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How can CIOs lower SAP licensing costs?

Just because you have to pay SAP licensing fees, doesn't mean you need to accept paying too much. Here are three ways to keep your costs low.

It's an annual ritual in most large or medium companies: CFOs prevail upon CIOs to do all they can to lower the SAP licensing costs. Yet it's all too common to see those costs remain the same or even increase. To avoid the trap of paying too much, I'll share three ways to keep a lid on costs. First, let's quickly go over how SAP licensing process works.

When a company implements any SAP product, the company must also buy various categories of SAP licenses to cover all business users, each by category. Some of those SAP licensing categories are developer, professional, limited professional and shop floor user, each having different system usage rights and associated costs. SAP bills the company an annual maintenance fee of 22% of the purchased licenses, without taking into consideration whether the company fully used all licenses it purchased or whether each use was in the right category. But at a later date, SAP does conduct an extensive licenses audit to assess if the company did indeed have same number of named users for which it had purchased licenses and also if usage was in the right category.

For example, say a company purchased 20 limited professional licenses that granted access to members of the management team so they can view reports, dashboards and give online approvals to purchase orders, but in reality the company has created 25 named users' accounts in its SAP system. That company allowed five additional users to use the SAP system without paying for them. That's a violation of terms of conditions between SAP and the company. SAP's audit will reveal this discrepancy and SAP will want the company to buy more licenses. On the other hand, the company may have assigned a professional user license, which costs more, to a business user when limited-professional licenses costing less may suffice for the assigned job role.

Here's how to avoid such discrepancies, and more generally, how to keep your SAP licensing costs lower:

Be vigilant about keeping an updated system. In companies with a large SAP user base, it's common for people to get new roles or promotions or to leave the company for a new job or retire. But SAP users, from a system assignment perspective, will remain dormant in the SAP system unless they are deleted or assigned the correct SAP license category for the new job role. For this reason, SAP system administrators must be prompt about handling such changes in the SAP system.

Monitor usage data and SAP licenses categorization. Using a third-party data usage tool that correctly identifies the associated SAP license category, as well as other deviations such as additional named users than the company has licenses for, can eliminate audit objections when SAP conducts its own licenses audit.

Start small. An approach that often works well is to start out with buying fewer licenses in the beginning of an SAP implementation, and then incrementally buy more when you have better visibility into the number and type of business users who'll eventually be using SAP system. This is important because once licenses are purchased, SAP does not have a friendly refund or return policy for unused licenses. 

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