Software License Compliance Metrics: Why Now is a Good Time to Reevaluate

By Rich Staas

Director of Client Services, NPI

December 10, 2020

Interested in learning more about NPI’s services?

Contact Us

Just as software licensing has grown more complex, so have the metrics vendors use to define licensing volumes, and therefore govern compliance (case in point here) But complexity isn’t the only challenge. Some of the software license compliance metrics in use today don’t accurately reflect a true representation of usage to test compliance with entitlements.

It’s an issue that’s been underscored by the current business climate. Fluctuations in business demand and usage requirements have rendered some long-standing metrics less accurate. With software license audits on the rise, and millions of dollars in noncompliance penalties at stake, some enterprises are taking a closer look.

Software License Compliance Metrics: Are They Telling the Truth?

Many enterprises accept a vendors’ software license compliance metrics without further investigation. It’s just part of the deal, right? Perhaps that logic made sense a decade ago – but that’s not the case today, especially given how volatility is reshaping enterprise software usage. Customers need to take a closer look at software license compliance metrics and determine whether they accurately reflect usage.

For example, one of NPI’s customers was contractually required to report on the total number of W-2s created each year to determine corporate growth and ensure proper licensing. Due to high turnover during a particular year, this number was extremely high and failed to accurately represent the proper employee count. More than 1,000 licenses were inaccurately deemed “growth,” which would have required a costly true-up. However, in reality, the customer did not experience any growth in headcount.

In this case, the metric inaccurately quantified usage and would have led to compliance issues when compared to entitlements. It was clearly designed to yield compliance data in the vendor’s favor.

Navigating a Bad Metric

So how do you tackle a bad software license compliance metric? To be fair, it can be difficult to convince a vendor to change how they measure compliance – but it’s not impossible. Furthermore, the pandemic’s impact on many businesses has given them a good reason to reevaluate and renegotiate vendors’ metrics.

Ideally, customers should negotiate mutually-agreeable metrics as part of the initial purchase with a vendor. It may seem less important than negotiating pricing and discounts when entering into that first agreement, but the cost impact over time can be just as substantial. By doing so, this will set the enterprise up for a more logical and fair compliance assessment moving forward.

As a best practice, NPI suggests customers conduct an upfront analysis of how the metric could affect them based on previous years’ data (three years or more). Would that metric have correctly captured usage? It’s a good litmus test to determine accuracy and effectiveness.

Customers already under contract with a vendor can also seek to amend current metrics. This requires validating inefficacy, identifying customer-side leverage during discussions and negotiations, and understanding when and how to escalate the conversation. In the scenario above, NPI’s client was able to negotiate a contractual amendment that made it easier to count licenses in a way that better reflected actual growth.

Stay Ahead of Compliance Complexity

Reevaluating your compliance metrics is one of several measures enterprises can take to proactively reduce the risk of costly noncompliance penalty fees, or surprises that come from informal vendor tactics to sniff out noncompliance (e.g. self-declaration with SAP and Microsoft’s cloud economics assessments). Remember, reactive software license compliance only benefits the vendor. A proactive approach can save you millions.

If you have questions about software license compliance metrics and if they truthfully represent usage versus entitlements, contact us. NPI’s software license audit specialists can help you determine accuracy, how to fend off inaccurate vendor-side interpretations, and – if needed – guidance on how to work with your vendor to adjust metrics.