The Financial Side of Managing Software Licenses
Aspera was a sponsor of the Financial World of Information Technology Conferences, held this past July in Texas, so I attended the event. We were the only software license management specialist at the conference and quite a few attendees asked us about license metrics and how license consumption is measured.
After a few conversations, it was pretty clear that many managers understood neither the contractual nor the technical aspects of the licenses, and felt insecure about measuring and allocating software costs because of this. For example, one person spoke about complaints he had received because the company’s financial department could not explain the internal cost charging method for software and therefore could not properly handle discrepancies about the software charges.
What most CFOs don’t know is that a software license management project and resulting processes cover a cross section of IT and finance. So the CFO and Finance Managers stand to gain as much as the CIO and IT Managers.
Many of the problems finance departments have to deal with regarding software costs can be easily solved with license management. There are numerous decision-makers in different legal entities that have their own budgets. So centrally coordinating software decisions is the exception rather than the norm. With this situation, Finance Managers face some serious discrepancies:
- Unnecessary spending. For example because of a lack centralized budgets and transparency, different legal entities close the same contract separately. In the end, the CFO is left with the short straw, having to explain how this expensive inefficiency occurred.
- There is no financial overview of software demand, so no finance manager can accurately plan the budget.
- Despite unknown demand for a software product, the procurement department agrees to a flat rate for it. Now, external pricing and internal cost allocation is not possible.
- An inefficient business model for managing software licenses can create significant, often in the million dollar range, funding gaps that need fixing.
If you’re looking for material you can use to help convince the finance department that software license management needs support, go ahead and send them Software License Financial Management, an overview of how Finance Managers can use best practice software license management to add value to both their IT organization and the business that IT serves.
The biggest challenge I see with license management is how they evolve as organizations implement cloud or distribute traditional apps via a virtual desktop. How do you manage/assess/calculate your risk and expense as you change the type of distribution, given that same orgs will use a variety of hybrid delivery options? One of the issues with converged infrastructure is managing complexity ... and licensing remains a key challenge.
(note: I work on projects sponsored by EnterpriseCIOForum.com and HP)
Paul, you are right - changing the type of distribution or the system platform let the dollar signs shine in every vendors eye. Since they are typically not covered by the old license model it provides them the opportunity for selling new licenses and/or increasing the demand.
For license management this means that platform changes need to be analysed from a licensing perspective and license cost need to be considered in any TCO analysis.
Pearl you're exactly right. License management covers a complex cross section of IT and business and the project often involves IT, Finance, and Purchasing. For this reason the focal point of license management is transparency and reproducible processes. The use of a process oriented solution increases transparency by establishing one process chain from data gathering to reporting. This way the CIO and CFO are able to focus on the important aspects of license management: demand and budget planning, strategic purchasing to permanently drive down software costs, eliminating non-compliance risks, software/license use optimization, and faster IT service.
Thanks for your comment!
HI, Kacey, goog posting, I think the benefit of software liscense management also includes: to keep IT leaders such as CIO and finance leaders such as CFO at the same page, with transparency and common language, to help managing application with holistic view, and potential finanicial comparison with cloud deployment. thanks
What, specifically, is CFO's role with software licensing? Just curious...
The CFO's role depends on the organization. For many of our customers the legal entity CFO's accountable for license compliance in their respective legal entities. The reason for this is it often falls into budget controlling. Software license management is used to measure demand for licenses and therefore plan the budget.
