RED recently hosted a webinar with guest speaker Jan Cook, Global Client Engagement Manager at JNC, providing insight into the best approach to saving money on SAP licensing.

Here are RED’s key takeaways from the webinar.

Saving Money on SAP Licensing boils down to cost optimisation, which means paying the right amount of money for the software you are using and having the right licensing in place. Two key phrases associated with saving money on SAP licensing are

1. Cost reduction – reducing existing licensing costs or reducing the future cost of licensing SAP.
2. Cost avoidance – non-compliance risk avoidance. License audits by vendors makes managing compliance pivotal in avoiding unexpected and unbudgeted licensing costs.

How an SAP customer can save money on SAP is dependent on the customer’s situation, namely:

1. Customers buying for the first time
2. Existing SAP customers who are over-licensed
3. Existing SAP customers who are under-licensed

1. Customers Buying SAP For The First Time

Future cost reduction

It is important customers translate the business blueprint into an SAP licensing blueprint, which ensures the SAP licensing bill-of-materials supports the intended use of the software, isn’t excessive and supports compliance. Predicting future requirements like acquisitions, organic growth and technology roadmap allows future demand to be incorporated into procurement strategy taking advantage of economies of scale.

Pitfalls to avoid:

• Under-purchase means license gaps and inevitable non-compliance
• Over-purchase promoted by the huge discounts and ‘one-off’ offers resulting in overspend

Future Risk Mitigation:

• Negotiate suitable terms & conditions
• Identify T&C’s that may be prohibitive
• Negotiate terms that supports the business and add value
• Implement a Software Asset Management programme

2. Existing SAP Customers Who are Over-licensed

Although the most common scenario, the good news is that existing and future costs can be reduced and future risk avoided. Managing surplus license assets and unlocking the capital tied up in those assets must be the focus for over-licensed SAP customers.

Cost-savings can be highly dependent on negotiation as software vendors are not generally interested in offering customers refunds for surplus software however if you intend on buying something new, credits can often be negotiated for surplus assets to offset the cost of new software.

Over-licensing doesn’t ensure compliancy. A customer may be over-licensed against certain license assets but non-compliant in others. If any licensing deal is struck, customers should take the opportunity to ensure they are not at risk anywhere else in the business.

An optimal licensing deal consists of three key parts:

1. Satisfy the roadmap and get bulk value
2. Resolve non-compliance
3. Trade surplus unused licenses

Not planning any new licensing spend?

The customer can review the following potential strategies.

1. Terminate licenses – no longer subject to maintenance fees
2. Cancel maintenance – retain unused license assets for future use and cancelling the maintenance payable on those assets.                                             WARNING | watch out for maintenance back-payment charges on un-parking licences 
3. Consider a third-part maintenance provider – some offer services for up to half the price of vendor support – a viable option for direct cost savings if the business platform is stable with no change transformation planned for the future.

3. Existing SAP Customers Who Are Under-Licensed

Although under-licensed generally means the customer is in a position of non-compliance, the good news is that cost optimisation is still possible. It’s key for SAP customers to periodically evaluate their compliancy position to establish any licensing shortfalls as customers can be unaware they are under-licensed. Cost-saving for under-licensed customers evolves mainly around getting compliant, implanting better procurement practices and managing SAP licensing more effectively.

Getting compliant and saving money

If the vendor identifies non-compliance as a result of a license audit, then they have the right to charge full list price and back-dated maintenance.

If an SAP customer identifies a license gap and approaches the vendor to buy the licenses needed then it is SAP’s policy to honour discounts in order to encourage SAP customers to be honest about their shortfalls, even if the non-compliance was inadvertent.

What about the back-dated maintenance?  SAP’s general policy is that back-dated maintenance won’t be charged against inadvertent usage so long as the customer discloses that usage to SAP as soon as practically possible then these fees should not be charged.

SAP License Management Initiatives

SAP license management

Named user license management can result in cost savings through; returning over-consumed licenses to the pool, ensuring the correct SAP user licenses are purchased and any surplus named user licenses identified for optimisation are indeed surplus.

Returning over-consumed licenses to the pool

Optimising users can result in the re-classification of named users to a cheaper license type by reviewing use of the software versus the assigned license and removing redundant user provisions that may result in the requirement for a higher license type than is necessary.

Consuming cheaper licenses facilitates more expensive licenses to be returned to the pool saving the customer money on future purchases (no longer required) and supporting licensing compliancy.

Ensuring the correct SAP licenses are purchased

Optimising user classifications results in user being licensed optimally. Over-classifying users to SAP annually via the annual audit process using standard SAP audit tools, will result in the purchase of more expensive licenses than required. Once you have them, you own them.

Common administrative errors include users being double counted due to ID management issues and inactive users being counted as they have not been expired correctly.

Combining population right-sizing with good policies and procedures with routine is crucial in saving customers money.

Ensuring accurate surplus license inventories

Ensure all surplus licenses marked to trade, are actually surplus. If users are not classified correctly then inventories of surplus licenses that are needed, will be traded. Consequently, poor user account administration will consume more licenses that required.

Short-term gain can be achieved, if a customer trades the wrong licenses, however long-term non-compliance impact will offset the commercial benefits gained. 

Optimising SAP Named User Licenses

Do I need a SAM tool?

The short answer is no. Most customers believe that buying a SAM tool will result in cost savings. The reality is that a SAM tool helps customers perform license management by suggesting an optimal license type for all users. However, in many cases it is still necessary to perform a security clean-up to realise any benefit and mitigate risk of non-compliance.

Once you have used a SAM tool to classify users to a cheaper license you will own the same licenses. So how exactly do you save money? It’s back to the concept of negotiation with the vendor and in some cases, it simply won’t be possible to realise any commercial benefit. Named User License Optimisation can in fact be done without a SAM tool if your company has the right expertise.

The 8-step approached to “True” Named User License Optimisation:

1. Perform STAD analysis (*Can be done by a SAM Tool)
2. Identify redundant user provisions
3. Perform feasibility assessment
4. Remove redundant user provisions
5. Reclassify named users
6. Create inventory of surplus licenses
7. Prepare negotiations termination strategy

In summary

• Two key phrases associated with saving money on SAP licensing are cost reduction and cost avoidance (or risk avoidance)
• Existing SAP customers who are over-licensed is the most common scenario
• Managing surplus license assets and unlocking the capital tied up in those assets must be the focus for over-licensed SAP customers
• An optimal licensing deal consists of three key parts; satisfying the roadmap and get bulk value, resolving non-compliance and trading surplus unused licenses
• From start to finish, negotiation is critical in controlling SAP licensing costs
• Non-compliancy is costly. Monitoring and controlling compliance is important.

To find out more about saving money on SAP licensing or to talk SAP career or staffing requirements, get in touch with the RED team.