industry also provides its own inducements to help convince people to ‘dob in’ non-compliant organisations. The Business Software Alliance, for example, offers a bounty of up to $1,000,000 for software violations in the US and a more modest $5000 reward for informants in Australia.

The inducements do seem to work because audits occur far more frequently than most businesses realise. According to a 2012 software pricing and licensing survey conducted by IDC, 64% of enterprises said they had been audited within the prior 18 months. Unsurprisingly, given its size and reach within the enterprise market, Microsoft accounted for just over half (51%) of all reported software audits.

If an organisation is found to have violated a software agreement, it is liable for the cost of the software plus a penalty fee that typically ranges anywhere between three to ten times the cost of the software. IDC’s survey found that of those incurring a penalty, 45% of respondents paid up to $100,000 in fees and penalties, while another 19% paid between $100,000 and $300,000. Fifteen per cent found themselves owing between $1 million and $5 million, while an unlucky 4% were fined more than $10 million. On top of this, there is the damage to reputation that occurs when the story inevitably appears in the media.

Software is too expensive to waste

The second risk from unmanaged software licensing is that of overspending. It is generally accepted that software licences and maintenance account for around one fifth of the average enterprise IT budget. But if you don’t track and control your software, how can you know if that money is going towards the right number of licences?

A recent industry estimate suggests that 60% of companies are so worried about being audited that rather than attempting to take control of their software purchases, they err on the side of caution and round up the number of licences. When some specialised applications may cost in excess of $10,000 per user, this can be an extremely costly approach.

A question of productivity

The final risk associated with software licensing is that of user productivity. Are employees actually using the software that has been deployed on their devices? From our experiences with clients, around three quarters of businesses have software licences that are never used. This means every year, as licence fees are renewed, a portion of the IT budget is wasted.

Take control

The only way to avoid the risks of audits, overspending and productivity is to take control. Rather than allowing the number of software packages and licence fees to continually escalate, organisations should be looking at their software in the same way they would consider any other asset. They should be able to determine what their actual software costs are, how those costs are being incurred and whether those costs are justified.

Spreadsheets used to be the software management tool of choice. This was fine when an organisation could expect to have no more than a dozen or so packages to manage, but these days, the IT landscape is too complex. There are too many different applications, too many users and too many licences to monitor.

In place of the spreadsheet, organisations are turning to IT asset management programs and, more specifically, software licence management solutions. These solutions make it easy to search, find and catalogue all the applications that exist on the corporate network. They can identify on premise and software as a service (SaaS) applications which are delivered via the web. They track every execution of the software and see who is using it.

The goals of such programs are to build a compliance report that shows the status of applications, identifies instances of overspending and overlicensing, and provides a sound basis for judging whether the application is even worth having. This information allows the organisation to take steps to reduce unnecessary expenditure by removing unnecessary software and through reclamation or reassignment of licences. Reclamation occurs when an unused licence is put back into a pool of licences ready and waiting to be reassigned to another machine or user. For example, if the business decides to retire a PC and that PC has a copy of Microsoft Office on it, the licence can be reclaimed and assigned to an alternative computer.

*Susan Lang is Country Manager - Australia and New Zealand, LanDesk Software.

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