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Image: 2: Are our software licensing costs optimized?

This is the second in our series of Precision Planning blogs that examine the key questions which must be answered in order to effectively plan your organization’s IT for 2022.

Spend continues to increase year over year

SaaS and cloud may be the shiny new objects attracting all the attention, but most organizations are still spending significantly more on traditional software than SaaS/IaaS/PaaS services, according to Flexera’s 2021 State of Tech Spend report.

Planning for these software investments is a pivotal challenge for IT leaders. You need to budget for your “keep the lights on” expenses and stretch every dollar to support digital transformation initiatives. Accurately planning your software spend based on actual usage ensures you optimize your costs and protects you from unbudgeted audits and true-ups.

Sound management can uncover significant savings

According to Flexera’s 2021 State of ITAM Report, respondents’ average annual software spend is $74 million. Software asset management (SAM) programs and tools drive these costs down, according to the research. Overall average yearly SAM savings are $6.4 million, with five percent of organizations reporting more than $25 million in yearly SAM savings.

A SAM program yields an average of 8.64 percent savings. That’s 8.64 percent of the budget that you can move to line items that support growth and innovation, like improving your customers’ digital experience.

Gaining insight into costs

Gartner recommends showing IT cost efficiency by determining a cost per unit for all IT expenditures, then determining whether you’re getting the maximum value from the investment.

“IT needs to reduce its cost per unit, to pay for vital business demand.” – Gartner, How to Demonstrate IT Cost Management Success.

Software licensing is intentionally opaque

Determining the cost per unit for software is far more challenging than for other types of IT assets. Software licensing is complex by design, making an effective license position a tough process. The largest software publishers—including Microsoft, IBM, Oracle and SAP—charge based on a dizzying combination of cores, clusters, environments and availability.

If you’re working without robust tools, these pricing models turn calculating the cost per unit or installation into guesswork. And if you can’t accurately calculate how much something should cost based on how it’s being consumed, then optimizing the value of it is non-trivial.

Layer upon layer of complexity

Imagine a simple example of an Oracle database instance that supports a customer-facing application. Do you know how it should be licensed (i.e., how much it should cost)?

The answer is very dependent on the amount of computing resources available to the database, whether it’s on an active or passive node in a cluster, whether it’s in production or highly available, and many more dimensions.

Now imagine how many Oracle database instances you have in the enterprise. It’s easy to see why most organizations “guesstimate” how much they should be spending on software. And why about 24 percent of software spend is considered wasted, making an effective license position necessary.

The savings are there if you know where to look

On the flip side, this complexity provides the biggest opportunity for optimization if you leverage intelligent product use rights and algorithms to automate the calculation of your true licensing needs. This is why the world’s leading companies choose Flexera’s Software Asset Management to optimize the value of their software portfolios.

In our Oracle database example, Flexera enables you to not only automatically calculate consumption costs, but also optimize the licensing based on how it’s being consumed.

Consider: the minimum cost for an Oracle database instance is around $25,000 (many instances cost more than $100,000, depending on how/where they’re used). Across your estate, optimizing even one application results in material savings.

Imagine: your software portfolio is automatically optimized so you can clearly demonstrate IT cost management success.

“The supply side represents rates or price. These are the areas that the CIO and team can directly influence, without needing to engage with the wider business. At its simplest level, if the business demands, say, 300 software licenses, the supply side is about IT procuring those licenses at the best possible prices, making the right technology decisions to deploy them efficiently. By contrast, the demand side is about IT challenging the business on those 300 licenses: Why do we need 300, not 100? Why do we need a gold standard license, not bronze?” –Gartner “How to Demonstrate IT Cost Management Success” 

The budget buster: software audits

Unlike other categories of IT spend, enterprise software has an X factor: the software audit. Almost 30 percent of large organizations paid over $1 million in software audit costs last year (source: Flexera’s 2021 State of ITAM Report). If you’re not proactively calculating your actual license positions, your organization is at risk for an unbudgeted true-up expense.

Continuing with our Oracle database example: during a software audit, the burden is on you to prove that each database instance should not cost more than $100,000 (or the worst-case scenario).

How to operate from a position of strength

Flexera automatically applies optimization techniques to put you in the best possible position during a software audit. A simple example is exclusions for non-production environments. Flexera’s solutions are verified by many of the major software publishers to help you breeze through audits.

Unfavorable software audit findings are certainly one of the biggest compelling events for our prospects. Being proactive about optimizing your software estate before an audit not only helps you avoid “audit hell” but also enables you to stop guessing sooner so you can redirect funds to innovation.

ITSM and ITFM tools alone can’t get you there

You’ve probably invested millions in ITSM and ITFM tools. So why aren’t they helping you solve this problem?

ITFM can show your spending with a vendor, but not your consumption cost per unit or whether your spending is optimized.

ITSM can show you license deployment, but doesn’t address the complexity of enterprise software licensing, leaving you vulnerable to audits and overspending on your software contracts.

Software licensing has never been simple. And with continued adoption of cloud and containers, it will only become more daunting as you continue your hybrid IT journey.

The Flexera difference

Flexera has been solving these problems and saving our customers millions of dollars annually for more than 15 years. That’s why six of the world’s ten largest enterprises depend on Flexera for software license optimization.

“If you’re like me and believe that on-premises apps aren’t going anywhere and that cloud usage will continue to grow dramatically, then you probably also agree that having separate tools or solutions to manage desktop, datacenter, SaaS and cloud doesn’t make sense,” says Jim Ryan, Flexera’s CEO.

“After all,” he continues, “Microsoft, Oracle and others are going to negotiate a single enterprise license agreement with you and, as a result, you’ll require a single solution to discover, normalize and optimize hardware, software and services running across your complex hybrid environment.”

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IT Asset Management

It all starts with knowing what’s in your IT ecosystem. Flexera One discovers even the most elusive assets whether on-prem, SaaS, cloud, containers and more.

Flexera One helps you visualize your entire estate from on-premises to SaaS to the cloud. And it delivers the power to mitigate risk, reduce costs and maximize every technology investment—so you can invest in innovation.

See for yourself

Time is running out to create the IT strategy you need to set your organization up for success next year. Download our comprehensive guide to see how better-informed decisions and a strategic plan can give your organization the greatest chance of sustained success.

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