The hidden costs of software (and how to identify them)

Do you know which software licenses your organization has? Do you know what contractual arrangements have been made with the suppliers? Do you know the conditions for using the purchased software? Have you read all the small print? Are you aware of the financial risks associated with improper use of these licenses? Chances are that you might answer no to some or even all these questions.

The good news is: you are not the only one. 89 percent of organizations score low when it comes to software asset management (SAM). The bad news is: you don’t have sufficient insight: in your software assets, software usage, as well as its cost. This is especially problematic from a financial perspective as software publishers rely on license violation for a significant portion of their revenues. And if you do not know what has been agreed in these licenses, you offer them the opportunity to take advantage of this situation.

When a publisher discovers the offense – usually during an audit or alert – the hidden costs are discovered. They still must be paid and fees of millions are no exception, especially for large corporations. Please note: this is not concerning a workplace environment or simple desktop software, but solutions that form the basis of the entire organisation: the so-called server software, often derived from vendors such as Oracle, IBM, SAP or Microsoft, with hundreds to thousands of users. There are huge amounts involved.

Risks because of ignorance

There are numerous examples of companies that are exposed to risks, unknowingly and unintentionally, due to ignorance about their own software licenses. It sometimes happens that companies open up internally used software, via an online portal, for customers to use it, without even thinking about the implications. Think of a new web interface that establishes a link with your ERP system so that customers can order more easily. In practice, this means that you’ll get just an additional hundred thousand users whereas the contractual agreements state for example one thousand users.

Or look at municipalities which increasingly work together around support services such as IT. They merge different data centers into one and the software (ERP, CRM) often moves along. Generally, this consolidation is carried out by external IT parties. However, you cannot trust that everything happens according to the contract, as they usually have knowledge on systems and technology, not on licenses. These types of licenses almost always state that you cannot move along software. The result? Huge unexpected costs and possibly even penalties.

Insight & responsibility

Such large additional charges are often a wake-up call for organizations and a reason to look for the causes of these hidden costs and license violations. How did they arise and how can they be prevented in the future? The answer: get insight. A similar insight that organisations now often have in “physical things” such as buildings and hardware, but not necessarily in an ‘intangible asset’ like software. That is understandable, because the software landscape is complex, with even hundreds of different publishers for small organisations, but also weird, as software these days is indispensable to business operations for virtually every organization.

Gaining insight is the basis of a mature software asset management strategy. This is where it all begins. Not having insight into your licenses and not knowing what is and is not allowed to do with the software is the same as walking around with loose laces – it goes well for a while, but eventually you’ll stumble. Do you have the nessesary insight? Then you can start minimizing risks and bring down the (no longer) hidden costs. To ensure that this is an ongoing process and next steps – such as cost optimization and cost savings – are also taken, the designation of a responsible person is inevitable. Who is accountable if there is still a licensing issue of millions of euros on the table?

That may be the CIO, but considering the financial aspects, also the CFO, as long as someone at board level is responsible. Someone who asks the questions in the first paragraph regularly. And eventually can answer all with a resounding “yes.”

This article is also published in Dutch on .

This article was published on 17-01-2017