Reduce your software costs

A good asset management team could save your business more than 30%.

A good asset management team could save your business more than 30%.

Although asset management programmes continue to struggle to live up to expectations, they still provide the best opportunity for both controlling and reducing software costs.

Best practice asset management teams can potentially save more than 30% through an aggressive focus on software costs, workload analysis, negotiations, contracts and displacement strategies. Furthermore, best practice groups can shave a further 5% off competitive software costs by focusing on enterprise usage analysis and audits, coupled with negotiations.

Currently, users are being subjected to growing software cost differences. This is due to independent software suppliers applying questionable price-increase tactics against users with non-dedicated (and less knowledgeable) asset management teams. Sophisticated asset management groups with experienced personnel usually recognise and reject these tactics, which in turn means the inexperienced are more frequently victimised by questionable software offers.

Independent software suppliers are also increasingly charging for annual maintenance as a percentage of the licence list price. Strong asset management practices will help users to ensure they negotiate pricing that aligns with budgets. Users should adopt the following measures to ensure effective compliance:
  • Establish strong, dedicated software negotiation teams to ensure maintenance pricing is well understood and contained within contracts. Maintenance pricing should be calculated from the discounted (not list) licence price and should be stable over the life of the contract. Asset managers must ensure that product/ contract renewals do not eliminate these discounts, and that contract terms and conditions reflect those rights

  • Set up an exception process to facilitate problem resolution with software suppliers. An additional side benefit is that, over time, user and supplier personnel become familiar, increasing the speed at which invoice issues are resolved

  • Meta Group research indicates that, without effective invoice verification processes, errors can cost users more than 5% of the total invoice. Although this error rate should diminish over time, users should make invoice verification a standard asset management process.

The past year has seen a dramatic increase in hosted asset management services, championed as having little up-front cost and low support overhead. Hosting services are relatively new to the asset management market, offloading systems support and initial license fees while delivering rapid inventory data.

Asset management hosting services can improve software costs through a better understanding of asset inventory and utilisation patterns. Users trying to establish a quick inventory can use hosting services to establish audit baselines, but they should evaluate offerings in the context of a larger asset management programme.

Any discussion about reducing software costs should include some mention of chargeback. Chargeback is the mechanism through which IT departments charge their internal users for providing IT services. This is often considered solely a method of funding centralised IT organisations, ignoring a significant opportunity to improve IT/business alignment. In fact, poor IT chargeback methodologies often lead to higher software costs.

Unfortunately, many IT departments continue to struggle to define chargeback methodologies that satisfy customer requirements.

Some IT departments question the need for chargeback, pointing to the administration as adding no value to IT services. This is a very short-sighted approach, because IT organisations must review the drivers behind internal costs to understand the business of IT.

The true problem resulting from this lack of management is the failure to ensure that the user driving the costs is charged for them.
Rakesh Kumar is vice-president at research firm Meta Group,

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