How your IT department can prepare for a software audit

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Facing a trying economy and decreasing new license revenue, enterprise software vendors are turning to more frequent license audits to turn up missing revenue.

A Gartner survey revealed increasing license reviews, with 60 percent of respondents in 2010 reporting being audited in the previous year compared with around 30 percent in 2007. And a 2011 IDC/Flexera study revealed that 56 percent of large enterprises were audited in the prior year--17 percent of them saying they had been audited three or more times. "The difficult economy and resultant ongoing enterprise IT budget constraints means that large software deals are becoming less common," says Dr. Jonathan Shaw, a principal with outsourcing consultancy Pace Harmon.

"The worst mistake that an enterprise can take is to sit back and passively accept the audit terms, process and results."

Meanwhile licensing use-rights are being applied to increasingly complex IT envrionments that have evolved beyond their long-standing software agreements. "Software providers' reaction to infrastructure advances had led to a proliferation of abstract and potentially confusing licensing metrics in contemporary agreements, which have made entitlement tracking considerably more difficult with a risk that simple technology refreshes and environment optimizations will cause an enterprise to fall out of compliance," Shaw says.

When a software provider wants to conduct a license compliance audit, it formally notifies the enterprise of its intention and then works with the customer to examine the enterprise environment to identify any license shortfalls. Anything from use of software on non-named servers to lack of centralized software asset management processes to inadvertent including of software on a base image can raise red flags.

Any gaps uncovered form the basis of a settlement and a requirement that the enterprise rectify the situation within a certain period of time. But there are steps a corporate IT organization can take long before the auditors arrive to limit potential damages, from choices made during contracting to management of the software life cycle to preparing for the audit itself.

Pick the Right Licensing Structure

Selecting the right licensing structure is the first step toward maintaining compliance. There are an increasing number of options, and picking the one that meshes best with the enterprise's software asset capabilities is key. "An enterprise with robust desktop asset management and configuration discovery capabilities may find it straightforward to manage a per-device or per-named-user licensing scheme," says Shaw. "Conversely, if the enterprise doesn't have its distributed environment under control, such a licensing scheme could be disastrous, and a per-processor or per-processor core scheme might be a better option."

Left unchallenged, a vendor will write as many license right restrictions as possible, such as precluding an outsourcer's use of the software, geographical limitations, and sublicensing bans. "All, depending on the leverage that the enterprise wields, are negotiable," says Shaw.

Software customers can also look closely at the provider's audit rights. While audit rights are standard in any enterprise software agreement buyers may be able to negotiate limis on audit intrusiveness and duration and provisions for equitable settlement of inadvertent non-compliance, says Shaw.

Next page: How to prep for the audit, and stay compliant...

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