FELiX Blog

Eric Chiu
Managing Director

It is Software Licence Audit ‘Ka-Ching’ Time of Year

If you work in IT procurement or supplier management, chances are you already have a handful of software vendor licence audits on-going by this time of the year. Some vendors may be increasingly impatient and wanting to (if not already) dictate the audit settlement timeline.

There are two main reasons for this. First, many global software vendors have 31st December as their major financial milestone (e.g., Microsoft – mid-year; IBM – financial year end; Quest – financial year end). Second, regardless of their firm’s financial milestones, many compliance revenue collection teams have their year-end review that ultimately dictates their take-home bonus, so every penny you (the client) sign-off before 31st December counts.

Most vendor’s compliance programmes have become well-oiled machines and plenty of work has already been done. Notification letters were sent out after the summer break and plenty of pressure should have already been applied to complete the technical part (data collection) of the audit by now. Things are lined up for a settlement negotiation in the next four to six weeks and the compliance teams will be hopeful for some of these to be major target-smashing homeruns.

Sitting on the opposite side of this is you, already under pressure from mountains of renewals, often with pages of Bill of Materials (tables that list every single type of licence, quantity and cost) yet to be reviewed. Even worse, some vendors are now mixing their audit settlement claim with renewal negotiations, so that you can’t simply renew for the ‘BAU’ and ‘drag’ the audit on to the new year.

So, what should you do to get the most out of this final stretch of the year? Here are four top tips:

  1. Strategy and tactics

A clearly thought-through and articulated settlement strategy is going to be critical in any settlement negotiation. Start with the goals – is it to minimise spend at all costs, or is it about not blowing a set budget yet receiving as much value as possible? Is there a long-term relationship that is still worth maintaining with the vendor beyond settlement? Think about your plan A, B and C and who do you need internally to support and sign-off the plan.

Then turn to your negotiation 101 tactics – what are the true, personal-level goals on the other side? How do you want to set the anchor and manage expectations? Who plays the good and bad cop?

Write these down as there are a lot of people you need to bring onboard from within before you even start with the vendor.

  1. Onboard your boss

Once you have a plan, it is critical that you bring your boss onboard. Countless times we have witnessed hard negotiation work be wiped-out by ‘the boss’ in the name of containment (pay for the vendor to go away so the numbers do not go further up the chain). Equally, we see many cases where senior managers, once fully convinced by their team that there is a case for pushing back, managing to cut the ‘final’ number down by half via an ‘adult conversation’, typically from one mobile to another in the evening hours before the line runs dry.

  1. Ask a friend

Typically, ‘pay nothing’ is not a viable settlement option as there is nothing for the other side to compromise on. Most audits are settled with a cash outlay, albeit significantly lower than the initial demand. This means that you need to find a way to spend that cash.

Often the non-compliance situation that has caused the liability will have been fixed (or can quickly be fixed) through re-configuration or removal of accidental non-compliant deployment. This means there is no point spending the cash to buy licences for such liability that you have already remediated.

Most vendors are happy for you to spend the money elsewhere – typically buying their new cloud subscriptions where their compliance team get recognised for higher performance points. In the end, this is about what your company needs and, sadly, most procurement or supplier management teams will not have much visibility of this.

As soon as you have a glimpse of the amount of money you can spend to settle, ring your friends up – these could be architects, product owners, budget owners, project managers, transformation leads – whoever that may be looking for money for some extra software in the next year.

If you can get them to agree, the money will not be entirely wasted. Better still, if it happens to be the stuff they really need, they may offer to pay for it from their budget too (or at least you should ask for a round of drinks).

  1. Pick your battles wisely

Finally, there are times you must put your emotions aside and pick your battles. Life is finite and so is time in December.

If Microsoft happens to be your strategic supplier, everything in your company is Microsoft from Surface Books to SQL Databases and your CIO got flown to Seattle to see their product roadmap, then the settlement negotiation will probably be symbolic. They know you will continue to spend with them, and they only audited you as a gentle nudge to speed things up (bring some of the spend commitment forward). While you can’t completely ignore it, this probably shouldn’t be on top of your worry list.

On the other side, if you have just cancelled your last support agreement with Micro Focus and your firm-wide decom/migration project is closing, your company is probably put in the ‘milk-everything-out-at-all-cost’ basket. If you are not careful, this can easily escalate beyond the commercial realm, and the legal fees alone will be worth more than your last renewal amount.

Specialist Licence Audit Defence Team

Enlisting professionals to assist your planning and negotiation through the process can make the journey a lot easier. In the ‘final push’ moments of December, an hour of highly specialised advice can often change the settlement outcome by hundreds of thousands of dollars, if not millions. At FisherITS our audit defence advice is typically charged on a pre-agreed hourly rate and up to a pre-agreed budget with no hidden costs, ensuring the ROI is typically enormous for this type of engagement.

Eric is the Managing Director of FisherITS and shares his expertise in software licensing with clients to help protect their investments and operations in IT. A veteran of software licence compliance, Eric is experienced in the design and management of software licence compliance programmes for many top 10 software publishers and has led hundreds of enterprise-level licence audits. In recent years, Eric’s focus has been on giving strategic and tactical advice in establishing Software Asset Management to a diverse range of clients, from SMEs to large enterprises.