Curing the SAP Overpayment Syndrome

Reducing SAP license spend through Software License Optimization

Executive Summary

Unquestionably, SAP software licensing is complex. A recent SAP user group survey found that 95 percent of SAP users think the company’s software licensing is overly complicated. Because of this complexity, most enterprises don’t have an accurate handle on their SAP license requirements or their license position relative to those requirements. Consequently, they are either overusing licenses, which increases the risk of software audits and financial penalties, or more often overbuying licenses, which leads to unnecessary software spend.

Three areas account for most of the overbuying:

  • Allocating more expensive named user license categories than people need to do their jobs
  • Consuming more than one named user license per user due to the failure of SAP true-up tools to accurately determine which user accounts are for the same person
  • Maintaining named user licenses for people who no longer access the SAP system

The potential cost savings that can be achieved through license optimization is huge. A leading consumer packaged goods company saved $18 million on SAP software over a three-year period. A major defense contractor saved more than $1 million, just on SAP, in the first year of their revamped IT asset management program. A global manufacturer saved €3 million on SAP software. The savings going forward could potentially be even higher because SAP has altered its software licensing policies, giving customers more flexibility in optimizing license spend.

Another key issue for SAP customers, known as “indirect access,” involves accessing SAP system data through 3rd party applications or other indirect means. The challenges of SAP licensing and the potential savings are even greater when considering indirect access. Some large enterprises have 20 or more integrations between SAP and other systems, and this can significantly expand the SAP user base as well as increase the potential of over-licensing your SAP named user licenses by double-counting users in such complex environments.

Unfortunately, SAP software license management hasn’t been easy. It requires in-depth, actionable information on how the enterprise is using SAP — information that answers such questions as:

  • How many people are accessing SAP and what functionality are they using?
  • Are they accessing SAP directly, indirectly through a third-party application, or both?
  • What SAP packages are they using?
  • Which users have multiple accounts?
  • What is the current level of utilization of package licenses?

SAP’s License Administration Workbench (LAW) tool calculates license compliance position based on current license allocations. LAW, however, does not collect and analyze sufficient information for SAP license optimization. The LAW report indicates only what licenses the enterprise has deployed, not how the enterprise is using them or whether each SAP user has the optimal named license category to meet his or her needs. To address software license optimization, enterprises need a solution that gathers comprehensive and accurate information, analyzes it, and helps the IT staff assign the appropriate license category for each user.

This paper presents an overview of SAP licensing and describes the factors at the root of the SAP overpayment syndrome. It also demonstrates how a software license optimization solution can slash overspending and lays out the requirements a solution must meet to be effective.

SAP Software Licensing Overview

Managing SAP licensing is no easy task. License entitlements and usage rights vary significantly depending on which SAP products and license types a company purchases and when. Understanding license types, license fees, indirect versus direct access, and auditing issues is essential to achieving effective management of SAP licenses. Moreover, SAP has changed its licensing policies in some areas. It’s important to understand these changes because they bring increased flexibility to license management.

License Types

SAP offers two primary license types. The first, the named user license, accounts for about 60 to 75 percent of typical SAP contract value. Each user must have a named user license.

Not all SAP named user licenses are the same. There are multiple entitlement categories — for example, Professional, Limited Professional, Developer, and Employee — based on the level of functionality authorized for use. The cost of the license increases with the level of functionality, with Developer and Professional user licenses being two of the most expensive. Professional user is the default license category assigned if no other category is specified. Additionally, some SAP license agreements specify category ratios — usually the ratio of Professional to Limited Professional licenses. A typical ratio is 85 percent Professional and 15 percent Limited Professional.

The second type of license is the package (aka engine) license, which is purchased in addition to named user licenses. A package license is required for each SAP business-specific application installed. The cost of a package license is based on a business metric intended to measure the business value realized by use of the package. Each package has different metrics that are used to calculate license consumption. For example, a metric used for the SAP Human Capital Management (HCM) package is the number of employees in the enterprise. Here is the formal explanation of a package license from SAP’s licensing guide:
Package licenses entitle you to deploy and use the precise set of SAP software functionality you need to support your company’s processes and address its business requirements. The price of a package license is based on a key business metric that reflects its intended use.

License Fees

SAP offers two types of payment models. The first is perpetual, in which the enterprise pays a one-time fee that entitles the licensee to use the software “forever.” In addition, the perpetual licensee must take out an annual maintenance and support contract for upgrades and support. The annual cost of maintenance and support amounts to approximately 25 percent of the perpetual license cost.

The second type of payment is subscription, which is used for SAP cloud offerings. Here, the enterprise pays a periodic license fee that usually includes maintenance and support.

Indirect Access

In many cases, users in an enterprise access data in the SAP system indirectly. For example, an enterprise may import data from an SAP system into a third-party application such as People then access this data using In some enterprises, a single user may be accessing SAP data through multiple non-SAP systems. In any case, each indirect user must have an SAP named user license, but only one named user license is required for a given user, regardless of the number of third-party systems they use. If a user is accessing SAP both directly (often called a dialog user) and indirectly, that user requires only a single named user license.

Identifying all of the third party systems that are being used to access SAP data can be challenging. There is also the increased potential for double-counting users. Working out the total number of users across many disparate systems, each with their own naming conventions, best practices, etc. is a massive challenge, and one for which SAP does not provide any tool support to facilitate license management.

This is an excerpt. Download the entire pdf: Curing the SAP Overpayment Syndrome