SAP LICENSING

How Does SAP Licensing Work?

  • License Types: SAP offers user-based, module-based, and consumption-based licenses.
  • User-Based Licensing: Charges per named user, based on roles and access levels.
  • Module-Based Licensing: Charges for specific SAP modules used.
  • Consumption-Based Licensing: Charges based on actual usage or data volume.
  • Annual Maintenance Fees: Typically required for support and updates.

SAP Licensing Basics

SAP Licensing Basics

SAP software licensing is extremely complex, with over 3,000 items, 24 types of user licenses, and 100 engine metrics. Consequently, many businesses struggle to match their license inventory with their licensing requirements.

This frequently results in exorbitant SAP application licensing and expenditures. SAP’s system measuring tools are ineffective, as they only display license usage and are not designed to optimize license selection or reduce expenses.

How to Manage SAP Licenses and Costs

Reveal Compliance is an expert in this field. We have compiled the most vital facts regarding SAP and the licensing procedure to assist businesses in overcoming these obstacles.

The Three Pillars of SAP Licenses:

  1. Product Selection
  2. Deployment Options
  3. License Models

Understanding these pillars is essential to:

  • Comprehending your effective license position.
  • Avoiding unnecessary software spending and ongoing maintenance costs.
  • Eliminating shelfware.
  • Maintaining license compliance.

SAP License Types and Other Expense Factors

SAP License Types

To optimize SAP expense management, organizations must determine investigational priorities. In addition to named-user licenses, SAP clients pay for:

  • Engine Utilization: Industry or line-of-business solutions.
  • Basic Packages: Contract mappings, used payrolls, etc.
  • Special Packages: Agreed-upon payment methods with SAP.
  • Indirect and Digital Access Licensing.

Named User Licenses for SAP

Named-user licenses account for roughly 40 to 70 percent of the total SAP contract price. Each SAP user requires a named user license. However, there are various types with different scopes of authorization and functions.

Common License Types:

  • Developer: Customized feature development with development tools.
  • Professional: General management of operations and system administration.
  • Limited Professional: Limited operational capabilities, validated by SAP.
  • Employee Self-Service (ESS): Self-services like time and attendance records in HR.
  • Worker User: Entering production data, confirming maintenance messages, etc.
  • Logistics User: Transport management, warehousing, and more.

Key Points on License Costs

  • Higher Features, Higher Cost: Developer and Professional licenses are the most expensive.
  • Default Licensing: If no license has been granted to a user, the professional license is the default during measurement.
  • Limited Professional User License: This type is no longer available to new clients, so alternative license types are required.

Important Notes

  • Customers with Limited Professional licenses could define the functional scope in their portfolios until January 2016. This license is no longer available to new clients.
  • Alternative license types should be considered to effectively match your organization’s usage needs.

By understanding and managing these elements, businesses can significantly optimize their SAP licensing and reduce unnecessary costs.

ERP Core License

To utilize SAP’s fundamental capabilities, your organization must buy an SAP ERP license, such as SAP S/4HANA Enterprise Management for ERP customers. This license grants access to the SAP ERP core, comprising modules such as:

  • Accounting
  • Sales Management
  • Service Management
  • Production Planning
  • Project Control
  • Operational Procurement

Additional Capability with LoB Solutions:

  • Augment core operations with line-of-business solutions like S4 Central Finance, offering broader functions.

Licenses for Engine and Package Use

Businesses can acquire a license for the engine or bundle for numerous SAP applications. These modules are available for purchase in addition to named-user licenses and are subject to various metrics. An engine- or package-specific characteristic determines the cost of license usage.

Common Metrics Include:

  • Number of employees
  • Number of orders
  • Annual income
  • Annual expenditure volume
  • Barrels of oil per year
  • Processors
  • Cores
  • Storage volume in gigabytes

SAP Licenses for Indirect Use and Digital Access

SAP Licenses for Indirect Use and Digital Access

Indirect Access:

  • Occurs when persons, devices, or systems access the ERP system indirectly through a non-SAP intermediate software.
  • Licensed mostly based on users.
  • Order-to-cash and procure-to-pay situations are licensed based on the quantity of sales and purchase orders.

Indirect Access Scenarios:

  • Indirect Static Read: This does not require licensing.
  • Accessing SAP data via third-party applications or web storefronts often constitutes indirect use.
  • Activities without a valid SAP user license can result in substantial additional payments during an SAP audit.

Challenges and Solutions:

  • Identifying third-party systems and determining indirect use is complex.
  • SAP license measuring tools cannot perform a comprehensive analysis.

Digital Access:

  • SAP published a definition for Digital Access in 2018 to clarify indirect use scenarios.
  • Customers can either adopt this definition or stick with their existing SAP contracts.
  • New S/4HANA clients must use SAP Digital Access metrics.

By understanding these elements, businesses can manage their SAP licenses effectively, ensuring compliance and optimizing costs.

Digital Access Licensing

Digital Access is an option for indirect usage licensing.

  • Document Creation: Requires permission for nine predefined document types.
  • Free Operations: Data updates, information exchange, and data deletion are free.

Key Points:

  • User Independence: Not contingent upon the number of users.
  • License Exchange: Named-user licenses can be exchanged for document packages during migration.

Estimating Digital Access Usage:

  1. Digital Access Estimation Report (SAP Note)
  2. SAP Passport Program

SAP Passport:

  • Automatic Counting: Counts all documents triggered externally.
  • Installation: Requires specific SAP versions and upgrades.
  • Precision: Improves measurement accuracy and excludes SAP-to-SAP exchanges.
  • Measurement Process: Specialized tables for digital access measurement, first results after twelve months.
  • USMM and LAW Logs: Measurement data recorded and validated.

Older SAP Note:

  • Installation Required: For ECC (SAP-Note 2644139) and S/4HANA (SAP-Note 2644172).
  • Estimation Report: Counts all potential digital access documents, regardless of origin.

Database Licenses for HANA

In S/4 installations, clients must utilize SAP’s HANA database.

HANA Versions:

  • HANA Runtime: Licensed as a percentage of the license value, which is less expensive.
  • HANA Full Usage (Enterprise): More capabilities, paid based on utilized storage volume, more expensive.

Considerations:

  • SAP App Support: Will HANA only support SAP apps?
  • Integration Needs: Integration with other databases or data lakes is required.
  • Specialized Features: Geodata, parallel processing, disaster recovery.

Software Licenses

Most organizations integrate SAP with additional purchased or self-developed apps.

Key Integrations:

  • Data Exchange: Import/export processes for large data volumes.
  • Advanced Functions: Data transformations, process monitoring, error tolerance, unattended processing.

Typical Modules:

  • Data Services SAP
  • Process Orchestrator for SAP
  • SAP Netweaver OpenHub
  • SAP Netweaver Third Party Application Foundation

By understanding these elements, businesses can effectively manage their SAP digital access and database licenses, ensuring compliance and optimizing costs.

SAP DEPLOYMENT OPTIONS

SAP ECC (ERP Center Core) may be deployed in a client or an outsourced data center. With S/4HANA, the number of deployment options has expanded, providing the client with various alternatives—which is, of course, a positive thing. Still, it complicates the decision-making process from both a technical and a cost comparison standpoint.

When selecting a deployment option, you must take into account the following factors:

  • Which software version do we require, one with full capability or one with fewer features?
  • Can we rely on prepackaged software, or do we employ extensive customization?
  • Do we prefer to subscribe to licenses (pure OPEX) or spend CAPEX on permanent licenses?
  • Do we prefer a SAP-managed, all-inclusive contract mode, or would we rather control and choose the individual components?
  • Do we require unique service levels, or are SAP’s normal service levels sufficient?

SAP Licensing Models

SAP Licensing Models

Contractual Models for SAP Licenses:

  • Permanent Licenses (CAPEX + 22% OPEX):
    • Use SAP software indefinitely.
    • Annual maintenance and support agreement (22% of license fee).
  • Subscription Licenses (OPEX Only):
    • Recurring payments, including maintenance and support.
    • Common for SAP cloud-based apps.
  • Consumption-Based Licensing:
    • Charged based on documents used, annual revenue, procurement volume, etc.
    • Includes products like Concur, Ariba, and Fieldglass.
  • Unlimited Licensing (UDD):
    • Agreed purchase price and annual maintenance model.
    • Deploy any number of SAP software for a limited time (select on-premise solutions).
  • Single Metric Licensing:
    • Use a set of products, price determined by a single measure (e.g., income or number of users).
    • Costs increase proportionally with the metric.

SAP System Measurement

Annual Audit Right:

  • Annual System Measurement:
    • Required almost annually upon SAP inquiry.
    • Performed using the SLAW (SAP License Audit Workbench) tool.
  • Enhanced License Audit:
    • Conducted every three years by SAP’s GLAC team.
    • Onsite audit with customer interviews and SLAW execution.
    • Generates a SAP audit report for customer sign-off.

Key Points:

  • Accurate license portfolio information requires significant time and resources.
  • Small businesses can use Excel or internal knowledge; large businesses need comprehensive tools.
  • Annual measurement for ERP applications using transaction USMM and SLAW.
  • Professional license management avoids unnecessary purchases and controls maintenance costs.

Manual Analysis Methods:

  • Self-reporting and questionnaires for products like CRM, Business Objects, and HANA.
  • SAP performs its measurements for cloud solutions.

Formal Audits:

  • Triggered by suspected license breaches.
  • Focus on inconsistencies or lack of license transparency.

Benefits of License Management Solutions:

  • Effective audit preparation and proactive SAP engagement.
  • Ensures compliance, optimizes license costs and maintains transparency.
  • Facilitates better negotiation and audit outcomes.

By understanding and implementing these SAP licensing models and measurement practices, businesses can optimize their SAP investments and ensure compliance.

System Measurement Guidelines

Rights and permissions depend on the SAP products, license types used, and the date of purchase. An SAP user’s license must match or exceeds their actual SAP activity. If they fall short, the licenses are excessive, presenting an opportunity to reduce expenses.

Many SAP clients are considering the new USMM 2.0. SAP promotes licensing based on authorizations and has provided a mechanism in USMM 2.0. If a business adopts this method, licenses are assigned directly according to the USMM measurement. Consequently, a corporation may face permanent overlicensing as actual usage is no longer the assessment basis, leading to increased expenses due to excessive authorizations.

Successful licensing management requires knowledge of license types, costs, risks, and current SAP rules. Staying updated is beneficial as certain criteria have been loosened, allowing businesses more flexibility to optimize their license inventories.

SAP clients can trade in licenses, obtain partial refunds for returned licenses, and gain incentives to adopt cloud-based services.

Under- and Over-Licensing of Products

Most businesses lack systems or methods to determine how many licenses they possess and need. In complicated SAP environments, there’s almost always a mismatch between license inventory and licensing requirements.

Underlicensing: License stockpile minus licenses required.

  • Frequency: Rare.
  • This occurs when the number of SAP users exceeds the number of licenses acquired or when a user utilizes capabilities not covered by their license.
  • SAP focuses heavily on indirect usage or SAP Digital Access, as third-party applications routinely access SAP systems.

Overlicensing: License supply exceeding demand.

  • Frequency: Common.
  • Occurs when more licenses are obtained than necessary, often due to erring on the side of caution.
  • Expensive license types are obtained despite underutilized functionality.
  • The costly Professional User category is applied automatically during measurement if a user hasn’t been issued a license.

Overlicensed SAP contracts result in excessive annual maintenance costs. Potential savings are identified when clients assign the most expensive license types unnecessarily.

Using alternate licensing types may also result in cost savings. However, many businesses opt for the costly Professional license due to uncertainty about the best licensing type.

Risks of Overlicensing

Overlicensing can be hazardous if existing licenses are inappropriately assigned. For instance, if a user uses professional functions but only has an employee license, SAP will demand additional payment if an audit reveals users exceeding their license limits. Despite overlicensing, a corporation may still need to purchase extra licenses.

Overlicensing does not negate the need to optimize SAP licenses. New licenses are frequently obtained each year without knowing the precise demand.

A competent licensing management tool helps identify surpluses, particularly in the expensive license sector. This allows the company to purchase the cheapest licenses when needed and swap expensive ones for cheaper ones.

Causes of Excessive Licenses

At first glance, underlicensing seems more dangerous than overlicensing, as it often results in unplanned penalty payments. However, many businesses unknowingly spend too much on licensing. Overlicensing can be attributed to two main factors.

1. Excessive or Pricey Named-User Licenses:

  • Over-purchasing: Too many named-user licenses are bought without understanding actual needs.
  • Manual Assignment: Licenses assigned without accurate information on user behavior.
  • Unclear Categories: SAP’s license categories are ambiguous and confusing appropriate types.
  • Default Licensing: The expensive Professional category is defaulted without specific assignments.
  • Misallocation: Users are granted costly licenses that exceed their needs; cheaper alternatives would suffice.
  • Multiple Accounts: Users with multiple SAP accounts each get a license.
  • Unused Licenses: Former employees or inactive users retain their licenses.
  • Third-Party Access: Employees using third-party software with SAP Digital Access do not need a SAP license but are often still assigned one.

2. Insufficient Information on Engine Licenses or Package Metrics:

  • Unclear Parameters: SAP does not specify which metrics are used to calculate expenses.
  • Measurement Time: Only actual consumption is determined at measurement time, requiring manual labor or SAP license optimization software for proactive management.
  • Lack of Transparency: Engine and package license measurement results are often unclear and inconsistent.

License Measurement vs. License Optimization

SAP License Measurement:

  • Quantitative Review: Compares current status to the licensing agreement’s target status using SAP tools like USMM and LAW.
  • Opaque Data: Only provides a total count of user accounts per type, without insights into actual usage or duplicate accounts.
  • Law Consolidation is often debated because it cannot identify all consolidation cases, leading to unnecessary duplicate licensing.
  • Engine and Package Licenses: Measurement lacks transparency and significance, often leading to unexpected costs with outdated USMM versions.

Need for Optimization:

  • Compliance Check: SAP’s license measurement is mainly for compliance and does not optimize licenses.
  • Alternative Solutions: Businesses need tools that evaluate how users operate SAP systems quantitatively and qualitatively.
  • Meaningful Data: Superior tools collect and present data in a helpful format, enabling better license management.

Businesses can better manage their SAP licenses by addressing these issues, avoiding overlicensing, and optimizing costs.

Effective SAP License Management

sap license management

Addressing over- or under-licensing manually is nearly impossible and requires significant resources. Complex SAP landscapes need a competent licensing management tool to determine and optimize license inventories for named user, engine, and package licenses.

Optimization of User-Specific Licensing

The licensing management application must collect and centrally combine individual SAP users’ usage statistics and engine values to optimize named-user licenses and avoid surprises during engine measurement. Key questions to address include:

  • Which engines and packages are used for billing, and in which SAP systems do they apply?
  • What functions are employed, and which actions are carried out?
  • How many licenses have been assigned to each user?
  • Is SAP system access direct, indirect, or both?
  • For some specific licenses, the usage frequency of the SAP system may also be considered.

SAP requires clients to license their personnel based on their activities across all billing-relevant systems. This information is assessed using a transaction database specifying necessary licenses for each SAP transaction. This review must be repeated regularly as users’ tasks and environments change, ensuring dynamic adjustments to the license inventory. The tool must recognize and assess new transactions based on the appropriate license type, automatically issuing and modifying licenses as required.

The goal is to reduce or eliminate compliance concerns by comparing gathered usage data with authorization, entitlement, and usage rights, ensuring each user has the correct license type. The license management solution should also identify potential indirect usage or SAP Digital Access issues and provide guidance to avoid unplanned or excessive license charges.

The SAP Applications department should be enabled to:

  • Automatically assign the best licensing type to users.
  • Identify and reassign unneeded licenses.
  • Identify and remove duplicate users.
  • Optimize licensing for indirect usage and SAP Digital Access.

The solution should provide the ideal number of licenses per type compared to contract stipulations, which is useful for renegotiating contracts with SAP.

License Optimization for Engines and Packages

The tool must optimize or summarize engines and packages from various SAP systems. Optimization involves centrally consolidating important consumptions and identifying data sources.

The solution must identify all engines and packages across SAP systems, consider applicable licensing regulations and parameters, and generate reports for calculating consumption. Since engines and packages are often distributed across different computers, the tool must count parameters across platforms, minimizing consolidation efforts.

Enhancement of Digital Access

Effective comprehension of indirect usage licensing involves steps such as:

  • Estimation of digital access documents.
  • Investigation of the ties that led to these documents.
  • Assignment of external apps to technical users.
  • Evaluation of isolated usage scenarios.
  • Subtraction of internal batch processing documents.
  • Factorizing material and financial records.
  • Comparing digital access costs to the indirect usage model.
  • Documentation preparation for SAP audit.

Conclusion

Many businesses struggle to match their license inventory with actual licensing requirements, leading to exorbitant SAP application licensing and expenditures. SAP’s system measuring tools are ineffective for optimizing licensing expenses as they only track usage and assignment, not optimizing inventories or discovering correct assignments.

A suitable license optimization solution must be transaction-based, collecting and analyzing valid data on user behavior to automatically improve the license portfolio. This reduces overlicensing and overpayment and helps avoid costly additional payments due to underlicensing.

Customers who can document precisely what is used in their organization have a stronger negotiation position with SAP. SAP lacks a uniform true-up procedure, so clients must proactively manage software compliance and approach SAP before annual measurements to acquire necessary licenses and address compliance issues. Once SAP conducts an audit, it is too late to negotiate from a position of strength.

To maintain authority and oversee strategic SAP software purchases:

  • Evaluate and optimize your license condition quarterly.
  • Resolve compliance issues before an audit.
  • Avoid negotiating with SAP more than annually or every six months if necessary.
  • Do not pay maintenance for unused licenses; trade or cancel them.
  • Plan strategic acquisitions with sufficient planning and lead time.
  • Involve licensing experts as needed, similar to other technical fields.

By following these guidelines, businesses can effectively manage SAP licenses, optimize costs, and maintain compliance.

Author

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  • Fredrik Filipsson

    Fredrik Filipsson is an Oracle licensing expert with over 20 years of experience in Oracle license management. He spent 10 years working for Oracle corporation and then 10 years at a consultant leading engagements on Oracle license assessments, audits, ULAs. He is a public speaker and author

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