Mixed enthusiasm for cost avoidance

Avoiding the need to spend money in the future isn’t always something to write home about. This software licence audit illustrates how we saved £250,000 in future expenditure – but it resulted in an overall lack of enthusiasm.

• A software package costs £200 per licence. An audit shows that there are 2000 installations – a total cost of £400,000 in software licences.

• An audit of purchasing records shows the purchase of only 500 licences.

• The business has already spent £100,000 on licences, and to be fully compliant, an additional £300,000 of expenditure is required.

• However, an audit of software usage shows that only 750 need to use this software package.

• After removing software no longer needed, the business needs an additional 250 licences – reducing the additional licence cost from £300,000 to £50,000.

• Removal of 1,250 unnecessary software installations has reduced future expenditure by £250,000.

As auditors, we can be enthusiastic about:

• Saving the company £250,000

• Reducing the commercial risks associated with unlicensed software

However, others’ enthusiasm wanes because:

• An immediate expense of £50,000 is required.

• The £250,000 was never actually spent, so it is not returning to any budget.

• Nobody knew about the £250,000 risk exposure, so it is easily forgotten.

• No further action is required on the £250,000 saving, whereas the £50,000 expenditure will no doubt require approval and be visible at C-suite and director level.

• When considering the cost benefits associated with the audit, the identified need to spend £50,000 is something memorable, not the £250,000 saving.

While this example focuses on software licensing, the same logic applies across many other areas: invisible savings often go unnoticed, while visible costs trigger concern.