Acquisition Matters

Knowledge is power in software purchasing

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It seems safe to predict that the pending Office of Management and Budget category management policy for software will require agencies to produce and provide to OMB inventories of the software they own.

When that happens, the government will gain a treasure trove of market intelligence, enabling reforms that eliminate unnecessary spending, save significant sums and encourage agencies to share efficiency practices, early warnings and good ideas.

External objections to the inventory requirement are unlikely. Public comments on the draft software policy generally favor annual agency inventories. Related concerns focus not on inventories but on the continuous diagnostic and mitigation tools that OMB proposes agencies use to conduct them.

Software asset management, after all, is common in industry. Companies collect data on software licenses and how they are deployed -- for example, which product, version and edition reside on what type of hardware. Having that information makes for more effective and fruitful negotiations, especially with the manufacturers of the most commonly purchased software.

Government can achieve similar negotiating success, and OMB can create the conditions for it by setting minimum governmentwide software data standards for agency inventories. Ensuring data consistency enables collaboration with and among agencies and makes it easier for companies to deal with federal buyers.

The software industry already uses data standards that OMB can adopt and adapt. Officials also will find it helpful to add government-specific data fields to elicit information for rationalizing utilization, aggregating spending and consolidating duplicative contracts.

Once the inventory data reveals government's largest providers and the usage patterns for their software, OMB or governmentwide category teams can negotiate separately with each of the biggest suppliers. That will allow negotiators to use market and supplier analysis to discover the pricing, terms and conditions appropriate to each company's specific licensing policies and procedures.

License and deployment data also can reveal how much software spending passes through resellers rather than directly to original equipment manufacturers. The Enterprise Software Category Team (ESCT) -- led by OMB, the General Services Administration and the Defense Department -- will be able to use that data to explore the nature and cost of reseller arrangements.

The information will enable the ESCT to recommend best practices in gauging the value resellers should add, and whether the margins they charge and the services they provide are in line with industry standards and the government's huge demand.

Armed with that information, the government will be well placed to negotiate reseller margins, for example, and could explore ways to gain pricing advantage by incentivizing deals between software makers and resellers.

Software inventories also can support a host of information-gathering efforts to help the government manage the demand for software licenses and relationships with suppliers. Specifically, the data will enable OMB and the ESCT to:

  • Identify which products are most often deployed but not used.
  • Discover the percentage of unsupported versions of software still in use.
  • Reveal the amount of spending by agency and governmentwide on various types of software -- desktop, database, applications, middleware and infrastructure, for example.
  • Determine the value of surplus and unused software licenses per vendor, as well as which agencies have the largest excess inventories.
  • Save money by better matching licenses to the needs they were deployed to meet.
  • Purge or sell unused licenses or redeploy them elsewhere.

With inventory data, agencies and the ESCT will learn how many software assets are going unused. That information could support a governmentwide software license exchange for transferring surplus software among agencies.

The ability to move licenses from one part of government to another to avoid needlessly buying more can be a huge benefit of category management. Achieving it requires that inventory data be entirely accurate. The right to reallocate licenses and share all information about them also must be built into contracts with software suppliers.

Reusing licenses can produce considerable savings. We have seen a reuse program for a single brand of software produce annual savings of $5.8 million in a public-sector organization with a $150 million budget.

Similar or greater savings on a single software brand multiplied across all agencies could quickly add up to a sizable amount to reinvest in mission-critical programs. Imagine the annual savings from governmentwide reuse of all brands of commonly used software.

With a governmentwide software exchange, agencies with surplus licenses could reduce costs by transferring those licenses to other agencies, which could, in turn, reduce their spending on new licenses. An exchange could also act as a check on software spending if agencies were required to look for spare licenses before they could buy new ones.

Standardizing inventory data will also help maintain software security hygiene. With a standardized governmentwide database, for example, the ESCT or its nominee could identify all the government owners of a software version with a newly discovered vulnerability and alert them to make the appropriate fix or install a patch.

Similarly, the ESCT could home in on versions of software that need imminent upgrades or are no longer supported by their manufacturers and remind the agencies with those licenses to take action.

In addition, the inventory database could serve as an idea-sharing platform for cost-saving and efficiency improvements, such as introducing open-source software as licenses expire.

Both the software inventory database and the exchange would assist in aggregating software requirements to create the conditions for agency-level and governmentwide enterprise licensing. Over time, that approach should help eliminate or consolidate duplicative contracts and assist in identifying and promoting best-in-class procurement vehicles.

Agency software inventories and the governmentwide database they enable will open the lid on a treasure chest of potential savings, identify avenues for reducing demand and reveal opportunities for sharing licenses, ingenuity and efficiencies. 

About the Authors

David Shields, former managing director of the U.K. Government Procurement Service, is managing director for procurement transformation and category management at ASI Government.

Tony Crawley is managing director and co-founder of independent software licensing consulting firm Synyega and former adviser to the U.K. Crown Commercial Service on software license reform.

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Reader comments

Wed, Jun 1, 2016

Great article with lots of good points. Unfortunately where this and a lot of other discussions around category management, FITARA and MEGABYTE fall down is they completely ignore the purchasing side of things. All the inventory data in the world is of marginal value if you don't actually change your purchasing practices to leverage it. In a world of decentralized procurement, the federal government is not the largest buyer - they are the largest _spender_. To transform into the largest buyer of IT, agencies, bureaus and offices within the federal government are going to have to develop efficient business processes for gathering and consolidating distributed funding. Otherwise, much of what is talked about in this article is never going to come to fruition. And chucking all the "IT Funding" at the CIO's isn't the answer either. Remove accountability for IT dollars from the programs and IT becomes "free" and costs spiral out of control in other ways. DOD and more recently the VA found that out the hard way. Also it's more than just raw inventory data, but utilization data and then reconciling that inventory and utilization data with what was purchased to determine if you are over or under licensed. A simple inventory alone isn't going to tell you if you are over or under licensed. It's still a good article - just missing the whole picture to really obtain many of the possible outcomes described.

Wed, Jun 1, 2016

Good luck!

Fri, May 27, 2016 Prof. Samuel; D. Bornstein New Jersey

There is a difference between the "savings" gained by the Government while using Category Management, and the "savings" gained by the Private Sector using Category Management. While the Private Sector savings are intended to benefit the "bottom-line", there is no "bottom-line" in the Government who should be concerned about the impact of Strategic Sourcing and Category Management on the US Economy. What good are savings on the backs of Small Businesses and the resulting job losses? Will we need another Stimulus to help generate jobs which were destroyed by Strategic Sourcing and Category Management? As a minimum, the Government should perform a Cost-Benefit Analysis where the "Costs" should address the Economic and Social Costs of Jobs Lost to Category Management. I would be happy to expand on my words in this Comment.

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