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Curing the SAP Overpayment SyndromeReducing SAP license spend through Software License Optimization

Curing t he SAP Overpayment Syndrome

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Execut ive SummaryUnquest ionably, SAP software licensing is complex. A recent SAP user group survey found that 95 percent of SAP users think the company’s software licensing is overly complicated. Because of this complexity, most enterprises don’t have an accurate handle on their SAP license requirements or their license posit ion relat ive to those requirements. Consequent ly, they are either overusing

licenses, which increases the risk of software audits and financial penalt ies, or more often overbuying licenses, which leads to unnecessary software spend.

Three areas account for most of the overbuying:

• Allocat ing more expensive named user license categories than people need to do their jobs

• Consuming more than one named user license per user due to the failure of SAP true-up tools to accurately determine which user accounts are for the same person

• Maintaining named user licenses for people who no longer access the SAP system

The potent ial cost savings that can be achieved through license optimization is huge. A leading consumer packaged goods company saved $18 million on SAP software over a three-year period. A major defense contractor saved more than $1 million, just on SAP, in the first year of their revamped IT asset management program. A global manufacturer saved €3 million on SAP software. The savings going forward could potent ially be even higher because SAP has altered its software licensing policies, giving customers more flexibility in optimizing license spend.Another key issue for SAP customers, known as “indirect access,” involves accessing SAP system data through 3rd party applicat ions or other indirect means. The challenges of SAP licensing and the potent ial savings are even greater when considering indirect access. Some large enterprises have 20 or more integrat ions between SAP and other systems, and this can significant ly expand the SAP user base as well as increase the potent ial of over-licensing your SAP named user licenses by double-count ing users in such complex environments.

Curing the SAP Overpayment SyndromeReducing SAP license spend through Software License Optimization

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Unfortunately, SAP software license management hasn’t been easy. It requires in-depth, act ionable information on how the enterprise is using SAP — information that answers such quest ions as:

• How many people are accessing SAP and what funct ionality are they using?

• Are they accessing SAP direct ly, indirect ly through a third-party applicat ion, or both?

• What SAP packages are they using?• Which users have mult iple accounts?• What is the current level of ut ilizat ion of

package licenses?

SAP’s License Administrat ion Workbench (LAW) tool calculates license compliance posit ion based on current license allocat ions. LAW, however, does not collect and analyze sufficient information for SAP license optimization. The LAW report indicates only what licenses the enterprise has deployed, not how the enterprise is using them or whether each SAP user has the optimal named license category to meet his or her needs. To address software license optimization, enterprises need a solut ion that gathers comprehensive and accurate information, analyzes it, and helps the IT staff assign the appropriate license category for each user.

This paper presents an overview of SAP licensing and describes the factors at the root of the SAP overpayment syndrome. It also demonstrates how a software license optimization solut ion can slash overspending and lays out the requirements a solut ion must meet to be effect ive.

SAP Software Licensing OverviewManaging SAP licensing is no easy task. License entit lements and usage rights vary significant ly depending on which SAP products and license types a company purchases and when. Understanding license types, license fees, indirect versus direct access, and audit ing issues is essent ial to achieving effect ive management of SAP licenses. Moreover, SAP has changed its licensing policies in some areas. It’s important to understand these changes because they bring increased flexibility to license management.

License TypesSAP offers two primary license types. The first, the named user license, accounts for about 60 to 75 percent of typical SAP contract value. Each user must have a named user license.

Not all SAP named user licenses are the same. There are mult iple ent it lement categories — for example, Professional, Limited Professional, Developer, and Employee — based on the level of funct ionality authorized for use. The cost of the license increases with the level of funct ionality, with Developer and Professional user licenses being two of the most expensive. Professional user is the default license category assigned if no other category is specified.

Addit ionally, some SAP license agreements specify category rat ios — usually the rat io of Professional to Limited Professional licenses. A typical rat io is 85 percent Professional and 15 percent Limited Professional.

The second type of license is the package (aka engine) license, which is purchased in addit ion to named user licenses. A package license is required for each SAP business-specific applicat ion installed. The cost of a package license is based on a business metric intended to measure the business value realized by use of the package. Each package has different metrics that are used to calculate license consumption. For example, a metric used for the SAP Human Capital Management (HCM) package is the number of employees in the enterprise. Here is the formal explanation of a package license from SAP’s licensing guide:

Package licenses ent it le you to deploy and use the precise set of SAP software funct ionality you need to support your company’s processes and address its business requirements. The price of a package license is based on a key business metric that reflects its intended use.

License FeesSAP offers two types of payment models. The first is perpetual, in which the enterprise pays a one-t ime fee that ent it les the licensee to use the software “forever.” In addit ion, the perpetual licensee must take out an annual maintenance and support contract for upgrades and support. The annual cost of maintenance and support amounts to approximately 25 percent of the perpetual license cost.

The second type of payment is subscript ion, which is used for SAP cloud offerings. Here, the enterprise pays a periodic license fee that usually includes maintenance and support.

Indirect AccessIn many cases, users in an enterprise access data in the SAP system indirect ly. For example, an enterprise may import data from an SAP system into a third-party applicat ion such as salesforce.com. People then access this data using salesforce.com. In some enterprises, a single user may be accessing SAP data through mult iple non-SAP systems. In any case, each indirect user must have an SAP named user license, but only one named user license is required for a given user, regardless of the number of third-party systems they use. If a user is accessing SAP both direct ly (often called a dialog user) and indirect ly, that user requires only a single named user license.

Ident ifying all of the third party systems that are being used to access SAP data can be challenging. There is also the increased potent ial for double-count ing users. Working out the total number of users across many disparate systems, each with their own naming conventions, best pract ices, etc. is a massive challenge, and one for which SAP does not provide any tool support to facilitate license management.

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Audit ingSAP mandates customers to conduct self-audits and specifies different procedures for different products. For its on-premise Enterprise Resource Planning (ERP) software, which accounts for the majority of total SAP spending in most organizations, SAP mandates an annual self-audit that must be performed and reported using unmodified SAP-supplied tools. The enterprise must run the SAP measurement program (transact ion USMM) to gather data and then run LAW to consolidate and report the data to SAP. LAW consolidates data from mult iple systems and also consolidates the user accounts from these systems into a single normalized list of users.

There are different SAP self-audit ing procedures for other products, such as CRM, BusinessObjects, and HANA. For cloud solut ions, such as SuccessFactors, SAP does its own calculat ions.

SAP also conducts formal audits with some customers, over and above the self-audit. Formal audits take place when SAP suspects that there may be a license compliance issue with the customer. It’s important to note that SAP is increasing its formal audit ing act ivity, especially in the area of indirect usage. Gartner Inc. reports that the number of client companies report ing formal audits by SAP increased from seven percent of respondents in 2009 to 19 percent in 2012. SAP is now listed as one of the top five software vendors that perform the most software license audits. SAP’s focus on indirect access during audits is a relat ively new phenomenon.

Changes to Licensing PoliciesSAP now offers license trade-in and part ial ret irement credits allowing enterprises to exchange unused package licenses when purchasing new SAP product offerings. In addit ion, SAP is incent ing organizations to move to the cloud by allowing them to trade in on-premises licenses for cloud licenses. Finally, customers are now permitted to terminate unused licenses, and the maintenance costs for the remaining licenses are re-calculated based on the standard discount level of the remaining license quantity. In no case will the maintenance bill increase in this situat ion.

The Overpayment SyndromeBecause SAP licensing is so complex, many enterprises overpay substant ially for their SAP licenses. Overpayment occurs as a result of overbuying named user licenses and managing package licenses react ively, based on inadequate information.

Overbuying of Named User LicensesOne of the major sources of overpayment for named user licenses occurs at init ial purchase and is due to the nonoptimal assessment of the number of named user licenses in each category needed by the organization. Typically, the SAP license administrator manually assigns users to categories at purchase t ime, in many cases based on inadequate information. Not only are the SAP

descript ions of named user license categories vague but also the SAP license administrator does not have sufficient information on users’ SAP funct ionality needs. Consequent ly, the administrator makes educated guesses in est imating the number of users in each category.

In some cases, this est imate results in overuse, that is, some users access more funct ionality than they are licensed to use. The result is potent ial licensing liability at true-up t ime and an unbudgeted true-up expense.

In most cases however, the result is overbuying. The enterprise purchases more licenses in the more expensive categories than users need for their job roles. In some cases, the enterprise may have neglected to enter a license category in the user master records for some users. For these users, the SAP measurement program automatically assigns the system default license category. For a product ion system, the default is Professional user, one of the most expensive categories.

There are two other frequent ly encountered causes of overbuying:

• Idle users. Licenses are held by people who are no longer using the SAP system. There are a number of reasons for idle licenses, including job transfers and terminations.

• Duplicate users. Some employees may have more than one user account and may unnecessarily have more than one named user license. Reasons include users who have accumulated mult iple user IDs by using different IDs for different enterprise systems, and users who had one license for direct access and were also allocated an unnecessary addit ional license for indirect access. LAW does have the ability to consolidate user accounts into a normalized set of users, but can only detect duplicates based on a single ident ifying field. This is often not adequate to find all duplicate users.

Minimum Control of Package License CostsThe metrics used to calculate license cost are confusing and may not be appropriate for the organization. What’s more, the only t ime organizations can assess their package license consumption and costs based on these metrics is at true-up t ime. That’s because SAP doesn’t provide an accessible way for organizations to run package measurements at other t imes. As a result, IT typically manages package licenses react ively based on unclear information. The result is often an unpleasant surprise at true-up t ime.

The Barriers to SAP Software License OptimizationSoftware License Optimization provides a way to cure the SAP overpayment syndrome and achieve significant cost savings. So why haven’t enterprises charged ahead with SAP software license optimization and exploited the opportunity to cut costs? The answer is that most enterprises lack the tools to accurately assess their license posit ion and consumption, let alone to optimize their posit ion.

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License report ing tools from SAP do not provide the breadth and depth of information needed. These tools have been designed solely to help SAP determine customer license compliance. They are not designed to help customers optimize license posit ions. Compliance does not imply optimization.

Lack of Named User License Usage DataSAP tools don’t track and analyze detailed usage data. LAW reports only the total number of manually assigned act ive user accounts in each named user category. It does not indicate whether users are actually using SAP, nor does it indicate the funct ionality level ut ilized by users who are accessing SAP systems and/or data.

Addit ionally, SAP tools do not provide sufficient detect ion of duplicate user IDs. LAW consolidates users on only a single field. Although this approach detects some users with mult iple IDs, it does not detect all duplicate user IDs. And while LAW does allow manual correct ions to be made, the effort is impract ical for large enterprises.

Finally, SAP tools do not provide sufficient data on indirect access. The LAW report does not include details about users accessing SAP data through a non-SAP interface. For example, if a single SAP user account is used by a non-SAP system to extract SAP data that is consumed by 1,000 users, SAP is aware of only this one account. LAW has no way of detect ing the 1,000 indirect users because they do not exist within SAP. Moreover, the tools do not ident ify all third-party interfaces.

Lack of Transparency of Package LicensesSAP tools collect enough data to calculate package license consumption. However, the resultant license consumption is not reported to customers. They can access only the raw metrics used to calculate consumption.

Most SAP packages provide a counting funct ion that returns one or more metrics, but it’s difficult to make use of the data. Each SAP package has different SAP-specified metrics. SAP package measurement funct ions may return a dozen or more separate metrics for a single package and it’s often unclear which metrics are required to calculate package license consumption:

• Some metrics don’t count toward license consumption and should be ignored

• Some metrics should be combined with a weight ing factor applied to each metric

• Some metrics may be inaccurate• Some metrics represent the current value while others

represent the value at the last true-up• Some SAP packages don’t support the

report ing mechanism

Moreover, metrics can be counted only on the SAP system on which the package is installed. The customer then has to manually aggregate the data across mult iple systems, a t ime-consuming and error-prone process.

Have I been assigned more than one license?

What are my authorization roles?

How long do I use the system?

What SAP packages do i access and whattransactions do I run?

Do I access SAP directly, indirectly, or both?

What’s the Optimal

License Type for each User?

Figure 1: How are people using the SAP system?

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Overcoming the BarriersFortunately, enterprises can overcome the barriers to optimization with a Software License Optimization solut ion that collects broad and in-depth data on how people are actually using the SAP systems. Top solut ions today provide sophist icated analyt ics that parse usage data, transform it into act ionable information, and present the information in a meaningful way.

With such a solut ion, IT can achieve effect ive management of named user licenses and package licenses. The solut ion helps IT tame the complexity of SAP licensing. It also empowers IT to take full advantage of SAP licensing policy changes to monetize the savings from Software License Optimization without having to wait for a contract renewal.

Optimizing Named User LicensesTo optimize the use of named user licenses, it’s essent ial to gain insight into exact ly how individuals are using the SAP system. Figure 1 summarizes the quest ions that must be answered.

Figure 2 shows the usage data the solut ion has to track and how that data helps determine enterprise license posit ion and consumption. It’s important that the solut ion maintain data on SAP licensing contracts, including contract ent it lements and usage rights. By performing sophist icated analysis of this usage and ent it lement data, the solut ion transforms it into act ionable information that enables the enterprise to effect ively manage named user licenses.A comprehensive Software License Optimization solut ion minimizes the risk of noncompliance in two key ways. It

compares authorizat ion, ent it lement, and usage rights with actual usage data so IT can ensure that all users have a named user license of the appropriate category. It also ident ifies all users who are accessing SAP indirect ly, so IT can ensure that all indirect users have a named user license.

The solut ion also enables IT to optimize the ut ilizat ion of named user licenses in four ways:

• Assigning the optimal named user license category to users. By comparing authorizat ion, ent it lement, and usage rights with actual usage data, the solut ion can determine the optimal named user license category for each user based on rules. This typically reduces total cost by reducing the number of more expensive licenses and increasing the number of less expensive ones.

• Ident ifying and ret iring licenses assigned to idle users. By ident ifying idle users, the solut ion enables IT to reclaim unused licenses and reassign them to other users or forestall addit ional license purchases.

• Ident ifying duplicate users with mult iple licenses. By ident ifying users with mult iple accounts that are consuming mult iple licenses, the solut ion enables IT to reclaim redundant licenses and reassign them to other users or postpone license purchases.

• Optimizing licensing for indirect access. By ident ifying users with both direct and indirect access, IT can cover the indirect usage with the named user licenses that are already allocated to those users’ dialog user accounts. This eliminates the unnecessary allocat ion of mult iple named user licenses to a single user.

Figure 2: Usage Data Tracking and Analysis

Type of usage data Data tracked PurposeDirect usage patterns(for each user)

• The t ime the person uses SAP• The SAP modules accessed and the

transact ions run• The user’s authorixat ion role

• Ident ify idle users• Determine level of funct ionality

accessed by direct users• Determine user’s usage rights

Indirect usage patterns • All third-party systems that are accessing SAP (both cert ified and noncert ified systems)

• The people who are using those systems• The users’ usage patterns

• Ident ify who is accessing SAP indirect ly

• Determine level of funct ionality accessed by indirect users

User accounts • All act ive user accounts• Which accounts are duplicates

(using more rigorous comarison techniques than SAP tools)

• Ident ify users with mult iple accounts and mult iple licenses

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Test, 8CB, 0

Developer, 0 2,211

Professional,6,834

LimitedProfessional,

4,682

CB, 143Test, 39 Mult i Client,2,060

EmployeeSelf Service

17,412CAT,

16,313

EmployeeSelf Service,

10,285

Optimized StateOriginal State

Mult i Client

2,7764,195

Mult i Client

Professional

LimitedProfessional

CAT

Developer

Employee Self-Service

Test

Figure 3: Optimizing named user license category assignments

Figure 3 presents an example of SAP named user license optimization. As shown in the diagram, the number of high cost Professional (gray area) and Limited Professional (green area) licenses have been reduced substant ially in the optimized state, while the lowest cost Time Card user (CAT—yellow area)) license type has increased.

Addit ionally, if an organization has a contractual requirement to maintain license category rat ios, the solut ion provides information that enables the organization to compare the optimal number of licenses in each category with the contracted rat io. This provides ammunit ion for contract renegotiat ion. In some cases, the information posit ions IT to negotiate removal of the rat io requirement ent irely by demonstrat ing that the rat io is unreasonably different from the organization’s actual license requirements and usage.

Optimizing Package LicensesPackage licenses are cont inually expanding in the SAP licensing scheme. Cloud (on-demand solut ions), mobility (on-device solut ions), and in-memory computing (HANA) are all key growth areas for SAP and all involve packages. So it’s important that package licenses are included in the enterprise license optimization strategy.

To effect ively and proact ively manage package licenses, enterprises need a solut ion that discovers all SAP package installat ions across all SAP systems under management and maintains the package licensing rules and metrics for the installed packages. Based on this information, the solut ion can present consolidated reports of metric values that encompass all SAP systems and packages.

These reports provide the basis for most package license consumption calculat ions.

In many enterprises, the SAP packages span mult iple systems. A comprehensive solut ion permits the administrator to remotely execute count ing funct ions on mult iple systems and automatically consolidate the data into a central locat ion. This eliminates the t ime and effort required to manually consolidate the data.

ConclusionSAP licensing is notoriously complex. This complexity has left many organizations in the grip of the SAP overpayment syndrome. Although SAP provides tools that enable IT to determine license consumption, they don’t collect and report sufficient information to guide the enterprise in optimizing SAP license spend.

Today’s generat ion of advanced Software License Optimization solut ions pick up where SAP tools leave off. These solut ions gather robust usage data and transform it into act ionable information that enables enterprises to meet the optimization challenge.

Armed with these tools, IT organizations can cure the SAP overspending syndrome. They can eliminate unbudgeted true-up costs. They can take maximum advantage of SAP’s more flexible license policies, by understanding which packages are under-used and trading them for new SAP offerings. And they can mit igate the risk of noncompliance in the face of SAP’s increasing scrut iny of indirect access license consumption. As a result, IT can cont inue to tap the power of SAP solut ions while reducing costs and risk.

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About FlexNet Manager for SAP Applicat ionsFlexNet Manager for SAP Applicat ions is a scalable software license optimization solut ion that meets the requirements discussed in this paper. It provides the information and funct ionality necessary to overcome the barriers to SAP license optimization.

The solut ion gathers a wealth of usage data and applies sophist icated analyt ics to translate this data in act ionable information. It presents this information in meaningful views and reports that provide valuable insight into the enterprise’s SAP license posit ion and consumption.

The administrator can run the FlexNet Manager for SAP Applicat ions license consumption report at any t ime to monitor compliance and ident ify areas of potent ial savings. (The report runs much faster than the SAP measurement program.) In addit ion, the administrator can simulate changes without impacting product ion rules. That enables the administrator to explore what-if scenarios, run best-case/worst-case scenarios, and invest igate hypothet ical license posit ions to validate results of a rule set before promoting it to product ion.

In addit ion to usage data, FlexNet Manager for SAP Applicat ions maintains accurate information on SAP licensing contracts, including contract ent it lements and

Figure 4: FlexNet Manager Suite Management Dashboard Showing SAP

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usage rights. For example, it maintains a library of package licensing rules for hundreds of SAP packages, and can be easily configured for many other packages.

FlexNet Manager for SAP Applicat ions is accessed through a Web portal. The administrator can configure a variety of views that are personalized for different types of users. Because the solut ion offers high granularity of access privileges, the SAP team can share information with both SAP-experienced and non-SAP-experienced people without risk.

The wealth of data gathered, analyzed and presented by FlexNet Manager for SAP Applicat ions gives customers more negotiat ing leverage at contract renewal t ime. It also enables enterprises to take full advantage of SAP licensing policy changes, so they can more quickly monetize optimization savings.

About Flexera Software Flexera Software helps applicat ion producers and enterprises increase applicat ion usage and the value they derive from their software. Our next-generat ion software licensing, compliance and installat ion solut ions are essent ial to ensure cont inuous licensing compliance, optimized software investments and to future-proof businesses against the risks and costs of constant ly changing technology. Over 80,000 customers turn to Flexera Software as a trusted and neutral source for the knowledge and expert ise we have gained as the marketplace leader in licensing, installat ion and compliance for over 20 years and for the automation and intelligence designed into our products. For more information, please go to: www.flexerasoftware.com

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