MYTH 5 :

Low software costs come from using best-in-class processes.

Reality: Good processes are essential, but software vendors do not reduce your invoice because you have a good process.

"There are a lot of companies out there that say you need a good process in place to reduce your costs," Swanson says. "The reality is, you may have a good process, but that doesn't mean a vendor is going to give you a good discount. And a good process going down the wrong road still gets you to the wrong destination. Some of the companies most known for their processes actually have some of the worst costs, because they're more concerned about the process or the input than they are the output."

SAM processes support financial objectives that are seldom fully appreciated before the processes are implemented, he says. Business processes tend to be transactional in nature and help cut labour costs associated with change management, data collection, inventory management, invoicing and so on. That is why there is no correlation between managing software costs and processes.

"Companies known for their best-in-class business processes may excel with their processes, but they frequently fail to achieve the same results when applying them to SAM. Some of the lowest cost data centres lack any formal process in managing their software. Conversely, some of the best processes deliver savings, but fail to address core business problems in managing software costs. In fact, in a study conducted on a random sampling of over 100 companies, there was found to be no correlation between processes and costs," Swanson says.

MYTH 6 :

ELA discounts and "Terms and Conditions" are restricted by SOP 97-2, SOP 98-4 and SOP 98-9.

Reality: Particularly in the US, where vendors are subject to a myriad of accounting rules, vendors will sometimes try to claim those rules restrict their ability to negotiate price and contract terms. Don't be fooled. The American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), Generally Accepted Accounting Principles (GAAP) and the US Securities and Exchange Commission (SEC) do not tell vendors how to price software; they only govern how to recognize the revenue.

In fact there is nothing in the AICPA, FASB, GAAP or SEC that gives vendors any guidance on pricing software and no accounting rules restrict a vendor's ability to negotiate the price and terms of a contract. Moreover the rules certainly do not address discounting in any way, so any vendor using them as an excuse is being dishonest.

"Accounting rules do not tell you what kind of a discount to offer a customer. Accounting rules tell you how to allocate your revenue from a customer, but they don't tell you what to sell and ask," Swanson says. "What the accounting rules will say is that whatever product you sell to customer A, the price has to be consistent with that same product sold to somebody else and it has to be consistent with how you've always priced things."

On the other hand, licence agreement terms and conditions can certainly impact the vendor's timing of revenue recognition, and this is a real issue for the vendor (and its shareholders). "Vendors should not attempt to hide behind these rules in failing to grant a customer favourable terms and pricing. The reality is that the accounting rules govern revenue recognition and not business practice," Swanson says.