Although, in many organizations, the IT function will ultimately report into the CFO, this does not mean that many CFOs are required to be aware of the detail of what IT actually does. It may be traditionally acceptable for a CFO to ensure that expenditure is on budget and that the IT function is generally supporting the business strategy going forward, but in many cases this will be the limit of their involvement with IT. This is understandable, with a 101 other more pressing tasks to deal with, the technical minutiae of IT will not be high priority and will probably make your eyes glaze over before providing a cure for your stress-induced insomnia. But, one particular area of IT is worth spending some time to understand as CFO Software Asset Management. The good news is that no technical understanding is required as it will produce both cost savings and a reduction in risk, key areas of their responsibility.
Increasing in both size and importance
That area is software asset management or SAM. Traditionally, the people responsible for this have been ferreted away in some back room, counting licenses and, by a few, looked on as a business inhibitor. But, the SAM function has come a long way in the last few years and the more progressive organizations that have adopted SAM wholesale have enjoyed a strong ROI (and then some) as a result.
OK, you’re a financial person, you want to see evidence and figures for these claims, as you no doubt have many requests for unbudgeted expenditure crossing your desk every day. Before I provide that it is probably worthwhile looking at what SAM is. Industry experts and analysts Gartner define it as:
“A process for making software acquisition and disposal decisions. It includes strategies that identify and eliminate unused or infrequently used software, consolidating software licenses or moving toward new licensing models.”
As such, it is the management of an item of expenditure that is increasing in both size and importance, whether your future lies in the cloud or not. In the past, the bulk of IT spend was on hardware, tangible pieces of metal, plastic and glass you could see on the desk. Software spend was incidental and a fraction of the cost of hardware. Now that has all changed. With even the smallest organization now dependent on technology, the amount spent on software has dramatically increased. According to Gartner it is now $326 Billion worldwide, forecast to rise to $391 Billion in 2019.
30% savings in year 1
Although the number of desktops and laptops you will notice as you walk around your organization is the most visible evidence of this increase in software spend; the biggest proportion is not so noticeable. It is reckoned that 80% of software spend now occurs in the datacentre (Gartner).
These church-like, air conditioned hives of activity are where the big software in your organization lives, like your SAP ERP system on which your business runs, or large Oracle and IBM databases that store customer data. This software can cost hundreds of thousands, if not millions of dollars to acquire and maintain.
So, the potential to save money in this area is high. Getting back to the evidence I mentioned earlier. Gartner recently carried out a survey of over 800 of their clients and discovered that those organizations that have implemented a SAM program enjoyed 30% savings on software costs in the first year. This study backed up similar findings from 2013.
Such a significant first year ROI can justify the expense of the necessary SAM tools and expertise and deliver a surplus to be used elsewhere in the business. Going forward, it is reckoned the savings will be 5% a year to continue to help to fund SAM.
The perils of an audit
But, significant cost savings are not the only financial benefit of SAM. Unbudgeted costs are the bane of any business, and those organizations that do not practice SAM are particularly vulnerable to this. Since the 2008 downturn, software vendors have been focusing on getting more revenue from their existing customers than they do from new ones.
Their main tool in this assault is the audit. Written into your software license agreement there is no escape from it. There is now a 65% chance that you will experience 1 or more vendor audits a year. These are disruptive and costly to defend against (witness the recent case of Mars as a typical example). The end result of an audit for those organizations with no SAM program is typically a ‘true-up’ bill for unlicensed software your organization is using and a potential fine.
All of which can amount to millions of dollars – unbudgeted. Some organizations accept this as business-as-usual. In fact we know of one organization that sets aside $1 million a year specifically to deal with the outcomes of being non-compliant at an audit. And let’s not forget the lost opportunity costs whilst your folks are busy responding to a vendor audit rather than growing your business.
But is this the best way to deal with it? Like most things in life, prevention is better than cure. So, surely it is better to plan (or ask a solution provider to plan with you) for these audits and ensure your software estate is in good order and not non-compliant by implementing a SAM program with measurable and significant ROI? It’s win-win.
Reducing security threats
The other area that impacts you as a CFO that SAM positively affects is risk. Your IT systems and the information they hold are of prime interest to criminals who are constantly looking for ways to access them. Consequently, security is paramount, but with the diverse, geographically spread IT systems that modern organizations operate, keeping things 100% secure is not easy. So, anything that helps to improve security can only be beneficial.
The good news is that the necessary processes and information collected from a good SAM program will, by definition, provide the information you need to improve IT security overall. By delivering a detailed inventory of all the software in use throughout your organization, your IT security experts will be able to identify and deal with the threats posed by software that is: unsupported, not up-to-date, unauthorized (a frequent source of malware and viruses), redundant or legacy.
So, as well as saving you money, SAM will also reduce risk, 2 good reasons why you should be looking seriously at what your organization is doing about SAM.
If you have any questions about SAM, please get in touch.