THE BUSINESS SOFTWARE CENTRE & PORTSMOUTH BUSINESS SCHOOL

Software Licensing Efficiency in UK Local

Government
Qui Mai & Professor Ashraf Labib
3/11/2015

The aim of this study is to assess the current situation of software licensing costs in local government
in the UK. The research reveals a lack of common metrics and standards for software licensing
efficiency. Whereas some councils are achieving relatively low costs per user for software, others are
many times higher. It is estimated that across all the councils in the UK, savings of up to 168m per
year could be made by the adoption of best practices, common standards and appropriate
processes.

Contents
1.

Background and Research Objectives ............................................................................................. 2

1.1 Statement of the Problem ............................................................................................................ 2
1.2 Purpose of the study ..................................................................................................................... 2

2.

Research Design and Methodology ................................................................................................ 2

3.

Results ............................................................................................................................................. 3
3.1 Overview ....................................................................................................................................... 3
3.2 IT Management- In- house or outsource ...................................................................................... 4
3.3. Availability of Software Efficiency tool (software usage vs. software licensing) and Software
Asset Management tool...................................................................................................................... 5

4.

Discussion........................................................................................................................................ 6

5.

Limitations....................................................................................................................................... 6

6.

Further Research will aim to ........................................................................................................... 7

7.

Appendix ......................................................................................................................................... 7

1.

Background and Research Objectives

1.1 Statement of the Problem

In the Department for Communities and Local Government document 50 ways to save - Examples
of sensible savings in local government issued in December 2012 (see appendix), Eric Pickles
suggests that councils can save money by conducting a review of software licenses across each
authority.
The government announced last month that it was cutting funding to councils in England by up to
6.4 per cent for 2015-16. Some councils criticised the move, saying any further cuts to already
heavily reduced funding from Central Government would take them to breaking point.
However, it has been asserted that fear- based compliance models of software licensing in the public
sector result in over-licensing. Quite simply, for government entities affiliated with creating and
enforcing laws, failure to comply with license requirements would result in a public relations
nightmare. The very thought of software representatives appearing at the public agencys door, and
possibly finding that not all of the entitys software is fully licensed, is enough to make even the
most stoic government IT director blanch. Many organisations purchase more software licenses than
they need because they have no way of knowing who is using what and as a result, overcompensate
and overestimate software license requirements.
According to the latest report delivered by the United States Government Accountability Office in
May 2014, all of the twenty four assessed federal agencies are not adequately managing their
software licenses because they generally do not follow leading practices in this area. The potential
savings could be significant considering that, in fiscal year 2012, one major federal agency reported
saving approximately $181 million by consolidating its enterprise license agreements, even though
its oversight process was ad hoc.
In the UK, there appears to be no metrics or benchmarking in software licensing costs across the
local government sector while the concept of software efficiency is new in the IT community.

1.2 Purpose of the study

The aim of this study is to assess the current situation of software licensing costs in local
government organisations in the UK.

2.

Research Design and Methodology

In December 2014, we conducted research with 147 out of 434 local government organisations
across the UK and got 129 responses. The information was gathered under the Freedom of
Information Act and answered by the right people in each organisation.
The questionnaire included:
- Do you look after your own IT or it is outsourced?
- How much did you pay in last financial year for software licenses?
- How many computer users do you have?

- What was the value of your last contract with Microsoft for software licenses?
- Do you currently measure software usage versus the number of licenses purchased? If so what is
used for software usage metering?
- Do you use a software asset management tool?

3.

Results

3.1 Overview
With 523,336 users across 129 councils, the annual software licensing cost per user is 276.70. As a
huge proportion in total software licensing cost, annual Microsoft licensing cost per user is 140.1
on average. The distribution of software licensing cost is illustrated below:

Distribution of average annual licensing costs per user

25
20
15
10
5
-

# of councils

Distribution of average annual Microsoft licensing cost per user

50
45
40
35
30
25

# of councils

20
15
10
5
0
1-100

101-200

201-300

301-400

401-500

501-600

601-700

As councils do similar tasks it could be expected that they have similar costs per user. However, the
annual cost of software per computer user in similar councils varies dramatically

3.2 IT Management- In- house or outsource

Average annual licensing costs per user

350
300
250
200
150
100
50
0
Total software

Microsoft

Vendors
Inhouse

Outsource

Combination

Half of councils run IT Department in-house. However, that model is the most expensive in
comparison with outsourcing or a combination between in-housing and out-sourcing. A third of
councils decide to outsource their IT service with contracts for a minimum of 5 years. The research
shows that a combination between in-house and outsource model runs IT in the most efficient way.
It is generally accepted that software licensing can be complex so there appears to be advantages in
having input from external expertise. However, completely outsourcing appears to be less beneficial
than cooperation as this ensures best practice is shared towards a common goal.

3.3. Availability of Software Efficiency tool (software usage vs. software licensing)
and Software Asset Management tool

SAM Tool Usage in UK Local Governments

22%

78%
SAM Tool

No Tool

Nearly a third of respondents do not track their software licensing usage against the license
deployment. This may result in over- licensing or compliance issues. In the short term higher costs to
ensure appropriate licensing seem to be regarded as less expensive than the potential penalties that
would result from a failed audit.

Effect of SAM Tools on Annual Licensing Costs

per User ()
400
300
200
100
0
Total Software

Microsoft

SAM Tools

No Tool

78% of organisations are installing at least one software asset management tool. However,
organisations installing a software efficiency tool have higher Microsoft licensing costs than
organisations do not. SCCM and Snow are the most popular tools used and each has its own
strength in terms of cost reduction in software licenses.

Annual Licensing Costs per User ( )

400
350
300
250
200
150
100
50
0

4.

No SAM

SCCM

Snow

Discussion

- There are significant potential savings to be gained by improving software licensing methods in
local government. It is estimated that 434 councils in the UK could collectively save up to 168m per
year on software procurement costs and 62 million per year on Microsoft costs by learning and
implementing the best practices of the top performing 20 per cent of councils (181.1 for total
software licensing cost per user and 105.4 for Microsoft licensing per user).
- If the service is a core strategic operation, it should be kept in-house. If it is a commodity especially one that a supplier claims to be able to provide for less money than the company's IT
department, then they can outsource it. The changes of technology also influences the decision to
outsource.
- The use of SAM tools does not necessarily drive cost reductions. Software management tools may
be a costly proposition in the first year since the immediate returns are not visible.
- Currently there appear to be no generally accepted benchmarks or metrics for software licensing
efficiency across UK Councils, other than those used for compliance with software licensing
agreements.

5.

Limitations

Quantitative research has its own limitations. There is often no information on contextual factors to
help interpret the results or to explain variations in behaviour between councils.
The correlations produced (e.g., between costs and benefits, and access to services or benefits) may
mask or ignore underlying causes or realities.

Understanding questionnaires may vary between respondents, and then data collected is
inconsistent.

6.

Further Research will aim to

- Research and analyse actual usage levels of software against what is being purchased to answer
the question if councils are buying too many licenses for what they need
- Research and develop standard metrics which can be used by councils to understand and assess
their levels of software licensing efficiency
- Use qualitative research to identify best practices in benchmarking councils to understand key
efficiency drivers and supporting processes
- Explore and test efficiency techniques that drive software licensing efficiency quickly and can be
used by all local governments.

7.

Appendix

Full document 50 ways to save - Examples of sensible savings in local government is available at:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/39264/50_ways_2
.pdf