Quantifying the Value of Software Asset Management

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1 1 Executive Summary Over the past few decades, employees have come to rely more and more heavily on software solutions to automate and enhance a variety of core business activities from sales order entry and inventory tracking to payroll processing and financial reporting. As a result, companies of all sizes and across all industries now find themselves struggling to control the growing number of software applications installed on their servers and desktops. Studies show that the average employee PC has close to 150 software titles installed, including fixes, drivers, and service packs. Software Asset Management ( SAM ) systems combine processes and technologies to improve the way software applications are utilized, tracked, and managed throughout all phases of their lifecycle. There are many advantages that can be achieved through the use of SAM. Improved application performance and increased productivity of both IT staff and end users are chief among them. SAM offers significant financial benefits, lowering the total cost of software ownership and accelerating the return on software investment. According to Christopher Germann, senior research analyst at Gartner Group, organizations can realize cost savings of between 5 percent and 35 percent by implementing focused software asset management practices." This paper provides an overview of software asset management and its key benefits. Additionally, it highlights the areas where an SAM solution can deliver the most tangible, quantifiable cost savings to an organization. Readers will also learn how to calculate the potential return on investment (ROI) on SAM in order to present senior management with a compelling business case for the solution. What is Software Asset Management? Software applications have become a vital asset for today s businesses, providing the foundation for employee productivity and output, and supporting mission-critical processes that drive operational efficiency and profitability. Companies spend more today on software than ever before. In fact, while tough economic times are impacting most other industries, software vendors are actually seeing their markets increase. Forrester Research predicts that global spending on software will reach $341 billion in 2008, a 9 percent increase over As more and more software is purchased, companies must find better ways to justify and optimize their investments. Additionally, software is unique from other technology

2 2 solutions, like hardware, because it is intangible, making it much harder to monitor, control, and manage. Software asset management is a crucial business practice that combines policies, processes, and supporting technologies to improve software budgeting, purchasing, utilization, management, control, and security across an entire enterprise. Software asset management is not a one-time project. Because technology environments change so rapidly, SAM must be viewed as an ongoing process in order to ensure continuous compliance, performance, and value. SAM empowers businesses to improve all facets of software acquisition, use, and administration. As a result, the value and impact of software solutions is dramatically improved throughout all phases of their lifecycle. Today s most popular SAM applications include fully integrated auditing and tracking tools, a centralized information repository, advanced monitoring and analysis, and other robust features to enhance the following software-related functions: Budgeting and acquisition Installation and deployment Inventory management Logging and tracking of settings and configurations Usage measurement Monitoring of security solutions, such as anti-virus software Performance optimization Why You Need an SAM Solution The need for SAM is driven by many factors, including the rising cost of enterprise software and the growing portions of IT budgets allocated towards software purchases and subscriptions. Also adding to the urgency is the growing reliance of end-users on software applications in order to execute their day-to-day activities, and the challenges faced by IT departments in supporting these increasingly complex systems. With SAM, businesses are able to: Establish and enforce formal procedures for budgeting, purchasing, deploying, and using software Enhance strategic technology planning and make more informed software purchasing decisions by obtaining complete visibility into existing inventories Increase employee efficiency by accelerating the deployment of mission-critical software solutions Ensure adherence to standards and security policies Reduce IT support costs by minimizing the number and length of helpdesk calls Streamline administration of software assets, including upgrades and routine maintenance. Administration currently accounts for close to 33 percent of software budget consumption, according to Forrester Research. And the

3 3 Information Technology Research Institute states that the cost of maintaining software throughout its lifetime can total as much as 90 percent of the initial purchase price. Leading industry analyst firm Gartner also cites reduced software total cost of ownership (TCO), greater economies of scale, improved efficiency and costeffectiveness of support and help desk operations, and the ability to create knowledge bases and best practices around software management as some of the major benefits SAM can offer. Not less important than the benefits that companies can achieve through the implementation and use of SAM, tough, are the serious commercial, legal, operational, and financial risks they face if they don t put in place the procedures and tools needed to effectively manage their software applications. A poll conducted recently by IDC shows that less than half of companies have formal SAM practices and procedures in place., In a similar Gartner study, 38 percent of organizations admitted that they had little more than a basic understanding of their software licenses. This leaves these companies in a highly vulnerable state. For example, without SAM in place, these businesses are subject to: Shelfware, or software solutions that are purchased but never installed or utilized. Gartner estimates that approximately 20 percent of software owned by companies is never used. And, a report issued by Morgan Stanley and AMR Research indicates that almost half of all CRM licenses purchased are never allocated. Fines and penalties imposed due to non-compliance with licensing agreements. Significant staff downtime caused by extensive use of unauthorized software, such as IM-style programs or games. A 2007 study by independent market research company NewDiligence claims that 85% of corporate employees use IM, peer-to-peer collaboration or sharing, or anonymizers while at work. Increased threat from damage caused by hackers, viruses, spyware, malware, etc. Achieving ROI with SAM There are many ways in which companies can realize tangible, measurable return on their investment in software asset management. Some of the main areas that will provide the most significant hard-dollar savings include: Increased Efficiency of IT Support Staff Every day, corporate helpdesks receive numerous calls regarding software-related problems. In order to properly troubleshoot and repair these issues, support staff must collect data about the affected PCs configuration, so they can identify any settings that

4 4 may be impacting software performance. Additionally, they must know what version of software the user is running, and any patches or upgrades that have been installed. Without SAM in place, this information must be gathered through lengthy, error-prone question and answer sessions with the end-user. An SAM application puts this information instantly at the helpdesk representative s fingertips, shortening the length of calls dramatically. Additionally, because SAM applications make it easy to determine which software packages are unlicensed or not corporate-sanctioned, support professionals can avoid spending time on issues related to unauthorized software. The potential annual savings achieved through increased IT support efficiency can be calculated as follows: Number of PCs X Average number of annual X Cost per ticket X % reduction in support tickets per PC average call length Many companies that utilize software asset management solutions cite average reductions in helpdesk call length of as much as 20 percent. For a company with 500 PCs, averaging 4 helpdesk tickets per PC per year, and assuming a $40 cost per ticket, this can amount to annual savings of $16,000. Automated and Accelerated Software Audits Manual software inventory audits are a cumbersome, time-consuming endeavor for IT teams. Additionally, they are highly error-prone, and often require re-work when human mistakes are uncovered. An SAM application fully automates all activities related to software inventory tracking and auditing, reducing related expenses as follows: Number of PCs X Time required to X Hourly cost of X Number of audits audit each PC IT staff member performed each year According to Salary.com, a leading provider of compensation management solutions and statistics, the average IT technicians makes approximately $33 an hour. Assume that manual audits take 15 minutes, and the average company performs audits bi-annually. Therefore, by automating and accelerating related tasks, SAM solutions can help a company with 500 PCs to reduce software audit costs by $8,250 each year. Improved Employee Productivity Companies of all types and sizes experience significant productivity losses due to the use of unauthorized software. In fact, polls conducted by leading US staffing firm Office Team demonstrate just how big the problem is employees spend as much as 156

5 5 hours each year using IM and other chat programs, games, peer-to-peer file sharing packages, and other productivity-draining applications. SAM solutions identify illegal or unauthorized software packages on employee desktops, so IT staff can immediately remove them. This can significantly increase employee efficiency, resulting in dramatic cost savings: Total number X Est. hours spent X % of employees who X Average of employees using un-authorized experience downtime hourly salary software each year If we conservatively estimate that ten percent of any company s employee base will experience negative impact to productivity and output as a result of unauthorized software, then an SAM solution can save a company with 500 staff members over $140,000 annually (based on an average salary of $18 per hour, according to the US Department of Labor). Ensured Licensing Compliance The Business Software Alliance (BSA) estimates that solution providers have lost more than $30 billion in revenues due to licensing non-compliance. As a result, more and more organizations are being subject to audits, and those found guilty of piracy or illegal use of software face tremendous financial penalties. Gartner estimates that as many as 70 percent of mid-sized businesses and larger enterprises have already faced an external software audit by the end of Additionally, studies show that non-compliant companies received average fines of about $30,000 for each piracy instance. By improving the speed and accuracy of the software auditing process, SAM solutions make it easier for IT departments to track existing and allocated licenses. With greater visibility into license compliance, issues can be identified and corrected before an audit takes place. As a result, companies can minimize their exposure and realize the following cost savings: Probability of audit X Number of PCs X % of PCs with unauthorized software X fine per unlicensed app The BSA believes that more than 30 percent of all software installed on corporate PCs is unauthorized. And, many industry pundits put the probability of any given company to face an annual vendor audit at around 15 percent. If we conservatively estimate that only 5% of employee desktops have at least one unlicensed software package running, then a software asset management system can save a 500-employee organization more than $112,000 in potential fines.

6 6 Over-Licensing Another issue affecting many companies is underutilization of software licenses. A March, 2007 article published in IT Week claims that every corporation has as much as $390 in unused software on each PC. Additionally, software licenses are often purchased, and never even installed. That means, a company with 500 PCs has overlicensed their various software applications by at least $195,000. SAM makes it easy to identify unused licenses and reallocated as needed, resulting is the following savings: Average # of unused X Average cost X Number of PCs licenses per PC per license Enhanced Protection The level of exposure to threats like viruses or spyware will vary greatly from one company to the next. How much a company stands to lose from a security breach depends upon the type data it maintains, and the type of intellectual properly it keeps in digital format, among other factors. Therefore, it is hard to quantify exactly how much a software asset management solution can save a company in this area. However, SAM dramatically reduces related financial risks by helping companies to identify and correct security gaps such as missing patches or PCs without antivirus software Affordability and Return on Investment The potential financial savings outlined above are even more impressive when you consider the affordability of many software asset management packages. For example, hosted SAM solutions can be acquired for just $20 per PC per month with absolutely no start-up costs, training fees, or other upfront expenses. For a company with 500 PCs, that amounts to just $10,000 each year, compared to annual cost savings that amount to hundreds of thousands of dollars. The chart below logically depicts the anticipated savings highlighted in this paper, as compared to the actual cost of a hosted SAM application. The previously mentioned industry standard numbers have used in these formulas.

7 7 Investment Formula Annual Costs Hosted SAM Software $20 (Annual fee per PC) X 500 PCs $10,000 Total Investment $10,000 Return Formula Annual Savings Increased Help Desk Efficiency Automation of Software Audits Reduced Employee Downtime Improved License Management Reduced Risk of Penalties due to Non- Compliance Elimination of License Underutilization Total Annual ROI 500 PCs X 4 (Support tickets per PC each year) X $40 (Cost per ticket) X 20% (Reduction in average call length) 500 PCs X 0.25 (Hours it takes to audit each PC) X $33 (Hourly pay rate for IT staff) X 2 (# of annual audits) 500 employees X 10% (Employees that encounter productivity loss) X 156 (# of hours per year spent using unauthorized software) X $18 (Average hourly pay rate) $16,000 $8,250 $140,400 15% (Probability of audit) X 500 PCs X 5% (PCs with at least 1 unlicensed app) X $112,500 $30,000 (Fine per unlicensed app) Average # of unused licenses per PC X $195,000 Average cost per license x 500 PCs Total Annual Savings $472,150 Savings ($472,150) / Costs ($10,000) 4721% Conclusion As companies continue to rely on software applications to support vital operations, the need to better manage these applications from the time they are purchased, until they are removed or replaced is becoming increasingly critical. Companies that do not implement SAM practices and tools are likely to face significant financial damages due to productivity losses, underutilization of licenses, and compliance issues. At the same time, the ROI that can be achieved with software asset management solutions is significant, with the financial savings far outweighing the costs.

8 8 SAManage: On-Demand IT Asset Management Services SAManage is a leading provider of robust on-demand IT Asset Management services. The SAManage cutting-edge solutions empower companies to gain complete visibility into their IT environments, so they can more effectively manage their assets, minimize related risks, facilitate compliance, and optimize utilization. With SAManage, companies can: Easily deploy comprehensive IT Asset Management at multiple locations across the enterprise Achieve greater visibility into asset inventory and usage Proactively detect and prevent IT-related risks such as illegal software, security gaps, or missing patches Ensure compliance with software licensing agreements and regulatory guidelines Reduce technology costs and improve budget management Minimize the time and effort required to address helpdesk issues with instant access to asset configuration data Capture and organize IT contracts and software licenses in a centralized system Correlate assets to contracts and leases as well as their department and business units, users, and technical owners Powerful and Secure On-Demand Solutions The SAManage on-demand service completely eliminates the time and expense associated with implementing an IT Asset Management solution. There are no servers to manage, and no software to install. Enterprisewide deployments can be completed in just minutes, and new features and enhancements are available immediately. SAManage offers a free trial period that allows you to try before you buy. To find out more and start your free trial, visit our Web site at SAManage Edinburgh Redmond South Way, Suite Cary Redmond, NC WA Tel: Fax: info@samanage.com info@samanage.com