Stretching Your IT Budget at Year-End

As we enter the fourth quarter, many IT organizations are facing the end of one budget year and planning for the next. In today’s corporate world, a magical thing happens: money evaporates on December 31 and new money becomes available on January 1. Because current-year money that goes unspent doesn’t carry forward into the new year, IT leaders are faced with the choice of either maximizing the value of remaining money to meet the company’s present and long-term IT needs, or giving it back. The latter option, while theoretically a good-corporate-citizen move, is often short sighted, because it can prompt the finance department to ratchet back the budget for future years and hamstring important capabilities at a time when the IT department is more vital than ever to the success of the business.

A smarter, more strategic option is to review and reposition some of the most-costly assets, specifically major software licenses, across the IT environment to optimize use of each license prior to any renewals. Working with our clients, we find many cases where utilization is low under some licenses and high under others for the same titles. Re-allocating the licenses to balance utilization can reduce the need for licenses by 20 percent or more, dramatically stretching the budget for critical year-end purchases. 

This approach should take into account an architectural view of virtualization and containerization, as well as compliance and audit-focused issues such as an analysis of indirect access exposure. Taking this step is a far more effective way of saving money than any procurement-led activity, and the insights from an optimization-based technical approach will position an IT organization well for budget negotiations. 

The end of the calendar year also coincides with the fiscal year-ends for IBM, SAP, MicroStrategy and ServiceNow, with Adobe’s year end a month earlier and Salesforce, Dell (EMC & VMWare) and Workday’s falling at the end of January. Because of this, a significant number of the major suppliers also will be cutting deals to make their own year-end numbers. A review of software licenses will also position a company to reduce or eliminate any potential software audit exposure, which can create millions or tens of millions of dollars in unplanned costs. Right now is an especially good time to get help with optimizing software licenses as a way to position your IT organization to invest in what it needs, and not just what it is stuck with. 

ISG helps companies get a handle on their software licenses and prepare for renewals or new negotiations. Contact us to discuss how we can help you. 

About the author

Bill is a sourcing industry leader and active proponent of helping to create professional standards and best practices. His areas of expertise include sourcing strategies, shared services and contract negotiations. Throughout his career he has been responsible for both business development and delivery of strategic advisory services in procurement, vendor management and operational transformation.