Beware! You Could be Throwing Money Away

While companies search for the most economical way to implement new applications, for some the answer could be a big surprise. They already have it installed as part of a larger suite and aren't aware of the fact. Or they are buying applications they don't need.

Software purchases are consuming an ever-expanding portion of IT budgets. According to Andy Gallagher, managing consultant for Compass Publishing BV's office in the UK, companies spent 10 percent of their mainframe budgets on software in the 1980s, but today that figure runs in the 30 to 40 percent range.

Taking a look at desktops, Dell was selling its Dimension 2400 workstation -- including a 17-inch LCD flat panel monitor, 2.66GHz Pentium 4 processor and an 80GB hard drive -- for $599 in March. But you can spend far more than that on software for the machine.

Microsoft's Office 2003 Professional Edition alone lists for $499.99, almost as much as the hardware. Then installing a firewall, antivirus, defragmenter, remote access software and any applications users need to do their job adds a few hundred dollars more.

Organizations, as they should, always will look for ways to cut their software expenditures, as exemplified by the open source movement. But it is one thing to pay for expensive, but necessary, software. The real problem is companies buying software they don't need -- either because their employees don't or won't use it, or because they already have the application and aren't aware of it.

Paying Twice

Some firms, it turns out, are wasting a huge amount of money buying unnecessary software. Gallagher reports that 8 percent to 15 percent of software spending goes to the purchasing, renewing and support contracts for shelfware.

''Companies do own a lot of tools that have functional overlap,'' says David Friedlander, senior analyst for Forrester Research in Cambridge, Mass. ''In some cases, it is due simply to a lack of awareness of the existence of a tool.''

This problem takes many forms. On the desktop level this includes desktop licenses being purchased for employees who don't ever use that particular application. And sometimes administrators buy more licenses than the number of copies actually loaded. Sometimes this is due to buying bulk licenses to meet anticipated future growth expectations, rather than arranging a phased purchase agreement to add the additional licenses at a later date. At other times it is simply due to sloppy inventory and record-keeping practices. While it may be better to have too many licenses in case of an audit by the Business Software Alliance, it is even better to have just the right number.

Different business units independently buying software easily can result in extra licenses scattered throughout the enterprise. One branch winds up buying additional licenses to meet its growing needs, rather than taking advantages of another branch's unused licenses. Independent purchasing also drives up the cost per license.

''If you don't have centralized purchasing, you can have groups buying the same software from the same vendor without any sort of negotiated discount,'' says Friedlander.

Another problem arises from buying plug-ins that cover functions that are now part of the basic functions of a piece of software that the company already owns.

For example, WordPerfect and StarOffice/OpenOffice productivity suites both allow a user to save word processing documents in a PDF format. This may be enough functionality for many users to avoid purchasing copies of Adobe Acrobat for them.

Similar problems exist at the server end.

''Especially in the area of capacity planning, enterprises have a lot of tools that they don't use,'' says Milind Govekar, a research director at industry analyst firm Gartner, Inc. ''Probably 50 percent to 60 percent of enterprises are finding it is becoming an expensive form of shelfware.''

Continue on to find out how you can avoid these expensive pitfalls...