Financial risk of software licenses are a CFO’s biggest blind spot

02 feb '16 - Mark van Wolferen - share: LinkedIN Mail
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Financial Risk of Software Licenses Are a CFO’s Biggest Blind Spot.

Dutch multinationals unaware of the multimillion-dollar consequences of incorrect software licenses.

Software licenses that are not in order can result in claims of several million dollars or euros but Dutch multinationals have no idea of this huge financial risk.

Software licenses are a CFO’s biggest blind spot

85 percent of organizations are using more software than they pay for, IDC research shows. This may have many causes like having acquired a company or rapid growth in staff while failing to buy additional licenses. Lack of expert knowledge is another underlying reason. Whenever software licenses are outdated, a company is breaching their legal agreement with software publishers. This may lead to claims that run into hundreds of millions in dollars or euros.

It is not that organizations are deliberately using software illegally on a large scale. They are simply unaware of the legal implications of their licenses. Many organizational changes may distort a clear view to the extent that no one knows whether the software in use is properly paid for. The financial consequences can be huge. If an audit reveals that a company is under licensed, it has to pay. Often also for previous years.

Hit rate on the rise 

The chance of getting a claim has raised substantially over the years. In the past, mainly the BSA (Business Software Alliance; officially ‘BSA | The Software Alliance’) and large software publishers like Microsoft, Oracle and IBM checked the actual use of software at customers. Today, many more companies perform audits, usually in cooperation with the Big Four accountancy firms. 

The largest organizations are being audited most often. Research of 1E shows that U.S. companies with over 500 employees today can expect a software license audit four times each year on average. For Dutch organizations the rate is approximately once a year. IDC has revealed that companies with a revenue of over 4 billion dollar receive claims of 1.6 billion dollar on average.

 In The Netherlands we see roughly the same amounts with peaks of ten to even hundreds of millions in euros. A risk exposure of millions should put software license issues high on the agenda and priority list of CFOs but often their offices lack overview or trust that the IT department has made all necessary arrangements. Only when the audit bell tolls they wake up but by that time it is too late. Also is it common belief that software license issues occur only once and remain repaired after an audit. But of course in a vibrant business climate changes and developments are ongoing. The only way of preventing unpleasant surprises is to manage risk proactively and keep a software license administration that is up to date.

Do you want to know more about the financial risks and our vision upon license management trends we foresee in the coming period. Please join our Envision webinar next Friday! 

This article is also published on several blogs in the Netherlands.
 

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