Case Study – IBM Audit Defense: Pennsylvania Manufacturer Reduces IBM Audit Exposure from $32M to $1.3M
Background
A major industrial manufacturing company headquartered in Pennsylvania operates multiple plants and distribution facilities across the United States.
With more than 12,000 employees and a product portfolio spanning automotive, construction, and energy sectors, the company relies on enterprise software platforms to manage everything from supply chain logistics to quality control and regulatory compliance.
The company has utilized IBM software for over 15 years, including DB2, WebSphere, MQ, and Maximo, which are deployed across physical servers and virtualized environments in its central and remote data centers.
In 2024, the company was unexpectedly hit with an IBM license audit led by a Big Four accounting firm acting on IBM’s behalf. The initial audit report claimed a license shortfall of USD 32 million, based on full-capacity licensing assumptions and incomplete data analysis.
Unconvinced by the findings and concerned about the financial exposure, the manufacturer’s CIO reached out to Redress Compliance for an independent audit defense strategy.
Within weeks, Redress had discredited most of the assumptions in the audit report. It helped reduce the company’s exposure to a fraction of the original claim—culminating in a final negotiated settlement of USD 1.3 million.
Challenges
The company’s IBM licensing and deployment environment had evolved over years of organic growth, acquisitions, and IT modernization efforts.
Several challenges contributed to the situation:
- Outdated Licensing Records: Some entitlements had been purchased under old contracts and were never consolidated during IT system upgrades.
- Sub-Capacity Confusion: IBM products were deployed in virtualized environments, but the company’s ILMT (IBM License Metric Tool) implementation was incomplete or misconfigured—leading auditors to assume full-capacity licensing.
- Decentralized Software Management: Different business units managed their systems, resulting in inconsistent tracking of IBM usage and no unified license governance.
- Aggressive Audit Assumptions: The Big Four audit team based their findings on worst-case interpretations, assuming all discovered deployments required full licensing without accounting for entitlement coverage, usage patterns, or technical constraints.
The manufacturer knew the $32M figure couldn’t be accurate—but they lacked the expertise to challenge IBM’s findings directly.
How Redress Compliance Helped
Redress quickly assembled an IBM audit defense team and applied its proven framework to take control of the situation.
1. Audit Report Review and Validation
Redress began with a detailed line-by-line review of the Big Four’s audit report. We:
- Analyzed the methodology and assumptions used to calculate exposure
- Cross-checked licensing metrics against IBM product use rights
- Compared deployment data to contract entitlements and software bundles
- Identified major flaws in how the auditors applied PVU calculations and virtualized usage assumptions
We concluded that the real, defensible exposure was closer to USD 4 million, not $32 million.
2. Technical Remediation and Data Reconciliation
Working alongside the company’s infrastructure and software teams, we:
- Verified and corrected ILMT configurations
- Cleaned up data inaccuracies submitted to the auditors
- Provided proof of decommissioned or test-only systems that had been wrongly included
- Mapped entitlements to active usage more accurately using our IBM ELP (Effective License Position) methodology
We then documented all findings in an audit-ready remediation file to counter IBM’s narrative.
3. Negotiation and Settlement Strategy
Redress managed all commercial discussions with IBM and the audit firm. Our team:
- Rejected inflated assumptions based on IBM’s own licensing rules
- Provided alternative calculations grounded in contractual entitlement and technical deployment
- Shifted the negotiation from “license gap” to “commercial resolution,” creating room for IBM to close the case
- Positioned the client as cooperative but firm, emphasizing remediation and future compliance
This led to a negotiated settlement of USD 1.3 million—a 96% reduction from the initial demand.
Outcome and Impact
The manufacturer successfully navigated the audit without disruption and achieved significant cost avoidance:
- Original audit claim: $32,000,000
- Validated shortfall: $4,000,000
- Final settlement: $1,300,000
- Total cost avoided: $30.7 million
- No penalties or backdated support charges
- ILMT is properly deployed for future sub-capacity compliance
- Renewed internal license governance to prevent similar issues moving forward
What started as a major financial threat ended as a manageable, low-risk settlement—with internal processes strengthened as a result.
Client Quote
“When the auditors claimed we owed $32 million, we knew something was wrong—but we didn’t know how to fight it. Redress Compliance stepped in, thoroughly reviewed the report, and revealed exactly what our real exposure was. Their knowledge of IBM’s licensing rules and how to push back changed everything. Thanks to them, we paid a fraction of the original demand and gained full control of our IBM licensing.”
— VP, Global IT Operations – Anonymous U.S. Manufacturer
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