W H I T E PA P E R

Inevitable Events
How to Avoid Costly Fire Drills and Substantially Improve Software ROI by Proactively Managing Your Oracle Licenses

How to Avoid Costly Fire Drills and Substantially Improve Software ROI by Proactively Managing Your Oracle Licenses
Executive summary
Oracle products, including its popular database technology and E-Business Suite, are widely deployed in many companies. Because Oracle does not automatically lock out unlicensed use of its products and because those products have such broad business applicability Oracle deployments can readily sprawl far beyond their original scope. By the same token, for a variety of reasons, IT organizations often wind up buying more Oracle licenses than they need. Either way, these IT organizations inevitably experience multiple events that result in Oracle license management fire drills. These inevitable events include usage audits by Oracle, contract renewal negotiations, license restructurings driven by business change such as M&A or corporate reorganizations, and license restructurings driven by infrastructure change such as server consolidations or platform migrations. License management fire drills occur because IT organizations lack accurate, up-to-date information about how Oracle products are actually being used, accessed, and authorized across the enterprise and how their Oracle deployment compares to their actual contracts. So, when these inevitable events loom, IT staffs must scramble to manually gather the necessary information as quickly as possible and then perform the appropriate reporting and analytics. IT organizations that rely exclusively on manual, event-driven fire drills to true up their Oracle licenses face several problems, including: 1. Disruption of normal IT operations and diversion of resources from other essential tasks 2. Consistently incomplete and inaccurate information about their Oracle deployments 3. Exposure to substantial unplanned or unnecessary expenditures as a result of license violations or license oversubscription (shelfware)
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4. Insufficiently informed contract negotiation, poor alignment of software spending with business needs, and imprecise budget planning To avoid these consequences, IT organizations should proactively implement proven software license management best practices including the ongoing, automated monitoring of their Oracle deployments in relation to their current licensing agreements. These best practices enable IT organizations to handle the inevitable events associated with Oracle software ownership without the disruption and cost associated with rushed manual inventories. A proactive approach also enables IT decisionmakers to avoid audit problems, better manage and negotiate software license contracts and plan budgets proactively based on actual and documented software usage. The cumulative result of these benefits is that IT can optimize the total return on its Oracle investments by both minimizing costs and maximizing the value delivered to the business.

Inevitable events

IT organizations are constantly under pressure to deliver critical services to business users, to maintain the security of the enterprise computing environment, and to fix whatever problems happen to arise with infrastructure and applications. Given the constant daily pressure of these immediately urgent circumstances, it is not surprising that IT decision-makers may not put much effort into preparing for events that they believe are still quite a bit in the future or that they believe might not happen this year at all. This can be particularly true when it comes to Oracle license management. Once an IT organization acquires and deploys Oracle software, it has a lot of work to do configuring and customizing it, integrating it with the rest of the environment, training and supporting users, handling changes, troubleshooting problems, scaling up capacity, and keeping it secure. Software licensing is almost never something that anyone
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How to Avoid Cost ly Fire Drills and Substant ially Improve Software ROI by Proact ively Managing Your Oracle Licenses

thinks about on a day-to-day basis. After all, how likely is it that any kind of licensing-related issue will arise tomorrow? Actually, it may not be very likely that a software licensingrelated issue will arise tomorrow. Nor may it be likely that such an issue will arise next week or next month. It is, however, quite certain that a software licensing-related issue or issues will occur eventually. In fact, such events are inevitable. And they can be quite significant in their impact. These inevitable events include: Oracle audits Oracle can, at any time, audit its customers to determine if there are any disparities between their customers software licensing agreements and the actual implementation of the companys software products. An annual true-up is typically written into every Oracle contract. Plus, according to Forrester: Forrester clients report increasing audit threats from Oracle sales teams. Customers often experience an increase in audit threats when the economy worsens. Savvy sales reps often use audit threats to begin a conversation about potential overutilization to drive new license sales.1 Contract renewals Contracts expire. When they do, new ones have to be renegotiated. Even Oracles Unlimited License Agreements (ULAs) which, because of their name, may lead some IT staff to mistakenly use Oracle software without restriction -- have to be trued up after a set period of time. In either case, it obviously benefits IT organizations to enter into negotiations with a clear idea of how closely their existing contract aligns with their current and planned Oracle software deployment so that those doing the negotiation know whether they need to add licenses, reduce the scope of the agreement, and/or try to get additional entitlements bundled into the new deal. Restructurings driven by business change Oracle contracts are subject to change whenever changes take place in the business. These changes can include M&A activity, divestitures, re-organizations, expansions, facility closings, and/ or layoffs. Of course, if a company has already licensed more software than it needs, theres no reason for it to increase its Oracle budget following an acquisition. And, conversely, if a company is already under-subscribed, then its not in a position to talk to Oracle about a price break in consideration of its downsizing. So license management plays a role in the ability of IT to appropriately respond to business change. Restructurings driven by infrastructure change Oracle contracts are also subject to change whenever IT makes certain types of changes to the enterprise computing environment. Virtualization, for example, can significantly impact enterprise software licensing needs since the oftenrapid proliferation of virtual machines can significantly increase

the total number of software licenses required to remain in compliance. Software licensing needs can also be affected by hardware platform migration, OS migration, server consolidation, and the implementation of additional features or interfaces. Again, it is essential for IT managers and negotiators to have a clear picture of how their Oracle deployments align with their current licensing agreement and/or the one for which they are negotiating. Any failure to right size a new agreement will result in either over-spending or exposure to the risk of non-compliance. Installations and upgrades In some sense, every Oracle installation or upgrade represents a significant license management event. Standard downloads and media for Oracles database, for example, include the full range of available options regardless of whether or not the customer pays for authorization to use those options. IT staff who are not aware of the specific terms of their companys contract with Oracle can therefore easily operate under the mistaken assumption that they are authorized to use all the components provided in the download or media. This is yet another way that companies make themselves vulnerable to violations of their Oracle licensing agreements. It is important to emphasize the fact that every company will experience at least one of these events every couple of years. Some will experience more than one of these events during some years. They are simply intrinsic to the ownership of Oracle software. It is also important to note that IT decision-makers cant always know when such events are about to occur. Oracle typically only notifies customers approximately one to two months in advance of a software audit. And business change often occurs with relatively little notice as well. In fact, sometimes regulatory constraints actually prevent business executives from providing IT with as much warning about such changes as they would like. IT organizations that do not proactively attend to core software license management tasks on an ongoing basis are thus very likely to enter into multiple events related to their ownership of Oracle software with little or no time to prepare.

The downside of fire drills

So what exactly is the downside of not being fully prepared in advance for any of the various events associated with Oracle software ownership? With so many other priorities competing for the attention of IT staff, is there really anything so bad about waiting for such events to arise before performing the license management tasks necessary to address them? Disruption of IT operations and diversion of IT resources When an IT organization is suddenly presented with an event

1 Base Your Oracle Red StackNegotiations Strategy On Your Oracle Adoption Strategy by Ray Wang, John R. Rymer, and Noel Yuhanna, Forrester, March 13, 2009.

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How to Avoid Cost ly Fire Drills and Substant ially Improve Software ROI by Proact ively Managing Your Oracle Licenses

such as an Oracle audit or some re-structuring of the business, a license management fire drill typically ensues. IT staff have to manually pore over multiple server audit logs to determine exactly how many users are accessing Oracle resources, which processors are utilizing Oracle, which features and options are actually being used, and at what rate the Oracle deployment is trending upwards or downwards. The number of people who have to participate in the fire drill and the percentage of their workdays they have to dedicate to it depend on several factors including the scope of the Oracle deployment, the size and complexity of the enterprise IT environment, and the amount of time between the start of the fire drill and the event deadline. Often, the disruption to normal operations and the diversion of resources from other critical tasks is pretty severe. So, ironically, by allowing the daily demands of the business to prevent them from preparing in advance for inevitable events, IT organizations virtually guarantee that their ability to fulfill those daily demands will eventually be compromised by such an event.

of dollars or even millions in software over-spending across several years. Such massive over-spending is certainly not something that any IT executive wants to have to explain to a CFO. Less effective negotiation, spending, and planning Negotiators are always at an extreme disadvantage when they dont have the information they need. They dont know exactly where to push for concessions from Oracle or whether such concessions will yield little in the way of real financial benefits. They may be unable to make volume commitments in situations where such commitments are to their advantage or they may be drawn into making commitments that are inappropriate, given their actual use of Oracles various products. Plus, their uncertainty about their needs ultimately weakens their overall negotiating position. Such weakness at the negotiating table can be very costly to companies over the long term. Of course, the disadvantages of inadequate insight into the use of Oracle products extend well beyond any specific negotiation with Oracle. Without accurate, up-to-date information about how Oracle is actually being used across the enterprise, IT decision-makers cant determine how to best prioritize the allocation of budget dollars or accurately project what their budget requirements for Oracle licenses may be in the near future. As a result, over- or under-spending can start to become entrenched. This can wind up having implications well beyond a companys Oracle implementation, since any mistakes in the allocation of finite budget dollars to Oracle licenses affect the availability of those dollars for other critical IT projects. Simply put, IT organizations expose themselves to a variety of problems and unacceptable risks if they only worry about license management when some triggering event pops up. The issue is not whether or not there is an event on the horizon today. The issue is that such events are inevitable and, without the right preparation, those events can be costly and disruptive in ways that few IT organizations can afford.

Incomplete and insufficiently accurate information

Manual processes are inherently unreliable, so the information that large Oracle sites collect is likely to include all kinds of errors and omissions. Also, DBAs typically differ in the detail with which they account for the various options, entitlements, and utilities being used in their individual management domains. Many dont even fully understand exactly how Oracle licenses are structured and therefore dont know exactly what to check for. And if this accounting work has to be done on a rush basis, it is unlikely that there will be sufficient time to double-check the results. The problem of accounting accuracy tends to be compounded by the fact that, once an event has passed, whatever reporting was generated for that event tends to remain the de facto benchmark for the IT organization from then on. An out-of-date accounting (that probably wasnt very accurate to begin with) may then compromise the organizations ability to deal with the next inevitable event and will distort trend analysis whenever the next assessment of the Oracle implementation is performed.

Oracle license management best practices

Unplanned or unnecessary spending as a result of license violations or over-subscriptions

One of the biggest problems with event-driven fire drills is that they only reveal discrepancies between licensing and actual deployment after the fact. In the event of an Oracle audit, this may simply alert IT decision-makers that the company is in fact going to be found to be in violation of their agreement with Oracle. Obviously, in such cases, Oracle will be in a position to require full compensation for any differential which is typically quite a bit more expensive than the payment that would have been arrived at in a normal contract negotiation. On the other hand, if the businesss contracted licensing turns out to have exceeded its actual needs, then an event-driven approach will only discover the over-spending after it has occurred. This can potentially result in hundreds of thousands

Although the range of inevitable events that Oracle users face is somewhat diverse, there is actually a common set of Oracle license management best practices that can be applied to all of them. These best practices ensure that IT organizations are well prepared for such events when they occur and that they can consistently optimize the outcomes of these events.

Key aspects of these best practices include:

Proactive, consistent monitoring of Oracle deployment Rather than waiting until an event deadline approaches, IT organizations are better off monitoring their Oracle deployment proactively and continuously. This eliminates the frenzied disruptions that occur when they are forced to react under tight time constraints. By regularly keeping tabs on their Oracle deployments, IT organizations can also pinpoint emerging trends before they spiral out of control.

Collecting complete, granular information

Oracle deployments and Oracle licensing can be quite complex, encompassing many instances on multiple platforms and

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How to Avoid Cost ly Fire Drills and Substant ially Improve Software ROI by Proact ively Managing Your Oracle Licenses

including a wide range of options, entitlements, and utilities. IT organizations must therefore be sure that their visibility into their Oracle deployments is both sufficiently complete and sufficiently granular including discovery of all processors and all named users.

Oracle license management best practices are worth prioritizing precisely because they provide advantages to IT as a whole in addition to optimizing returns on Oracle software investments in particular. These benefits include:

Use of automation

IT organizations can obviously reduce the strain on their IT staffs and improve the accuracy of their information by using automation appropriately. Automation also ensures the scalability of monitoring processes. Automated monitoring processes should be properly scheduled to avoid any impact on the performance of critical business services. Most IT organizations will want to implement agentless automation in order to avoid additional management complexity.

Minimal disruption of day-to-day operations by inevitable events

IT organizations that have to respond to inevitable events with fire drills consistently experience significant disruption of their day-to-day operations. During these disruptions, other tasks are left undone or are not performed as well as they need to be. Proactive software license management therefore safeguards ITs ability to maintain service levels across the enterprise even when a software license audit or contract re-negotiation is about to take place.

Clear reporting against actual license structure

Armed with a complete, accurate, and sufficiently granular inventory of their Oracle deployments, IT organizations then need to clearly understand how those deployments compare to their actual current license entitlements. This understanding is typically provided through reports that highlight where the deployment exceeds existing licenses and where there is shelfware i.e. licenses for entitlements that arent currently being used.

Avoidance of costly license violations

Full leveraging of deployment insights across all IT and business functions

If and when Oracle discovers license violations at the conclusion of an audit, they are entitled to full compensation for the excess use of their software. By preventing such violations from occurring whether at the time of installation or during the ongoing course of software ownership software license management best practices protect companies from such charges, allowing them to procure whatever additional software licenses they may need over time through normal contract negotiations. This allows budget dollars to be preserved for other important IT priorities.

IT organizations that have developed the ability to maintain proactive ongoing insight into their Oracle deployments must also be diligent about delivering that insight wherever it is applicable across the organization and about empowering appropriate individuals to use that insight as effectively as possible. In addition to just developing the technical ability to monitor their deployments, they may therefore also want to tap into available sources of expertise in disciplines such as negotiation, budget allocation, and budget planning. The above is obviously a fairly simplified overview of Oracle license management best practices. The effective use of deployment insight in business negotiations, for example, could easily fill an entire document by itself. These five aspects, however, serve to highlight the disparity between the manual, event-driven approach most IT organizations currently take to manage their Oracle deployments and the best practices being espoused by leading industry consultancies such as Gartner and Forrester. And without these best practices in place, IT organizations will continue to be subject to the adverse consequences that occur when inevitable Oracle ownership events result in inevitable license management fire drills. The benefits of proactive Oracle license management IT resources are limited. And there are many business priorities competing for those limited resources. So why should an IT organization commit any of its resources to the implementation of automated, proactive Oracle license management at a time like this? What real benefits can they expect to gain from such an effort and how quickly can they expect to gain those benefits? Actually, as the following list of proven benefits demonstrates,

Reducing costs with insight into shelfware

Companies often spend tens or even hundreds of thousands of dollars on software licenses they dont need. Some spend millions. This wasteful excess of software licensing is often concealed in the form of value-added options and performance utilities for core Oracle products. Left unchecked, such excess spending can continue for years. Effective software license management can identify this excess spending so that it can be eliminated and/or leveraged at the negotiating table to obtain discounts on future license purchases, services, training, support and maintenance. In addition, IT organizations that know exactly how much shelfware they have can use those existing licenses to meet their needs as they grow, without spending more money unnecessarily. All of these tactics free up IT budget dollars for other critical business needs.

Smarter, more effective contract negotiation

An accurate understanding of current and projected business needs is always a substantive advantage in negotiations with any vendor since it empowers the negotiator to press for advantages that are important, while making concessions that wont adversely affect either costs or business value. By providing this understanding, software license management best practices deliver significant long-term cost savings while also easing the negotiation process itself. Also, like any other software vendor, Oracle at times modifies its licensing models. Without an accurate understanding of current and projected business needs, IT organizations are typically unsure how to proceed when such modifications are announced. With accessible and reliable usage information, on the other

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How to Avoid Cost ly Fire Drills and Substant ially Improve Software ROI by Proact ively Managing Your Oracle Licenses

hand, they can quickly assess the impact of any new software licensing options and negotiate accordingly.

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More accurate budget allocation and planning

When resources are tight and demands are escalating, it is more important than ever to align spending with real business needs and to accurately project future budget requirements. IT organizations that maintain full visibility into their Oracle deployments can find ways to save money, redistribute licenses, institute chargebacks, and/or institute any other measures to ensure that their Oracle budgets are allocated where they will deliver the most value to the business.

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Support broader corporate governance, risk, and compliance initiatives

The violation of Oracle software licensing agreements is not an isolated issue. It is actually part of the broader challenge companies face in maintaining compliance with their contractual obligations and mitigate the risks associated with failures to comply. Improved Oracle software license management is therefore material to the integrity of corporate governance as a whole as well as a way to get maximum business value from software spending. It should also be noted that proactive, automated management of software license compliance benefits Oracle as well. It is fairly expensive for Oracle to mount a manual audit of a large corporate customer. IT organizations that are able to provide Oracle with reliable software audit documents can thus save both parties a substantial amount of time, money, and aggravation. The bottom line is that companies can realize a wide variety of hard and soft benefits by implementing proactive management of their Oracle entitlements. Such management will significantly improve ROI for Oracle deployments by reducing costs and ensuring that budget dollars are allocated where they will deliver the most value. Best practices management will also benefit IT and the company even more broadly by freeing resources and mitigating risk. And these benefits will accrue in both the short and long term as inevitable event after inevitable event occurs over the course of Oracle ownership. Thats why IT organizations should take action now to implement best practices or, at the very least, better practices for Oracle software license management. It is simply impractical to wait for the next inevitable event to arise. The smarter course of action is to initiate both 1) internal advocacy for a proactive approach and 2) an investigation of the technology solutions available for automating such an approach immediately. IT decision-makers must be intentional about overcoming organizational inertia by acting decisively even in the absence of a known impending event. By doing so, they will ensure that their company will begin realizing the concrete benefits of best practices at the very next inevitable event. Failure to do so will simply guarantee another costly, disruptive fire drill and will set the stage for post-event inertia to set in once again.

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