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OMB Guidance Needed to Eliminate Waste in the Federal Government’s Software Spending

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By Jim Ryan, COO Flexera Software

The House Oversight and Government Reform Committee has just held a hearing titled “Government Accountability Office’s Duplication Report at Five Years: Recommendations Remain Unaddressed.” The hearing examined 24 new areas in the GAO’s 2015 report that could improve the efficiency and effectiveness of the federal government.  At the hearing, Beth Cobert, Deputy Director for Management at the Office of Management and Budget (OMB) testified.  She was questioned by Committee member, Congresswoman Tammy Duckworth, from Illinois’ 8th District, who honed in very quickly on the subject of Software License Optimization:

“I noted that better management of software licenses is an area where savings can be achieved.  Can you please help me understand, in OMB’s view, how agencies can better manage their software licenses?  Specifically, I’d like to hear how OMB believes agencies should inventory that software to see how much of it is actually deployed to end users, and how much of what’s deployed is actually being put to use.  If you can’t inventory it, how can you effectively control waste?

Ms. Colbert’s response was insightful, and illustrates the depths of the federal government’s lack of progress in controlling waste due to poor software license management practices.  According to Gartner, the Federal government spends approximately $19 billion annually on software. We know from our experience helping global organizations eliminate waste in their software spend, that as much as 25% of any enterprise’s or agency’s software budget could be saved by implementing industry best-practices and technology around Software License Optimization.

In her testimony Ms. Colbert noted that the government is developing a system for inventorying its software and managing its licenses, which are procured on a highly decentralized basis.  She noted that the recently passed Federal IT Acquisition Reform Act (FITARA) legislation will give the Federal CIO more authority in getting agencies to better coordinate and consolidate their buying.  OMB is putting together its guidance on compliance with this law – which is a focus area.  Ms. Colbert also said that getting the software spend problem under control is a big priority for the Federal CIO – who has just joined OMB from industry.

The legislative language of FITARA very clearly calls for the government to implement best practices and technology for software license management:

  • Section 833. (c)(1)(C) & (D) provide that the Director of OMB shall implement a process for agencies to review their portfolio of information technology to identify potential duplication and waste and to identify potential cost savings
  • Section 837(a) requires OMB, among other things, to identify and develop a strategic sourcing initiative to enhance Government wide compliance with end user license agreements.

As OMB prepares guidance to implement these best practices, it should assess government agencies using the following four levels of Software License Optimization maturity – which are used by private industry to understand the current state, and develop a plan for improvement. Achieving a higher level of maturity will enable agencies to dramatically reduce the billions of dollars of waste in Federal software spend:

  • Level 1 Maturity: Installation Assessed

This is the discovery phase and is characterized largely by having the ability to collect hardware and software inventory to understand what’s installed in the IT environment. Processes are developed and discovery tools are deployed to ensure an accurate and ongoing inventory is maintained.  In general, the characteristics of a Level 1 Maturity agency would include:

    • Discovery is conducted periodically, and a baseline inventory of hardware and software assets exists.
    • Still unable to determine an accurate software license position for a given vendor.
    • Focused on hardware asset management.
  • Level 2 Maturity: Software Usage Understood

At the second level of maturity, the organization is able to answer the question “What software is deployed and how is it being used?”  They come to understand which applications they have deployed by processing the evidence collected in Level 1 with an Application Recognition Library, which matches all the data and produces a consistently named (normalized) list of applications per device.  At this stage, the agencies have a solid discovery, inventory and software recognition process. They may have the ability to collect license entitlement (purchase order and contract) data, and yet are not able to proactively assess their software license position—continuing to operate reactively in the face of software audits, renewals and true-up events.  Agencies at this level have a manual process for reconciliation of software inventory against purchase orders and contracts. This manual procedure is impacted by human error and is so time consuming that it can only be done on an ad hoc basis when there is a critical event. Achieving a Level 2 – Usage Understood threshold represents Software Asset Management at a “point-in-time.”

The strength of the Level 2, Usage Understood Maturity level is that the agency has some people and processes in place to deal with software asset management and license compliance issues, and asset management processes are beginning to evolve. The characteristics of a Managed level of maturity include:

    • Accurate hardware and software inventory stored in a centralized repository
    • Refinement of procedures defined in the Installed phase
    • Reactive and manual license reconciliation processes
    • Able to face software vendor audits and independently determine a license position (although it is almost certainly not optimized)
  • Level 3 Maturity: Continuously Compliant

A continually compliant agency is one in which the software license management function has shifted from reactive to proactive in nature. Inventory is under control and the agency has moved to being primarily compliant with its software license agreements for most software titles. Software inventory and license entitlement data contained in a centralized asset management repository is reliable and actionable.  Data is available to drive more efficient procurement of software and reduction of ongoing IT operations and maintenance costs.  Distinguishing aspects of an agency at this stage are represented by formality of procedures and automation of critical tasks, such as purchase order processing.

Processes are defined and tools are in place enabling software purchase orders to be automatically imported from existing procurement systems to allow the capture of license entitlements (how many did I buy) in the asset management repository. Software asset management and license optimization tools are also in place to aid in the license reconciliation process so that basic license entitlements can be compared to installations on a continuous basis. This allows agencies to maintain license compliance and avoid unbudgeted audit true-up surprises.  Characteristics of the Continuously Compliant level of maturity are:

    • Automation of key tasks such as software purchase order processing to capture license entitlements in a central asset management repository
    • Proactive management of software assets, including the ability to generate a license position as needed and maintain license compliance
    • Refinement of procedures defined in the Usage Understood level of maturity
  • Level 4 Maturity: Software License Optimization 

The agency that has achieved an Optimized maturity level enjoys the highest return-on-investment for its software license optimization program and has the most efficient utilization of its overall software investment. It is now dynamically, proactively and optimally managing software assets, taking advantage of license entitlements, including vendor-specific product use rights, to reduce license consumption and achieve software cost savings.  Agencies at this level also have the processes and tools in place to optimally select the most appropriate license types for their user communities, such as in the case of SAP user-based licensing. Risk levels are lowered due to best practices processes that have been refined to manage software assets and maintain license compliance in today’s dynamic virtual environments.

Optimized agencies can proactively assess the impact of IT infrastructure changes on software licensing, including the financial impact, before the changes are actually made—using ‘What If’ analysis. Changes can involve hardware, software and virtual environment changes that can affect an agency’s license position.

Achievement of an Optimized level of maturity offers the agency the ability to better forecast future software needs through multi-variable and trend analysis. Software Asset Management and license optimization strategy and implementation are in alignment with business goals and objectives. Software assets can be dynamically shifted to meet changing business needs. Characteristics at an Optimized level of maturity are:

    • Automated application of product use rights (second or portable use, multiple installations, backup/failover rights, virtual environment use, roaming use, etc.) to determine an optimized license position and reduce software spend
    • Procurement and allocation of optimal license types (e.g. SAP named user licenses) to best meet the needs of the organization at the lowest possible cost; in the SAP case, this is based on the ability to perform detailed usage data collection and analysis
    • Optimization of license counts and application mix to minimize denials of service and maximize software utilization (applies to high cost, high value engineering and technical applications that use concurrent licenses)
    • Proactive contract management to ensure best terms and conditions for purchases and renewals based on accurate information, including usage data
    • Able to conduct trend analysis, enabling smarter budgeting and decision-making
    • Significant automation of asset management tasks to increase accuracy and operational efficiency—reducing the time and effort required to manage the software portfolio

There is no shortcut to eliminating waste in the Federal government’s software spend.  Moving to the cloud doesn’t solve the problem.  Centralized purchasing and datacenter consolidation are only part of the solution.  If the OMB wishes to establish guidance that will not only eliminate waste in the government’s software estate but also stop over spending and minimize software license non-compliance, it must mandate that the people, processes and technology are put into place to achieve Level 4 maturity.


To learn more about Software License Optimization maturity, please view our on-demand webinar with IDC analyst Amy Konary:

Assess Your License Optimization Maturity and Develop a Plan for Improvement.


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