Are you on top of your software licensing? Recognition of the issue, and use of license tracking software, can go a long way toward cutting costs and warding off fines from vendors able to show licensing violations.

Sitting in the CFO's chair at EFW Inc., a Fort Worth, Texas-based defense electronics supplier specializing in hardware and software solutions, is Bill Augat. His company is just one of the many firms using software license management systems to keep track of what's being used in-house.

"Like any other expenditure, or a decision of any magnitude, we go through a process that evaluates whether it's the right thing for our shareholders," says Augat, who admits that he's not as up to date as the IT folks are about the ins and outs of the particular software license management tool that EFW uses. "That's how we decide, whether it's for an IT solution or whether we're going ahead with another purchase."

Managing software licenses can cause headaches for IT managers, but it can also cause migraines for financial executives who may ultimately feel the impact if their companies somehow use software they shouldn't be using and risk being fined hundreds of thousands of dollars. What it really boils down to is that keeping track of applications can save money, both from avoiding duplicative buying and from averting fines.

Although many companies are starting to grasp the importance of managing their IT assets, others--such as experts, industry watchdogs and software license management vendors--continue to warn executives about compliance issues. When it comes to properly managing software use, businesses can either pay now--forking over a little bit of money to buy needed solutions--or pay later, digging deep to pay enormous fines if caught out of compliance.

According to the Yankee Group, 90 percent of companies worldwide have had to deal with software licensing non-compliance issues. And while some 50 percent did not intentionally break the law, software vendors still often require guilty businesses to pay the applicable fines.

Even if foot-dragging firms can avoid the financial penalties, they will ultimately end up paying in other ways if they don't properly manage their software licenses. Consider, for instance, what one Gartner Group study shows: For every $100 most businesses spend on software, they typically end up spending $500 over the two- to three-year life cycle of that same software (presumably on things like labor and maintenance costs). Companies that effectively manage their software, however, can reduce their IT spending by up to 40 percent.

An IDC report released in March looks at major shifts in software licensing. Incorporating the views of 100 software vendors and 100 software customers, IDC finds that medium- and large-sized software customers are juggling an average of more than 40 software contracts. Some 70 percent of these customers, furthermore, believe that it will get increasingly difficult to manage these contracts.

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"Clearly, the amount of revenue vendors are losing to pirated software, bootlegged software and out-and-out non-compliance by users is in the billions [of dollars] worldwide," says Laura DiDio, senior analyst at the Yankee Group, headquartered in Boston. "The vendors themselves have gotten a lot more serious about policing this. We also have the Business Software Alliance (BSA), which acts as sort of the enforcement arm for the vendors."

As the vice president of enforcement at the BSA, Bob Kruger leads the organization's North American anti-piracy program, overseeing thousands of audits, investigations and legal actions. He strongly advises CFOs to consider the huge fines their businesses could face if the right precautions aren't taken.

"In the U.S., businesses could be made to pay up to $150,000 for each copyrighted work infringed," says Kruger. "If you're a business and you've got unlicensed copies or infringing copies of, say, word processing software, spreadsheet software, graphics packages, operating systems software--you could be talking about liability in the seven-figure range. That's all on top of the money that you would then have to pay for the licenses."

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For Kruger, the issue is simple: Good companies pay their taxes, establish compliance programs to ensure they are obeying health, public safety and environmental laws and buy their computers. So they should also have the same respect for the law when acquiring software.

To be sure, industry watchdogs aren't the only ones asking financial executives to carefully consider the financial, legal and ethical arguments in favor of respecting software stipulations. Providers of software license management systems are also doing their part, and their message has fallen on receptive ears. "The software tracking industry is growing rapidly," says DiDio, who maintains that 40 percent to 50 percent of firms world-wide use some sort of asset management system.

Consider technology reseller CDW Corp., a Fortune 500 firm in Vernon Hills, Ill., which had net sales of $4.7 billion in 2003. Its Software License Tracker tool, available since last June, enables customers to track their software licenses through CDW's extranet. Adobe Systems, Microsoft, Symantec, Veritas Software, Computer Associates and Network Associates have all agreed to make their volume-licensing data available to CDW.

"Financial executives may not have visibility into very large organizations," says Tom Maloney, director of software for CDW, adding that his firm's customers can use the tool for free. "They're certainly not people who track their licenses all day. But rest assured that a financial executive is going to have visibility into it when he or she sees a fine come over for hundreds of thousands of dollars because they're out of compliance."

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Woodward, Hobson & Fulton LLP, a law firm in Louisville, Ky., that has firsthand knowledge of what can happen when licenses expire, has been using CDW's Software License Tracker.

"We weren't aware of some of the ways to extend the licenses," says Susie Daily, the firm's IT manager. "Using CDW has made us aware. It's a significant cost savings. If we wouldn't have had this program and realized what we could do and how we could extend it out, then we would have spent probably $85,000 on the same software that we got for $85, because all we had to do was buy the media," meaning disks or CDs on which software can be stored.

These days, some organizations may have, say, 30 different offices, each with its own set of software applications, Maloney reasons. That means that if CFOs are responsible for the budgetary spending at multiple locations, they had better be able to get data on expiration dates, quantities installed and locations where software is used.

Because Sarbanes-Oxley is now part of the new business environment, financial executives must now deal with the whole notion of transparency into their infrastructures from an audit and controls perspective, stresses Gary Oliver, president and CEO of Blazent Inc., headquartered in San Mateo, Calif.

"One of the things keeping CFOs awake at night is being out of compliance on licenses--where software companies are able to approach a CIO or an IT organization's CFO and basically challenge them to say, 'Look, this is what our records show you owe us, and unless you can prove otherwise, we want you to write us a check,'" says Oliver.

The Blazent Real-Time IT Intelligence Solution was designed to give executives a complete understanding of what they have in their infrastructures. The solution provides business-focused analytics modules that CIOs and CFOs can use to make sure that they're in compliance. Pricing is based on the analytics modules the customers need, the number of assets being collected and reported on and the specifics of integrating Blazent's functionality with the customers' other systems.

Larry Heberlein, product manager at Engagent in Kenmore, Wash., cannot understand how companies will spend millions of dollars on software and not spend a little bit more to acquire a solution that will manage their applications. Based on the industry research he's seen, he believes that IT departments buy up to 30 percent more software than they ever install. Which is, to put it mildly, not the best way to spend IT dollars.

"When an employee leaves the company and his laptop is no longer in use, what happens to the copy of Office that was on it?" says Heberlein. "The answer is usually, 'We go out and buy a new one for the rehire.' So the most immediate benefit of instituting an automated license tracking system is that you can avoid spending money for software that you already have licenses to."

With institutions like the BSA getting more vigilant and more proactive about making enterprises more accountable, financial executives need to ensure that their businesses' best interests aren't hurt by stiff fines that can easily be avoided.

With the Engagent Software License Manager, users can produce reports that prove that they are in compliance. Using this solution--the professional version goes for $499, and the enterprise version costs $4,900--could also help them avoid expensive software audits.

If executives still aren't convinced about the need to properly track or manage software use, they had better consider another incentive provided by the BSA: It has set up a toll-free phone number that whistleblowers--employees, former employees, competitors and others--can use to tattle on companies that are breaking the law with regards to software use.

The BSA promises that it will determine whether or not the reports it receives are reliable before taking action, but it will certainly go after companies that it believes are on the wrong side of the law.

Even so, BSA is also a resource for businesses that want to learn how they can prevent violations. Interested parties can visit its Web site (www.bsa.org) to access a free software auditing tool or to download a free guide that sets out all the steps companies should follow.

"This is not a very complicated type of exercise," says BSA's Kruger. "It really boils down to a few basic steps: Putting a good policy in place; educating your employees; setting up systems that will ensure that when people need software programs, there's an efficient way of acquiring those programs in a legal way; doing occasional checks on your own system through auditing, and making sure that there's an adequate budget put into place to support your needs going forward."

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Ian Palmer is a freelance business writer in Brampton, Ontario. He can be reached at [e-mail].