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How to Prepare For and Navigate an Oracle License Audit

If you’re an Oracle customer, expect a license audit in your future. Oracle has become much more aggressive in pursuing audits in recent years — especially for companies running Oracle’s solutions in conjunction with VMware virtualization. Java users are also facing heightened audit risk since the introduction of a new pricing model for Java SE subscriptions. The change has exposed liabilities for many organizations — creating significant financial risk up to a 2X to 10X increase in potential exposure for customers moving away from Named User Plus and Processor licensing to the new employee count-based metric.

However, regardless of the specific Oracle products you’re using, holding any Oracle software license puts you at risk for an audit.

Why Preparing for an Oracle License Audit Is Crucial

Penalties for improper usage or licensing can be high. When helping clients proactively assess their compliance position, on average NPI discovers $79M in potential non-compliance for “standard” database, middleware, and E-Business Suite. On the flip side, you may also be dramatically overspending on unused licenses as well. Just ask the folks at NASA. It was discovered that the agency overspent by $15 million on Oracle software in fear they would fail a license audit.

When audit notices are sent out, the average organization spends 60 working days addressing Oracle’s specific requests, and often much more time. Under tight deadlines, mistakes can happen easily. To avoid these risks, the best approach is to conduct internal audits and work with a third party to validate compliance and remediate any gaps where possible.

What Is the Purpose of an Oracle Audit?

Oracle claims its software audits are meant to ensure customers are properly licensed for their Oracle software products. However, there is often more to it—Oracle’s true incentive behind these audits is often to push customers to buy more licenses or upgrade/expand their Oracle environments. This makes it critical for organizations to be well-prepared before they receive an audit notification.

The Challenge of Managing Oracle Software License Audits

Why Oracle Licensing Is Difficult to Navigate

From an IT procurement perspective, managing Oracle software licenses can be challenging, particularly for large enterprises. Overspending and overprovisioning are common due to the complexity of Oracle’s license terms and rules. Customers often end up with suboptimal pricing and business terms when negotiating contracts or renewals, and successfully negotiating a world-class outcome requires a thorough assessment of software deployments, deep pricing knowledge, and negotiation expertise to optimize enterprise agreements.

The Increasing Prevalence of Oracle Audit

In recent years, large enterprise customers have had to add Oracle software license audits to their list of concerns. These audits have become increasingly common, as Oracle pushes its cloud agenda and looks to increase revenues.

The Oracle audit team is meticulous and aggressive, and for enterprise customers, audits can be highly disruptive, consuming valuable time and resources. Non-compliance penalties can easily run into the tens of millions of dollars.

Navigating an Oracle License Audit

Oracle has the right to audit organizations to ensure they are using licensed products in a compliant manner, and these rights are clearly outlined in your agreement with the vendor.

When Oracle notifies you of an audit, it can be a frustrating event that often requires the involvement of multiple stakeholders within your organization. Typically, you’ll be asked to respond within a specific timeframe, running Oracle scripts in your environment and completing the Oracle Server Worksheet (OSW) self-declaration.

One of the most effective ways to prepare for an Oracle license audit is to fully understand the vendor’s process and expectations. This knowledge will allow you to optimize the outcome before you find yourself under the pressure of an actual audit.

The Oracle License Audit Process

The Oracle license audit process follows a 5-step process:

1.Oracle Audit Notification

A formal Oracle audit begins with an official notification from Oracle License Management Services (LMS) or Global Licensing and Advisory Services (GLAS). While you may receive informal inquiries beforehand, once you receive official notification from either of these divisions, compliance becomes mandatory. The notification may lead to a conference call to discuss logistics and next steps.

2. Kick-Off Meeting

Next, you’ll have an introductory meeting to discuss the audit’s scope and timeline. During this meeting, Oracle will explain the data they require to perform their analysis.

3. Data Sharing

You will then need to gather and provide the requested data. This typically includes an inventory of licenses, installation details, software versions, hardware configurations, usage statistics, and purchase records.

4. Oracle Audit Report

Once Oracle has analyzed your data, they will reconcile it with your licensing agreements and identify any compliance gaps. Auditors will then create a report, outlining where licensing must be brought into compliance. This report may include significant contractual penalties for any identified lapses.

5. Settlement

After reviewing the audit report, you may need to purchase additional licenses to cover any shortfall and adopt new practices to ensure ongoing compliance. There may be opportunities to negotiate fees based on your specific circumstances.

What Will Trigger an Oracle Audit?

Several events or changes in your organization’s operations can trigger an Oracle audit, including:

Virtualization

If you use Oracle products in a VMware environment, you’re a prime candidate for an audit. Oracle customers must license all VMware servers across their entire IT estate and not just a specific number of machines. Oracle’s logic is that you could run Oracle across all servers and cores, so all of them need to be covered.

License Renewals

When licensing comes up for renewal, Oracle will ask for verification that you are properly licensed for current usage before renewing. A word of advice – you should be 100% confident of your Oracle license compliance position before engaging in the renewal process!

Oracle Cloud Purchases

When you purchase Oracle Cloud services, it often prompts an audit of your existing on-premises Oracle environments. Moving to the cloud gives Oracle an opportunity to assess your comprehensive licensing needs.

Reduction in Support Agreements

Reducing the level of your support agreement may prompt an audit as well. Oracle will want to ensure your licenses still match your needs based on the lower support levels. For example, if you opt to drop 24/7 production support to the more basic 9-5 support, Oracle will likely make sure you are licensed compliantly. Keep in mind audits are a revenue tactic that Oracle is ready to deploy anytime any dimension of customer revenue is threatened.

Hardware Refresh

Hardware refreshes such as servers, processors, or database upgrades may also trigger an audit. New or upgraded capacity can impact your licensing needs. Oracle may want to verify your infrastructure is adequately licensed and compliant. For example, increasing cores during a server migration may require additional licensing to remain compliant.

Repeated Non-Compliance

If you are found to be noncompliant during an Oracle audit, expect to be audited more frequently.

Mergers & Acquisitions

M&A activity, corporate reorganizations, and divestitures can often trigger an Oracle audit. Oracle will want to make sure the new structure remains in compliance with licensing agreements.

Support Ticket Submission for Unlicensed Tech

If you do not have licenses for Oracle products, but a team member submits a support ticket, it’s a red flag. Auditors will investigate to find out whether there are broad licensing discrepancies.

Failure to Renew Unlimited Licensing Agreements

An Oracle Unlimited License Agreement (ULA) requires you to use software licenses within contracted uses. If you decide not to renew your ULA, you may face an audit to make sure your licenses still adequately cover your usage within unlimited resources

The Oracle Audit Process

If Oracle contacts your organization stating they wish to perform an audit, the typical process goes as follows:

1. Oracle sends a formal audit engagement letter. This kicks off the timeline for responding to information requests.
2. Oracle provides detailed instructions and questionnaires to capture inventory related to hardware, virtual machines, third-party systems, etc. that interact with Oracle software.
3. You gather and organize the requested information and submit it to Oracle within the allotted timeline. Non-response can lead to fines.
4. Oracle reviews the deployment data and follows up with additional questions about usage, users, deployment timeframes, and other licensing factors.
5. After gathering a comprehensive picture, Oracle prepares a compliance report detailing where they believe you are properly licensed and where gaps exist.
6. Oracle presents the demanded remediation including fees for additional licenses, back maintenance, and reinstatement of lapsed support contracts.

How to Prepare for an Oracle License Audit

There are several key steps you need to take in preparing for an Oracle license audit.

Maintain Updated Inventory Records

Keep detailed records on all environments running Oracle software. For each environment, document the following:

• Hardware specifications (server model, cores, sockets, processors)
• Virtual machines hosting Oracle products
• Third-party systems interacting with Oracle
• Full list of users accessing Oracle software
• Deployment dates for each Oracle component
• Usage metrics like batch loads, concurrent sessions, query volumes

Understand Software Usage Patterns

Map the deployment of Oracle products like databases, middleware, analytics tools, etc. to internal teams, applications, and infrastructure. Identify which groups use Oracle software, for what purposes, which applications leverage Oracle, and the infrastructure supporting Oracle environments.

Categorize Usage Types

Classify usage of Oracle software into categories like:

• Development
• Testing
• Reporting
• Production
• High availability
• Failover
• Disaster recovery

Different types of usage can impact license entitlements.

Retain Oracle Contract Documentation

Maintain records covering:

• License procurement
• Support levels
• Order forms
• Past audits
• Consolidation initiatives
• Addendums
• Special terms and conditions

This documentation can clarify license entitlements.

Account for Discounts and Promotions

Work with procurement to identify any special discounts, promotions, or contract addendums that may affect license entitlement calculations.

Validate Named User Plus Lists

Confirm all employees submitted for the Named User Plus discount are legitimate full-time staff responsible for working hands-on with Oracle software.

Oracle License Compliance Risks

Even if you think you are fully in compliance, there are plenty of ways things can get off track. Here are some of the more common risks that can occur.

Oracle Database Compliance Risks

• Unlicensed databases: Organizations often lose track of all databases installed, including test/dev environments and small installations that fall under the radar.
• Processor metric confusion: Licensing database based on incorrect processor definitions or failing to license all cores/sockets.
• User minimums not met: Not maintaining enough licenses to meet the minimum requirement.
• Unlicensed features/options: Options like RAC, Partitioning, and Diagnostics Packs add to license requirements.

License Metric Mistakes

• Incorrect Named User counting: Not tracking and limiting actual users, under-licensing power users.
• Processor/core terms violated: Software installed on more cores or sockets than entitled.
• User minimums not tracked: Failing to maintain required minimum user licenses.
• Improper hardware baseline: Not properly licensing changes to server hardware configurations.

Virtualization and Cloud Policy Risks

• Virtual machine sprawl: Too many Oracle installs on virtual servers without proper licensing.
• Inadequate virtualization management: Poor visibility into the movement of Oracle workloads across virtual environments.
• Cloud policy confusion: Unclear on differences between BYOL vs. Oracle cloud licensing.
• Unreported cloud migration: The movement of workloads to the cloud can trigger an audit if not handled correctly.

Oracle License Audit Defense Service

If you receive an audit notification, it’s imperative to seek expert, objective Oracle licensing expertise. At NPI, our Oracle license experts help you control the process and secure the best possible outcome.

While the best strategy is to identify and fix compliance issues before Oracle gets involved, NPI can also assist with Oracle license audit defense. Our team has extensive experience specifically with Oracle audits and can guide you through each step of the process.

We can help you establish an independent license position, validate the accuracy of auditor data and claims, and help negotiate an optimal outcome to reduce (even fully negate) any costs or penalties. If additional purchases are necessary, NPI also has benchmark pricing and negotiation intel to help achieve optimal pricing.

Contact NPI today to help prepare for and navigate an Oracle license audit. We are not a reseller – we are licensing experts. NPI’s software compliance experts are 100% objective and focused on helping you achieve the best possible outcome.

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