CIO Playbook: Managing Microsoft Cloud Agreements and Subscriptions

Managing Microsoft Cloud Agreements and Subscriptions

Microsoft’s cloud licensing landscape is evolving rapidly. CIOs and IT asset managers must navigate new agreement models and modernize their management of Microsoft 365 and Azure subscriptions. This playbook provides a comprehensive guide and report on optimizing Microsoft cloud agreements and subscriptions.

It covers Microsoft’s shift from traditional Enterprise Agreements (EA) to the newer Microsoft Customer Agreement (MCA), operational best practices under these agreements, license management hygiene, cost recovery strategies, self-service purchase governance, true-up/true-down tactics, and a governance checklist.

The goal is to help you maximize value, maintain control, and avoid common pitfalls in Microsoft licensing.

Microsoft’s Shift from EA to MCA

Microsoft is moving away from Enterprise Agreements towards the Microsoft Customer Agreement (MCA), especially for customers who buy directly from Microsoft. Historically, an EA was the go-to option for organizations (typically with 500+ users) to license Microsoft products in volume.

However, starting in 2025, Microsoft is phasing out EAs for many mid-sized customers in favor of the MCA. Notably, Enterprise Agreement “Level A” customers (up to ~2,400 users) will no longer be able to renew under an EA and must transition to either an MCA or another model​. This strategic push reflects Microsoft’s desire to simplify contracts, increase flexibility, and encourage direct, digital purchasing.

Why Microsoft Introduced the MCA: The Microsoft Customer Agreement is a simplified, evergreen (non-expiring) digital contract that streamlines the purchasing process. It is designed to replace older agreements, such as the Microsoft Online Subscription Agreement (MOSA) and the Microsoft Products and Services Agreement (MPSA), and eventually many existing agreements.

For direct customers, Microsoft often refers to the enterprise-focused version as “MCA for Enterprise” (MCA-E)​. Key characteristics of the MCA include: no minimum seat requirements, modular terms that update dynamically as you add services, and a single agreement covering all cloud services (Azure, Microsoft 365, Dynamics 365, Power Platform, etc.) without needing separate enrollments or annual renegotiation.

Drivers of the Transition:

• Flexibility and Simplicity: Unlike the rigid 3-year term of an EA, the MCA is evergreen, offering monthly, annual, or 3-year subscription options for services. This means organizations can scale their licenses up or down more fluidly and don’t face a hard renewal deadline every three years for the contract. Billing is more straightforward, with options for monthly or annual payments per subscription instead of true-up reconciliations once a year.
• No Minimum Commitment: EAs typically require a minimum user or device count (e.g., 500 seats) and enterprise-wide coverage of specific products. MCA has no minimum seat requirement or enterprise-wide commitment, making it accessible to smaller enterprises and eliminating “shelfware” licenses that were purchased just to meet EA thresholds.
• Digital Self-Service: Under an MCA, customers can often add services or licenses via Microsoft’s web portals without the formal ordering paperwork of an EA. Microsoft’s move to web commerce platforms (New Commerce Experience) means even large enterprises can transact in a more self-service way, similar to how Cloud Solution Provider (CSP) partners operate. This reduces dependency on lengthy contract amendments or reseller intermediaries for changes.
• Evergreen Terms: The MCA’s terms update dynamically to include new services and policy changes, reducing the need for signing new contracts. This “evergreen” nature ensures compliance terms are up-to-date, but also means less negotiation leverage on contract language compared to a heavily negotiated EA that locked terms for 3 years.
• Direct Relationship: By moving direct customers to MCA, Microsoft can manage the billing and support relationship more closely or encourage them to move to CSP with partners. For Microsoft, this streamlines sales and potentially increases revenue predictability through ongoing subscriptions rather than large tri-yearly EA negotiations.

Impacts for CIOs: If your organization currently has an EA (especially a smaller EA) coming up for renewal, anticipate that Microsoft will encourage you to migrate to an MCA (or a partner-led CSP arrangement). Some EA-specific benefits may not carry over – for example, “Step-up” licenses (upgrading from one edition to a higher edition at a prorated cost) and certain Software Assurance perks, such as training vouchers and long-term support rights, were unique to EA.

Under an MCA, Software Assurance is handled differently or may not apply to pure cloud subscriptions, as SA primarily covers on-premises licenses. It’s crucial to review which benefits you rely on (e.g., dual use rights, license mobility, etc.) and confirm how they translate under an MCA or CSP.

Microsoft is continuously expanding MCA coverage; as of early 2025, MCA-E is available in many major markets for commercial customers, with more products being added over time. Government and education sectors are not yet widely using MCA; they remain on other agreement types for now.

Recommendation: Begin planning your transition strategy well before your EA expires. Engage Microsoft or your licensing partner to understand MCA pricing and terms for your services.

While the MCA often uses the same price list as other programs, large EA customers might have custom discounts – you will need to negotiate those into your MCA or consider a CSP partner who can offer comparable discounts. Additionally, prepare your operations team for the process changes (e.g., new billing portal, different renewal cadences) that come with MCA, which the next sections will address.

EA vs. MCA vs. CSP: Operational Comparison

Choosing the right licensing model involves understanding the differences between day-to-day management and flexibility. The table below compares the Enterprise Agreement (EA), Microsoft Customer Agreement (MCA), and the Cloud Solution Provider (CSP) program from an operational and subscription management perspective:

Key Takeaways: An EA offers predictable costs and comprehensive benefits at the cost of flexibility. MCA provides greater agility and direct control but may lack some legacy perks and requires enterprises to take on more active subscription management.

CSP sits in between; it offers flexibility similar to MCA, but you outsource some management to a partner, which can be a pro or con. Many organizations beyond a certain size may even mix models (e.g., using MCA for direct Azure consumption and CSP or EA for Microsoft 365, depending on the best pricing and management fit).

The next sections assume a shift toward the MCA/direct model and guide for operating under this paradigm, also noting differences for CSP or EA where relevant.

Managing Microsoft 365 Subscriptions and Licenses under an MCA

Under any agreement, effective management of Microsoft 365 (M365) licenses is critical to avoid overspending and ensure users have the tools they need.

With an MCA (or CSP) in place, IT administrators have direct control to provision and de-provision licenses in real time. This section serves as an operational guide for license admins:

• License Assignment via Admin Center: In an MCA scenario, you purchase Microsoft 365 licenses (e.g., Office 365 E5, Microsoft 365 E3, Dynamics 365 seats, etc.) directly in the Microsoft 365 admin portal (or via your Microsoft sales contact). Once purchased, those licenses become available to assign to users. Use the Microsoft 365 Admin Center for day-to-day tasks:
  • Navigate to Billing > Your Products to view each subscription (product) and see how many licenses are purchased versus assigned. From here, you can increase or decrease license quantity on the fly for subscriptions on a flexible term (for annual term subscriptions, decreases will be scheduled to take effect at term end).
  • Under Users > Active Users, you can select one or multiple users and use Assign License or Unassign License to manage their access. Changes take effect almost immediately. Unassigning a license frees it up for another user. If you reduce the total license count afterward, Microsoft will stop charging for the removed licenses starting from the next billing cycle.
  • Consider using Group-Based Licensing via Azure AD (Microsoft Entra ID) for efficiency. With group licensing, you assign a license SKU to an Azure AD security group. When a user is added to the group, they automatically receive a license, and when removed, their license is revoked. This approach enforces consistency and helps avoid human error in assignments. It’s especially useful in large organizations or when onboarding/offboarding batches of users. Example: Create a group “Sales – E5 Licensed” and assign the M365 E5 product to that group in Azure AD. As sales staff join or leave, updating the group membership ensures the license count matches the actual number of users.
  • Use the ability to toggle service plans on and off within a license for a user when necessary. For instance, an Office 365 E3 license includes SharePoint, Teams, Exchange, etc. If a certain user should not use Teams, an admin can edit that user’s license services and disable Teams for them. While this doesn’t change cost, it is part of entitlement management – ensuring each user’s access aligns with policy or need.
• Managing License Additions and Removal: With an MCA, adding licenses is self-service – simply adjust the quantity in the admin center, and the new seats are available (and will be reflected in your next invoice). Removing licenses (reducing quantity) depends on your subscription term:
  • If you choose month-to-month billing, you can decrease the quantity at any time, and Microsoft will reduce the charge in the next monthly invoice. This is the most flexible (useful if you expect fluctuating staff counts or short-term projects).
  • If you have an annual subscription (paid monthly or upfront): You commit to a number of licenses for the year. You can still unassign licenses from users to free them up for others, but you generally cannot reduce the total purchased quantity until the end of the annual term. Plan to turn off auto-renew or to renew with a lower count if needed. (One exception: Microsoft sometimes offers a pro-rated refund if a license is canceled within the first few days of purchase, but this is limited and part of New Commerce rules primarily used by CSP partners.)
  • Mid-year true-down: Unlike an EA, which wouldn’t allow any reduction mid-term, an MCA direct subscription might allow some flexibility if, for example, you had a catastrophic event requiring immediate downsizing – but typically, the policy is to wait for term-end for annual plans. To maintain flexibility, some organizations opt for a larger portion of licenses on a monthly term, even if it’s slightly higher unit cost, so that they can adjust downward quickly if needed (for example, keep 10% of your headcount on a month-to-month as a buffer for unexpected changes).
• Admin Roles and Delegation: Ensure the right people in IT have admin roles to manage licenses. The License Administrator role in Azure AD can be assigned to staff who need to assign or remove licenses but shouldn’t have full global admin rights. This supports operational governance by enforcing the principle of least privilege. Under MCA, billing admins can see and pay invoices, but they might not be the same people managing user licensing – coordinate between the billing and user administration teams.
• Entitlement and Policy Management: Develop internal policies for managing M365 licenses. For example:
  • New Hire Process: As part of onboarding, have a clear process for mapping job roles to license types. E.g., “Salesperson gets an E5 license, Contractor gets an F3 license, etc.” Using Azure AD groups or scripts can automate this based on department or role attributes.
  • Departures Process: When an employee leaves, IT should immediately disable their account and reclaim their license. Ideally, integrate this with HR offboarding checklists. With MCA’s flexible billing, promptly removing or reassigning a license can ensure you drop the count at the next billing cycle if it’s truly not needed, saving costs.
  • Periodic Access Reviews: Perform a license audit at least twice a year (or quarterly) to identify users who have not logged in or used services for a prolonged period (e.g., 30-90 days). M365 provides usage reports, such as how many users actively use Exchange, Teams, etc. Unused licenses may indicate an account that can be removed or a user who no longer needs the premium license they have. Reclaim those and reduce your subscription count accordingly.
  • Service Adoption and Optimization: Monitor the usage of high-value features (e.g., if you purchased Microsoft 365 E5, which includes advanced security, ensure those features are enabled and utilized; otherwise, you may downgrade some users to E3 with add-ons if E5 is underutilized). The aim is to match license spend with business value.
• Renewal Management: Even though MCA is evergreen, individual subscriptions (especially those with 1-year or 3-year terms) will have specific renewal dates. Keep a calendar or set reminders in the admin center for subscription renewal times. Under MCA, if you do nothing, your annual subscription will automatically renew for the same term and quantity. To avoid “auto-renewal complacency,” treat these dates like you would an EA anniversary: review your needs a month or two prior. Decide whether to reduce the quantity, change a product edition, or cancel a service. This proactive approach prevents sticking with excess licenses for another full term, unwittingly.
• Cross-Product License Management: In the Microsoft 365 ecosystem, be mindful of overlapping entitlements across products:
  • For example, if a user has a Microsoft 365 E5 license, you shouldn’t also assign them a standalone Power BI Pro license or Office 365 E3 – the E5 already covers those. Duplicate assignments waste money. The admin center will generally warn you if you try to assign a license that overlaps. Still, it may not catch all cases, especially if you use group-based licensing, as overlaps can occur through multiple group memberships. Regularly review high-cost users to ensure they don’t have redundant licenses.
  • Another example: if you give someone an E3 license and also a separate EMS E3 license, that’s redundant because Microsoft 365 E3 includes EMS. However, giving someone two different licenses that complement (like Office 365 E3 plus EMS E5) could be intentional. Maintain a clear matrix of which combinations are valid in your organization to avoid confusion.
• Admin Center Policies: The Microsoft 365 admin center also allows configuration of some policies that indirectly affect licensing:
  • Self-Service Purchase settings (discussed in a later section) can be controlled so that end-users don’t independently add new subscription licenses outside IT’s purview.
  • Trial subscriptions: Microsoft often offers trials (e.g., a Power BI trial or an Audio Conferencing trial) that users or admins can activate. Have a policy on who can initiate trials and how to handle them when they convert to paid licenses, to avoid surprise charges or orphaned trial-to-paid conversions.
  • License expiration handling: If a subscription is accidentally allowed to lapse due to a payment issue or intentional cancellation, users lose access to the services. Establish a monitoring mechanism (using the admin center to flag expiring subscriptions). Also, data is retained for a grace period after license removal (typically 30 days for M365 data and an additional 30 days for soft deletion in Exchange). Be aware of these timelines so you can recover if needed. But the better practice is to never let needed licenses expire – plan renewals or migrations in advance.

In summary, managing Microsoft 365 under MCA gives you fine-grained control but requires diligent processes. The elimination of the annual true-up safety net means IT must continuously align license assignments with actual user needs.

The benefit is that you can optimize in near real-time, avoiding long-term over-provisioning. A dedicated license manager or IT Asset Management (ITAM) function can greatly help in tracking and adjusting licenses every month.

Managing Azure Subscriptions under an MCA

Azure under an Enterprise Agreement used to involve a specialized “EA portal” and an annual monetary commitment. With the move to MCA (and similarly under CSP’s Azure plan), Azure management becomes more integrated into the Azure Portal. It follows a pay-as-you-go model unless you have separate Azure commitment discounts.

Here’s how to operate Azure effectively under an MCA:

• Azure Enrollment and Billing Structure: When your organization is set up on an MCA, you will have a Billing Account visible in the Azure Portal’s Cost Management + Billing section​. Under this billing account, you can have one or multiple Billing Profiles (for example, you might separate billing by region or business unit, each with its own invoice). Within each billing profile, you can create Invoice Sections, which group subscriptions for invoicing. Azure Subscriptions are then created and associated with an invoice section. This hierarchy is more flexible than the EA’s fixed Department/Account structure, and it’s designed for you to model your billing according to your organization’s needs (e.g., invoice sections per department for internal chargeback).
• Creating and Managing Azure Subscriptions: With the proper billing roles (Billing Account Owner or Contributor), you can create new Azure subscriptions directly in the Azure Portal under your MCA billing account. This is often self-service: choose “Add Subscription,” select the offer (usually Pay-As-You-Go for MCA, or any special offers your agreement provides), and assign it to an invoice section. The subscription is ready for immediate deployment of resources. There’s no need to go through a reseller or wait for an EA admin to create it, as was the case in the past.
  • It’s wise to establish an internal process or request form for creating new subscriptions to avoid sprawl. Each subscription should have a clear owner (an Azure admin or a member of the product team) and a purpose, such as “Finance Dept Analytics Workspace” or “Project X Testing Environment”. Use naming conventions for easy identification.
• Role-Based Access Control (RBAC): Azure uses RBAC to control who can manage resources or view costs. Ensure that for each subscription, appropriate Azure AD groups or users are assigned roles (e.g., Owner, Contributor, Reader). Under MCA billing, there are also billing roles separate from Azure resource roles, such as Billing Account Administrator and Invoice Manager, who can view and manage billing settings but not necessarily the resources. As a CIO, you should enforce least privilege: e.g., give finance staff an “Invoice Reader” role to see cost data without the ability to change resources; give IT ops the Owner rights on subscriptions they manage, but restrict who can create new subscriptions (maybe a central cloud team or the ITAM team is in charge of that via billing admin roles).
• Cost Management and Budgets: Take advantage of Azure’s Cost Management + Billing features:
  • Set up budgets for each subscription or resource group to receive alerts when costs approach a threshold. This helps catch any runaway cloud spend early (for example, someone accidentally provisioned a very expensive VM or left something running).
  • Use Cost Analysis to break down charges by service, resource group, or tag. Under MCA, cost analysis will naturally show actual spending, as it’s a pay-as-you-go model (unless you have Azure credits or prepaid amounts applied through a custom arrangement).
  • Tagging and resource organization: Enforce policies that all Azure resources are tagged with information such as department, project, or environment. This tagging is crucial for internal cost showback or chargeback (covered later). Azure Policy can even mandate specific tags when creating resources.
• Azure Policy and Governance: Speaking of Azure Policy – implement policies to control resource deployment in line with your governance rules. For instance, limit which regions can be used (if data residency is a concern), or enforce that VMs must be of certain sizes. While this isn’t directly about the MCA, good governance of Azure usage will prevent cost overruns and ensure compliance. Management groups can also be used to structure multiple subscriptions (e.g., one MG per department, containing that department’s subscriptions) and apply policies or role assignments at that level.
• Scaling and Optimization: With pay-as-you-go, you have continuous flexibility:
  • Scale services up or down as needed. If an EA had a monetary commitment, you might feel pressure to “use it or lose it,” but under MCA, you truly pay only for what you use. This encourages a FinOps mindset – continually optimize your Azure environment. For example, use Azure Advisor recommendations to shut down underutilized VMs or buy a Reserved Instance (RI) or Savings Plan if it makes financial sense (though RIs under MCA are still purchased upfront but simply apply to reduce your pay-as-you-go costs, with no EA middle layer).
  • If you purchase any 1-year or 3-year reserved services (VM RIs, etc.), track their end dates like you would a license term – those will need to be renewed or will expire. Azure doesn’t “auto-renew” RIs; it’s a manual process. However, Azure Savings Plans (a newer alternative) can be set to renew automatically. Manage these commitments carefully, as they are analogous to an EA commit (you pay regardless of use for the term).
• Monitoring and Alerts: Ensure you have alerts configured for anomalies in Azure spend. Under MCA billing, you can set up cost anomaly alerts or just use budgets for this purpose. Additionally, use Azure Monitor or third-party tools to monitor usage patterns (e.g., sudden spikes in data egress or CPU usage). The agility of the cloud also makes it easy to overspend quickly if something is misconfigured, so real-time monitoring is part of operational excellence.
• EA to MCA Migration Notes: If you are transitioning an existing Azure environment from EA to MCA, note that the Azure resource access does not change – it’s essentially a billing swap. Microsoft often has a process for transferring subscriptions from EA enrollment to the MCA billing account with minimal disruption (some back-end GUIDs may change). Work closely with Microsoft during this migration to align invoice timing and inform resource owners of any new subscription IDs or names. After moving, decommission the old EA enrollment in the EA portal and ensure all cost reporting now happens from the new billing scopes.
• Azure under CSP Differences: If you opt for Azure via CSP instead of MCA, your Azure Portal experience for resource management is nearly identical operationally. The main differences are:
  • The partner owns the billing account; you won’t see the full billing hierarchy. Instead, the partner manages an Azure Plan that contains your subscriptions.
  • You might not be able to create new subscriptions on your own in the portal – often, you request that your partner do it (some partners provide a user interface or script to do so).
  • Cost management data is still available to you, but you’ll see retail rates; your partner may give you separate reports with your specific pricing if they discount any services.
  • Some features, such as Azure Marketplace purchases or certain newer Azure offers, may have restrictions under CSP. Check with your partner if all the services you need are available (Microsoft has largely aligned CSP with MCA features through the “New Commerce Experience,” so this is less of an issue now than in the past).

In summary, managing Azure under an MCA gives you direct, granular control of your cloud environment with up-to-date tools, which is empowering but demands disciplined cloud governance.

Embrace a FinOps approach – continuously align cloud usage with business value and cost optimization. The MCA doesn’t impose artificial constraints; it’s pay for what you use, which puts the onus on your organization to use resources efficiently.

License Hygiene Best Practices

Poor license hygiene can cost enterprises millions in wasted spend or compliance issues. License hygiene refers to the ongoing practices that ensure you are using what you pay for (and paying only for what you need).

Below are best practices to keep your Microsoft 365 and Azure licensing clean and optimized:

• Regularly Reclaim Unused Licenses: One of the most common inefficiencies is paying for licenses that are not being used. This can happen when an employee leaves and their license remains assigned (or the license is unassigned but not reduced in the billing count), or when a user simply doesn’t use a product they’re licensed for. Implement a routine (monthly or quarterly) to find these:
  • In Microsoft 365, use reports (for example, the Microsoft 365 usage analytics or Admin Center Reports) to identify inactive users – users who haven’t logged in or whose activity in Exchange/Teams/SharePoint is zero in the last 30-90 days. Cross-check if those users still have licenses. If yes, investigate why. If the user leaves, remove or reassign the license, and eventually remove them from the tenant if appropriate. If the user is still active in the company but not using, perhaps they have a license they don’t need (e.g., a user never uses Office apps might not need an E3, or at least they need training to use what’s provided).
  • Leverage Azure AD access reviews or third-party tools to automate the identification of accounts that should be deprovisioned. Azure AD can also show the last login for a user, which helps indicate inactivity.
• Enforce Offboarding Procedures: Align HR and IT so that whenever someone leaves the company or a contractor’s term ends, IT is immediately alerted to disable accounts and free up licenses. Some organizations integrate HR systems with identity management, so that a termination triggers the automatic removal of a license. Even without automation, a checklist for IT on the last day of employment should include “remove from all license groups or unassign licenses.” This avoids “ghost users” consuming seats. As an added benefit, it enhances security by ensuring former employees don’t retain access.
• Optimize License Type by Role: Microsoft offers a variety of license SKUs, including E5, E3, F3, E1, and Business Premium. Right-size licenses to user needs. For instance:
  • Frontline or kiosk workers might only need an F3 (formerly F1/F2) license instead of a full E3/E5, if they just use email and maybe Teams via web.
  • Conversely, some organizations try to save costs by offering a too low license, only to end up buying separate add-ons that cost more. For example, buying Office 365 E1 plus separate security and compliance add-ons might end up more expensive than a single Microsoft 365 E3. Evaluate whether a higher-tier license could consolidate needs more economically or provide future value.
  • Periodically review if users are in the correct tier: promotion or role changes might necessitate upgrading a user to an E5 for Power BI Pro, or downgrading if a power user moves to a less tech-intensive role. Make this part of IT’s user lifecycle management.
• Avoid Duplicate or Overlapping Licenses: Ensure clear policies so that each user gets the appropriate bundle of licenses without overlap. Document which combinations are allowed. For example, if you are using Microsoft 365 E5, do not also assign Office 365 standalone or EMS licenses to the same user. Another common pitfall is assigning two different Office 365 plans to the same user by accident. The portal normally prevents exact duplicates, but an admin might accidentally assign an overlapping license through groups. Regular audits of per-user license lists can catch anomalies, such as when you see a user with two Exchange Online plans, which indicates something is wrong.
• Monitor Subscription Renewals and Changes: For any yearly subscriptions or contracts, have a centralized calendar of renewal dates. At least 90 days before renewal, review if you need the same quantities. Microsoft will typically notify admins of upcoming renewals, but don’t rely solely on that – proactively assess usage vs. licenses. This is akin to doing a “true-down” analysis: if you have 100 E5 licenses but only 80 people actively use E5 features, consider renewing only 80 and reallocating the remaining 20 to a cheaper SKU or dropping them altogether. Engaging with Microsoft or your partner before renewal can also open up an opportunity to negotiate pricing if your needs have changed significantly.
• Implement a Quarterly License Review with Business Units: In a large enterprise, consider establishing a quarterly or semiannual review where IT presents each department with a summary of their license usage and costs, also known as a “license scorecard.” This ties into showback/chargeback (in the next section) and places some responsibility on department heads to identify any discrepancies (e.g., “Why does Marketing have 10 extra licenses allocated when we only have eight people?”). It promotes awareness and accountability outside of IT.
• Use Tools for License Management: Microsoft provides some tools, and a market of third-party tools (AdminDroid, CoreView, Quadrant, etc.) offers enhanced visibility into license assignments and usage. These can automate the detection of unused licenses, simulate the cost impacts of changing license types, and optimize license assignments. If your environment is complex (tens of thousands of users or many product types), such tools can quickly pay for themselves by identifying optimization opportunities.
• Stay Compliant with Terms: Hygiene isn’t just about cost – also ensure you’re compliant. For instance, if you reassign licenses frequently, remember some products have license transfer rules (cloud services are generally fine, but if you still use some on-prem licenses with SA, you can’t reassign more often than allowed). Also track when a user has multiple identities (say a contractor account and an employee account) to ensure you’re not accidentally counting them twice for licensing purposes if not needed. Good identity management and avoiding duplicate user objects will help here.
• Clean Up Orphaned Cloud Resources: On the Azure side, license hygiene extends to resource hygiene:
  • If you had spun up test subscriptions or free trials that later started incurring pay-as-you-go charges under your billing, make sure to shut down what’s not needed. It’s easy to forget an Azure service is running and keep paying for it.
  • Use Azure’s built-in recommendations to identify idle resources (e.g., a VM with very low CPU over months might be a candidate to shut off or scale down).
  • Remove or reassign Azure user access when people change roles or leave, to avoid dangling permissions. This doesn’t directly save license cost (since Azure doesn’t license per user in the same way), but it’s part of good governance and prevents unauthorized usage that could rack up costs.

In practice, license hygiene is about continuous attention. Rather than a once-a-year true-up scramble (as in the EA days), the modern cloud model rewards those who treat license management as a steady, ongoing process.

Many CIOs now include license utilization metrics as a KPI for their IT operations: for example, “<5% of licenses unassigned” or “90% of purchased licenses have active users”. Striving for these targets ensures efficient use of your Microsoft investments.

Showback and Chargeback for Cloud Costs

As IT expenditures shift to subscription and consumption models, CIOs must implement mechanisms to allocate and recover costs internally. Showback and Chargeback are two financial governance techniques to achieve this:

• Showback means informing each business unit or department of their IT usage costs without actually billing them for it. It’s a reporting method that increases transparency and accountability. Departments see a report of “IT costs incurred on your behalf,” which could include Microsoft 365 licenses and Azure resource consumption, but the costs are not directly deducted from their budget – central IT still pays the bills.
• Chargeback goes a step further by directly billing departments for their usage, transferring those costs to their respective budgets. This can be through internal cross-charges or accounting entries. The goal is to have each department responsible for the costs it drives, which often encourages more judicious use of resources.

Implementing showback/chargeback in the context of Microsoft cloud services:

1. Establish Cost Ownership Mapping: Start by defining how you will map cloud costs to business units:

• For Microsoft 365 licenses, ensure that every user is associated with a department or cost center (this can be an attribute in Azure AD or your HR system). You can then multiply the number of licenses used by a department’s users by the unit cost of each license. For example, if Sales has 50 E3 licenses at $20 each and 10 E5 licenses at $35 each per month, Sales’ monthly M365 cost is $ (50×20 + 10×35) = $1,450. You might maintain a simple spreadsheet or use a software tool to aggregate this across the organization.
• For Azure: Tag resources or use separate subscriptions per department. Tagging is crucial for shared subscriptions – e.g., tag resources with ‘Department’ = ‘Sales’, ‘Dept’ = ‘HR’, etc. Azure Cost Management can then filter or group by these tags to show costs per department. Alternatively, some companies give each department its own Azure subscription(s) so that subscription-level cost is inherently that department’s responsibility (with maybe a separate subscription for shared infrastructure). Under an MCA, you can have one invoice section per department to neatly separate the costs for each department on the bill.

2. Implement Showback First: It’s often recommended to start with showback before chargeback​. This lets you work out any data kinks and also prepare the culture.

Steps:

• Generate monthly or quarterly IT cost reports for each business unit. Include all relevant Microsoft cloud costs (and possibly other IT costs). For instance, “Department X – Q1 IT Usage: 40 M365 licenses = $Y, Azure services = $Z, Total = $Y+Z.”
• Present these reports to department heads along with context. Explain that “this is what IT spent to support your team.” Often, this visibility alone will prompt questions like “Can we reduce that cost?” leading to more cooperative optimization efforts.
• Use a consistent allocation method. If some costs are shared (e.g., an Azure subscription hosting a shared app used by multiple groups), you may allocate them by usage metrics or agreed-upon percentages. Document these assumptions in the report for transparency.

3. Evolve to Chargeback (if appropriate): If your organization’s financial model supports it, move to chargeback:

• Coordinate with Finance to set up internal billing codes for each department. The showback report now becomes an internal invoice from IT to the business unit.
• For Microsoft 365, since license counts are fairly stable month to month, you could charge departments a flat rate per user per month or license type, which they can budget for. (E.g., “$20 per E3 user per month will be charged to your cost center.”) Adjust these rates annually if Microsoft prices or your mix changes, so departments have predictability with some true-up later.
• For Azure, chargeback is trickier due to variable consumption. One approach is to charge actuals with a month delay (so January’s Azure actual spend is billed to departments in February). Alternatively, use a showback for actuals but charge a fixed monthly budget amount and reconcile quarterly. Regardless of the approach, ensure that departments know they “own” their cloud usage costs.

4. Leverage Tools and Automation: Doing this manually can be labor-intensive:

• Azure Cost Management + Power BI: You can export Azure cost data (there are APIs and connectors to get cost by resource group/tag) and combine it with directory data (user counts per department) to create an automated dashboard or report for showback. Power BI or Excel Power Query can join license assignments to user department information.
• Microsoft 365 has a usage analytics Power BI content pack that shows active users by department, if you feed it organizational data. Customization might be needed to attach dollar values.
• Some third-party ITFM (IT Financial Management) tools or even your corporate financial system might have modules to handle cloud cost allocation. Evaluate if those exist internally before reinventing the wheel.
• Note: Microsoft’s FinOps guidance suggests integrating with existing finance tools, meaning you may treat IT as just another vendor in your accounting system and bill line items accordingly.

5. Address Shared Services: Not all IT costs can be cleanly mapped to a single department (e.g., a SharePoint Online site used company-wide, or an Azure ExpressRoute that connects everyone). For such shared infrastructure, you need a fair allocation method – possible approaches:

• Allocate by user count or percentage of total users per department (for broadly shared things).
• Allocate by specific usage metrics if available (e.g., for a shared Power BI capacity node, see which department’s users consume the most reports).
• Or treat some services as a central overhead that you don’t charge back, but fund via the IT budget. Be explicit in the policy about which ones are charged back vs. which ones are not.

6. Communicate and Iterate: A chargeback model can initially cause friction (“Why am I being charged for IT? Isn’t that central?”). Clear communication from the CIO is needed to explain the purpose: to make costs transparent and encourage efficient use, not just to shift the burden. Show how departments can control their costs by rightsizing licenses or turning off unused VMs, and that IT will help them do so. Initially, you might encounter pushback or requests to validate the numbers, which is why starting with showback helps build trust in the data.

7. Reinvest Savings: When departments optimize and reduce costs, have a plan for what to do with the savings. Ideally, it should benefit them (or at least their company’s bottom line) – for example, if Marketing reduces cloud spend by $10k, maybe they can fund another project with those savings. This creates positive reinforcement for engaging in the process.

By implementing showback and chargeback, CIOs transform IT from a black-box cost center into a transparent service provider. It not only increases accountability but also aids in budgeting – departments can forecast their IT needs, and IT can avoid the “all or nothing” budget fights by distributing costs.

Microsoft’s cloud services, with their granular reporting, are well-suited to this, but it takes effort to organize the data and drive the process. Over time, this financial governance becomes part of the culture of cloud management (“we pay for what we use, so let’s use wisely”).

Controlling Self-Service Purchases

Microsoft has introduced self-service purchase capabilities for certain cloud products, allowing end users with a corporate login to buy licenses or subscriptions without IT’s direct involvement. While this can empower agile teams to get tools quickly, it raises obvious concerns around governance, security, and cost oversight. CIOs need to understand these capabilities and decide whether to allow or restrict them.

What are Self-Service Purchases?
Self-service purchase (and self-service signup) lets an end user go to a Microsoft site (or in-app prompt) and buy a product license using their corporate Entra ID (Azure AD) account, typically with a credit card. The purchase is tied to the user’s organization tenant but is not initiated by an admin. Microsoft introduced this for products like Power Platform to drive adoption.

Products currently eligible for self-service purchase include Power BI, Power Apps, Power Automate (formerly Flow) – collectively known as the Power Platform – as well as Project Plan subscriptions and Visio subscriptions. Microsoft 365 Copilot is also expected to have a self-service option that allows users to buy it individually. By default, all new eligible products are enabled for self-service in a tenant​.

How Self-Service Purchases Work:
An employee can, for example, navigate to the Power BI website and click to purchase a Pro license. They will be prompted to sign in with their work account, provide payment (credit card only; no invoice option), and select the quantity (often just one license for themselves, but they can buy a few and assign them to colleagues).

Once done, the user becomes the owner or admin of that subscription in your tenant, with a limited admin view to assign licenses they have purchased. They do not gain full tenant admin rights, but they can manage those specific licenses. The subscription appears in your Microsoft 365 Admin Center under a “Self-service purchases” section, so global admins can see that it exists.

Risks and Challenges:

• Compliance & Security: Users purchasing software on their own may bypass normal vetting. For example, a user could buy Power BI and inadvertently expose data if governance is not enforced, or purchase a Power App that violates naming or integration policies.
• Shadow IT & Redundant Spend: IT might be unaware of these purchases, leading to duplicate licenses. For example, IT may have already purchased Power BI Pro for everyone, but a subset of users purchase it again via self-service, wasting money. Or different teams each buy a few licenses of something like Visio without pooling needs, losing out on potential volume discounts.
• Support and Ownership: If something goes wrong with that service (e.g., a billing issue, a user leaving the company), IT now has to step in after the fact. Admins can “take over” a self-service subscription, which transfers control to IT, but this requires their action. Also, if the user leaves and no one knows they have a subscription, it could continue to be charged to the credit card until it is noticed.
• Budgeting: Purchases made on personal or corporate cards outside of standard procurement may not be tracked in the IT budget. This can affect your showback and chargeback accuracy and bypass spending controls.

Governance Options:

1. Disable Self-Service Purchases: Microsoft allows admins to turn off self-service purchases per product. Initially, this was only via PowerShell using the AllowSelfServicePurchase policy for each product ID (with the MSCommerce module). Recently, Microsoft added admin center controls for this: in the Microsoft 365 Admin Center > Billing > Your products > Self-service purchases tab, an admin can see all products that support self-service and their status (enabled or disabled)​. By default, all are enabled, so you can click each and disable it.
   • Recommendation: Unless your organization explicitly wants to allow this freedom, it’s generally safer to disable it for all products. This forces purchases to go through IT and procurement, maintaining oversight. You can selectively leave one enabled if, for example, you want to test the idea for a specific tool.
   • Keep in mind, disabling self-service does not remove any licenses already bought by users; it just prevents new ones. So, after disabling, check if any self-service subscriptions existed before and decide whether to absorb them into IT management (takeover) or let them expire.
2. Allow with Oversight: If you keep it enabled (or as long as it’s on by default and you haven’t disabled it), put in place some monitoring:
   • Regularly check the Admin Center for any new self-service subscriptions. Perhaps assign an admin or use a script to alert when a new one appears.
   • Communicate a policy: for example, “Employees are not allowed to expense self-purchased Microsoft licenses without approval” to discourage the practice unofficially.
   • If a self-service purchase is discovered that duplicates enterprise offerings, coordinate to migrate the user to the enterprise subscription and have them cancel their self-service one (or take over and merge it).
   • If you do see potential value (e.g., a team bought Power Platform licenses and built a solution that IT hadn’t provided), use that as feedback to possibly officially adopt that solution under IT’s wing.
3. Enterprise Polices via PowerShell/Graph: The only way to manage it at scale (especially in the early days) was through PowerShell. The MSCommerce PowerShell module’s Get/Set-MSCommerceProductPolicy cmdlets allow enumerating products and disabling self-service purchases. Keep an eye on Microsoft updates – they periodically add new products to self-service, such as when Project and Visio were added in 2020, or others in the future. A best practice is to schedule a script to run periodically, ensuring that any new eligible product is auto-disabled, so nothing slips through if Microsoft introduces a new offer.
4. Trials: Self-service trials are a related concept. Users can sign up for trial licenses (e.g., Office 365 E5 30-day trial) themselves in some cases. You cannot completely prevent trial sign-ups through Microsoft’s services, but you can monitor and convert them to IT-managed if needed. Also, some trials require admin approval. Make sure your helpdesk knows how to respond if users ask, “Can I start this trial?” – have a clear yes/no answer and specify the conditions.

Balance Innovation vs Control: Self-service purchase was introduced by Microsoft with good intent – to let power users quickly get tools like Power BI and not wait on bureaucracy. In a digital enterprise, you might not want to stifle that innovation entirely.

One compromise approach is to enable self-service for non-critical, low-cost items only, and ensure any purchase still notifies IT. However, there is currently no automatic notification system (aside from checking the admin center). Most enterprises, especially those in regulated industries, choose to disable it entirely.

If your culture is more permissive, you might allow it, but with clear guardrails: require users to notify IT if they intend to buy something and have a plan to transition it to IT management if it grows beyond a couple of users.

Action Item: Review the list of products with self-service capability. Decide on a policy and configure your tenant accordingly. Update your IT policies or employee handbook to reflect this (it might fall under a “Software Purchasing Policy”). Also, educate your procurement and finance departments – they may notice small charges on credit cards for Microsoft and can flag them to IT if self-service was not approved.

True-Up and True-Down Strategies

In the world of legacy licensing (EA and other agreements), true-up was an annual ritual to report any increase in usage, and true-down (reducing licenses) was typically only allowed at renewal time. In modern subscription models (MCA and CSP), the concepts still exist but operate continuously. Let’s break down strategies under each model:

Under an Enterprise Agreement (EA):

• True-Up: Each year (usually 60 days before your EA anniversary), you assess if your usage of licenses exceeded your initial purchased quantities. If you added 50 users during the year, you would report those and receive an invoice for the prorated cost for that year (or the full-year cost if your EA requires full-year payment for additions, regardless of when they were added). A final true-up is done at the end of the 3-year term for any last additions. Strategy-wise, companies often delayed formally adding licenses until the true-up to maximize the prorated benefit (i.e., if you add a user in month 10, you might only pay 2/12 of the annual cost at true-up). However, Microsoft changed some rules to require upfront ordering if certain thresholds are exceeded.
• True-Down: EA generally did not allow reducing counts mid-term. You could decrease at the renewal (at the start of a new term), which effectively sets a new baseline. The strategy here was to anticipate any potential declines in workforce or project usage at renewal, so you don’t over-commit for the next term. In layoffs, for example, you’d be stuck carrying those licenses until EA end, so sometimes companies repurposed them aggressively (giving them to contractors or new uses) just to get value since they were paid for.

Under Microsoft Customer Agreement (MCA):
There is no formal annual true-up event; instead, you manage changes as they occur. Strategies:

• Frequent Right-Sizing: Review license needs more frequently (monthly is ideal, but at least quarterly is recommended). Because you can adjust counts in the portal, make incremental changes instead of large, once-a-year jumps. This avoids both overshooting and undershooting. For instance, if you open a new branch with 20 hires, under MCA, you simply add 20 licenses at that time and remove them if those positions are closed. No need to wait for an annual cycle.
• True-Up on the Fly: If you have an annual subscription and hit a growth spurt, you have two options: buy additional licenses on the same subscription (which will be co-termed to the original end date and charged pro-rata) or start a separate subscription for the overflow (which can be co-terminated manually by aligning renewal dates later). Generally, it’s cleaner to have one subscription SKU. Still, if an increase is possibly temporary, you might put those extra users on a monthly term subscription to avoid locking them for the full remaining period. Financially, adding mid-term under MCA will cost you from the point of addition. Unlike EA, which may charge for a full year for a late true-up add, there is no back-billing earlier in the year.
• True-Down Flexibility: If you foresee downsizing, align your subscription terms to allow reduction. For example, you anticipate a project ending in August that has 30 contractors on E3 licenses. Instead of putting them on an annual subscription in January, perhaps put those 30 on monthly subscriptions so that by August, you can cancel them with minimal penalty. This might cost a bit more per month, but it saves you from paying for unused licenses through December.
• Avoiding Oversubscription: One subtle “gotcha” in MCA: if you decrease a license count, ensure you’ve unassigned that many licenses from users first. The portal won’t let you drop below the number of currently assigned licenses. It sounds obvious, but if you have 100 licenses assigned out of 100, you must first free some up. Plan your true-down: identify users to remove or downgrade, execute that, then reduce the count so you stop paying. Coordinate the timing so you don’t remove access too early, but also don’t miss billing cycles.
• Azure Consumption Adjustments: For Azure, the analogs to true-up and true-down are using more (which you pay for as it happens) and using less. With MCA, you have continuous optimization – use Azure’s scaling features to ramp down environments when not needed (e.g., shut off VMs on weekends, use auto-scaling for app services). In EA, you might have been motivated to fully utilize your pre-paid commitment; in MCA pay-go, you save money by not using resources. Embrace that mindset across your engineering teams.

Under Cloud Solution Provider (CSP):

• CSP with New Commerce aligns with the MCA logic for seat licenses, offering monthly and annual terms with similar cancellation rules. The difference is that any true-up or down is communicated through the partner. The strategy is to maintain good communication with your CSP partner:
  • Let them know your expected growth or decline so they can plan (and maybe advise on the best options).
  • Understand their policy on mid-term reductions – Microsoft charges partners a 100% fee for cancelling annual subscriptions mid-term (after the first 7 days). Some partners pass that through to you, some may allow exceptions if you immediately reallocate to another customer, etc. Always clarify to avoid surprise fees.
  • If you need flexibility, ask your partner to put certain licenses every month; they can also mix them for you.
  • True-up in CSP is simply ordering more licenses when needed. Ensure the partner does it promptly, as some companies have had issues where they instructed the partner to add 50 licenses, but the process was delayed, affecting user onboarding.
• CSP for Azure: Typically, you have an Azure plan with a pay-as-you-go model. If you have an EA with an annual commitment and you move to CSP Azure, a strategy could be to monitor monthly usage trends and consider Azure Savings Plans or Reservations through a partner if cost-saving. However, these options again lock you in, which is fine if you’re confident in your usage. The partner can help analyze your usage as part of their value-add.

Financial Impact Considerations:

• Under EA, adding licenses late in the year was financially advantageous; you got essentially free use until the true-up, then maybe only paid a fraction. Under MCA/CSP, you pay as soon as you add the item. So budget-wise, you’ll be spreading costs more evenly rather than one big true-up bill. Some finance departments prefer this predictability (no large, unexpected surpluses), but others might miss the flexibility of timing their spending. Communicate this change to your finance team.
• True-down in EA was only at renewal; under MCA, you could reduce sooner, which means cost savings sooner. Over 3 years, an organization that fluctuates could save significantly by not carrying excess licenses for months or years. However, if you commit to annual terms and misjudge, you could still end up overpaying (just like an EA). The remedy is to choose commitment lengths wisely – for example, commit only core, stable staff to annual subscriptions, and have contingent staff on a monthly basis.

Operational Process: Document an internal procedure for making license count changes:

• Who in your team is authorized to adjust license quantities? (Maybe limit it to a few IT asset managers or IT finance roles to avoid random changes without oversight.)
• What approvals or analysis are needed? (e.g., require a short justification for any reduction to ensure no user who needs it will lose access, and for any addition over a threshold to ensure budget cover).
• Keep a log of changes because, without the EA true-up paperwork, you should maintain a record of major license number changes and their reasons to inform future planning. This can be as simple as a spreadsheet noting “March 2025: +30 E5 for new project X; June 2025: -20 E3 due to office closure Y,” etc.

Negotiation Aspect: If you have a direct MCA and a large volume, you can still negotiate pricing with Microsoft (often via a Microsoft Customer Agreement for Enterprise, which might include negotiated discounts or credits). Some of these deals may mimic EA constructs, such as a discounted price, but you commit to certain spending levels. In such cases, true-up or down flexibility might be slightly constrained by the deal (e.g., you promised to maintain at least 90% of the starting quantity to get a better price). Always clarify any such terms – make sure there are no penalties or retroactive charges. The beauty of the standard MCA is that you typically just pay what you use at public rates (with maybe some incentive rebates).

In summary, true-up and true-down are now ongoing activities rather than annual ones. The strategy shifts from “covering my bases once a year” to “continuously monitoring and adjusting”. This aligns with agile budgeting and operations. CIOs should encourage their teams to be nimble: scale up when needed (the cloud makes it easy) but also scale down when possible, as the cloud will charge you indefinitely if you don’t. By adopting the practices above, you ensure financial efficiency and avoid both under-provisioning, which hurts productivity, and over-provisioning, which hurts the bottom line.

Common Pitfalls and How to Avoid Them

Even with good practices, organizations often stumble into certain pitfalls when managing Microsoft cloud subscriptions. Being aware of these pitfalls is half the battle; the other half is implementing controls and habits to avoid them.

Here are some common mistakes along with ways to avoid or mitigate them:

• Pitfall: Paying for Licenses After Employee Departures – A wave of layoffs or attrition occurs, and months later, IT discovers hundreds of licenses still allocated (or not reduced in billing) for those former employees. This “shelfware” can quietly drain the budget.
  Avoidance: As emphasized earlier, tightly integrate the offboarding process. Ideally, automate license removal when an account is disabled. At a minimum, run a monthly report of users who have been disabled or whose termination date has passed, and ensure that their licenses are removed and counts are adjusted. Additionally, conduct an audit after any large organizational change, such as downsizing, to catch any stragglers. Some companies have saved 10-20% of their M365 costs within a year by cleaning up post-departure licenses that were overlooked.
• Pitfall: Uncontrolled Proliferation of Subscriptions – In Azure, multiple subscriptions can be created without central tracking, leading to difficulty in managing and higher costs if resources are duplicated. In M365, it could be multiple separate subscriptions for similar products (like someone in department A buys 10 Power BI Pro via self-service, department B buys 15 via CSP, while IT also has some in an E5 bundle). This fragmentation not only wastes money but also complicates management.
  Avoidance: Establish a central registry of all subscriptions. The Microsoft 365 admin center and Azure portal should be regularly reviewed by IT governance to identify any issues. For Azure, require tagging subscriptions with an owner and a project. For M365, avoid having the same product via multiple channels; consolidate them. If multiple channels exist (maybe you’re transitioning from CSP to MCA or vice versa), plan to merge them into one to eliminate overlaps. Communication between procurement, IT, and business units is key – everyone should know that “Microsoft licenses = talk to IT” by default.
• Pitfall: Over-licensing / Wrong SKU selection – This occurs when organizations license more capability than they use. For instance, upgrading everyone to Microsoft 365 E5 for a few advanced features, but then not deploying those features (like Advanced Threat Protection, audio conferencing, etc.), essentially paying ~50% more per user with no ROI.
  Avoidance: Pilot new top-tier licenses with a subset before rolling out broadly. Justify every SKU upgrade with a business case (such as a security need, compliance need, or productivity gains) and follow through on its adoption. If, after a year, you see E5 features unused by a certain group, consider downgrading them to E3 + necessary add-ons. Use Microsoft’s usage analytics or even engage their account team for an Advanced Deployment program – Microsoft often offers help to deploy the features you’re paying for. This way, you either use it or drop it, but not both. Directions: align licensing with actual needs; sometimes a mix of SKUs is optimal (maybe 20% of users truly need E5, 50% E3, 30% F3, etc., rather than 100% one size fits all).
• Pitfall: Missing Renewal or Cancellation Windows – With many subscriptions on different timelines (especially those under MCA/CSP), it’s easy to accidentally let one renew or miss the window to cancel or adjust. For example, you have a 1-year subscription for Visio that auto-renews on July 1, but you intended to cancel it since you now have it in a bundle – if you forget, you’re locked for another year and double-paying.
  Avoidance: Maintain a renewal calendar and set alerts 60 and 30 days before each subscription term ends. Even for monthly subscriptions, note if any are promotional. Promos might auto-convert to paid after 3 months if not cancelled. Assign responsibility to an individual or team to take action on these renewals – whether it’s renegotiating the price, changing the quantity, or cancelling. Also, leverage any features in the admin center, as it shows upcoming renewal dates. Some partners also send reminders for CSP. Ultimately, treat each subscription like a mini-contract that needs a decision at renewal, not something to be ignored.
• Pitfall: Duplicate Accounts Leading to Duplicate Licenses – In some organizations, a user may end up with multiple accounts (such as a standard user account and a special admin account, or multiple guest accounts), each consuming a license unnecessarily. We’ve seen cases where one person accidentally had two mailboxes with two Exchange Online licenses because of a flawed migration process.
  Avoidance: Clean up identity data. Try to stick to one identity per human for licensing. If separate accounts are needed (for admin roles or testing), consider using Azure AD’s PIM (Privileged Identity Management) or a similar solution that avoids the need for a second static account. If an account absolutely must have a license (e.g., a service account needing Power BI Pro), ensure you’re aware of it and count those intentionally. Use Azure AD reports to check if multiple accounts share the same email or name – a clue to duplicates.
• Pitfall: Lack of Documentation on Licensing Decisions – Tribal knowledge might exist on why you have X licenses of Y, but if that person leaves, the new asset manager might not know, for example, that “we keep 20 extra licenses as buffer for seasonal staff” and remove them, causing a scramble later; or conversely they might not know a certain set of licenses was meant to be temporary and forget to remove them.
  Avoidance: Document your license allocation strategy and any special cases. Keep a simple record of assumptions (like “50 E5 kept for contingency for possible acquisition this year – if not used by Q4, will drop them”). Also, document any license reservations or quirks (e.g., “Visio licenses are only for the Engineering team, as requested by the Engineering VP”). This way, if roles change, continuity remains in license management.
• Pitfall: Assuming Technology Alone Solves License Management – Some organizations invest in expensive SAM (Software Asset Management) tools or rely solely on Microsoft’s portals, thinking that’s enough. Tools help, but they still require interpretation and action. The pitfall is a false sense of security that “the dashboard says we have 5% unused licenses – okay, great,” without taking action, or “the tool will optimize automatically” (most don’t auto-remove licenses without your input).
  Avoidance: Pair tools with process. Ensure there is an accountable role or committee that reviews license reports and makes decisions. For example, designate that every month the ITAM analyst will produce a report and a manager must sign off on actions to take (reduce 10 of these, reassign 5 of those, etc.). The tool is just a means to an end – use its data to drive real changes.
• Pitfall: Neglecting Education and Communication – IT might do a great job of optimizing licenses, but if end-users and department heads aren’t educated on how licensing impacts them, you can get unnecessary requests (“I need Project Professional, buy me a license” when maybe they could use a free alternative or a shared license). Or users might hoard licenses (“I’m going on leave, but keep my license active just in case”).
  Avoidance: Communicate to staff that licenses are like any company resource – they cost money. Encourage a culture where if someone doesn’t need a tool, they inform IT to have it removed (perhaps allow them to request it easily again later if needed, so they’re not afraid of losing access permanently). Also, ensure that department managers are aware of the cost implications of their requests. This doesn’t mean burdening everyone with IT accounting, but simple awareness can go a long way. For example, a manager might not realize a Power BI Pro license costs money each month – a quick note from IT, “FYI, this will cost $10/user/month from your IT budget,” can prompt them to only request it for those who truly need it.

Avoiding these pitfalls requires a blend of technical tools, process rigor, and people awareness. Regular internal audits and post-mortems can help; for instance, if you find an unused license that sat around for a year, trace back how that happened and fix the process (was offboarding not communicated?

Did we lack monitoring?). By institutionalizing these lessons, your organization will mature in its cloud license management, translating to cost savings and smoother operations.

Planning and Governance Checklist

To wrap up this playbook, below is a checklist of planning and governance actions for CIOs and IT Asset Managers managing Microsoft cloud agreements and subscriptions. Use this as a reference to ensure you have all bases covered:

• ✔️ Inventory All Agreements and Subscriptions: Compile a list of all Microsoft licensing agreements (EA, MCA, CSP, etc.) your organization has, including their end dates or renewal dates. Also, list all active subscriptions (M365 SKUs, Azure subscriptions, Dynamics, Power Platform, etc.) under those agreements. (Know what you have before you manage it.)
• ✔️ Assign Clear Ownership: Designate who in IT is responsible for licensing management. This could be a Licensing Specialist or IT Asset Manager for M365, a Cloud Financial Management lead for Azure, etc. Ensure they have executive support and access to necessary tools/data. (Accountability drives consistency.)
• ✔️ Map Out Transition Plans: If you are moving from an EA to an MCA or CSP, create a project plan. Include tasks such as engaging Microsoft/partners, aligning internal stakeholders (procurement, legal, finance), communicating changes in the process to IT staff, and migrating any Azure subscriptions or true-up/down planning for the cutover. (No surprises at EA renewal time.)
• ✔️ Optimize Agreement Choice: Periodically re-evaluate whether your current licensing program is the best fit. If you’re under EA and your user count dropped significantly, maybe CSP or MCA is now better (and vice versa, if you’ve grown, an EA or enterprise MCA with negotiated discounts might save money). (Fit the program to your current size and needs.)
• ✔️ Implement License Request Processes: Streamline the process for business units to request new licenses or services. Ideally, have a single intake (via IT service catalog or ticket system) for any software requests, including Microsoft 365 apps or Azure resources. This prevents end-runs and ensures IT approves all additions. (Centralize control without adding too much friction.)
• ✔️ Enforce Offboarding Procedures: As noted, make sure there is a documented, mandatory step to remove or reassign licenses when people leave or change roles. Conduct periodic audits with HR to ensure no former employee accounts remain enabled with licenses. (Tightly plug the leaky bucket of departures.)
• ✔️ Set Up Monitoring & Reports: Configure all available reports – for example, a weekly email of Microsoft 365 license usage (Admin Center can send license summary emails), monthly Azure cost reports to IT finance, and so on. If possible, set thresholds (alerts for more than X licenses unassigned or Azure spend exceeding budget). (Early warning systems for license anomalies.)
• ✔️ Review and Right-Size Quarterly: Hold a quarterly review meeting with IT asset management and finance teams to check license counts against active users, evaluate if anyone can be downgraded or needs an upgrade, and review Azure spend optimizations. Also, forecast next quarter’s needs (e.g., upcoming projects or acquisitions that will require more licenses). (Frequent tune-ups prevent large corrections.)
• ✔️ Manage Renewals Proactively: For each major subscription or agreement renewal (EA anniversary, MCA 1-year term renewal, CSP contract anniversary), start planning 3-6 months. Gather usage data, decide changes, and discuss with Microsoft or your partner for pricing. If under EA, prepare your true-up and negotiate any renewal discounts. If under MCA/CSP, consider if you want to switch providers or adjust terms at that point. (Leverage renewal moments to optimize and negotiate.)
• ✔️ Govern Self-Service and Trials: Decide your stance on self-service purchases and configure it accordingly (using a PowerShell script or admin portal settings to disable if chosen). Also, consider disabling self-service trials for Power Platform through Azure AD (there are controls to block specific self-service sign-ups). Communicate this in user guidelines. (No uncontrolled IT spend by well-meaning enthusiasts.)
• ✔️ Establish Showback/Chargeback: Even if you don’t do full chargeback, have at least showback reports being produced for transparency. Work with Finance on how IT costs are communicated and potentially recovered. Ensure Azure tagging and user-to-dept mapping is in place to support this. (Shine a light on consumption to drive accountability.)
• ✔️ Plan for Emerging Services: Microsoft continuously releases new products, such as Microsoft Viva modules, new security offerings, and the upcoming Microsoft 365 Copilot AI service. Have a process to evaluate and onboard these: who decides to purchase, how to pilot, licensing implications (Copilot, for example, might be a per-user add-on – decide who gets it). By planning for new services, you avoid ad-hoc purchases. (Be proactive with new tech, not reactive.)
• ✔️ Utilize Microsoft Account Team and Partners: Don’t manage in a vacuum. Regularly engage with your Microsoft account manager or licensing partner. They can provide insights like, “You have 100 licenses unused, you could save $X” (yes, they sometimes do point out ways to optimize) or inform you of upcoming changes (e.g., price increases, product end-of-life, new agreement types). They can also assist in license optimization workshops or provide trial licenses for evaluation. Just ensure any advice aligns with your interests (validate suggestions independently if needed). (Use vendors’ knowledge to your advantage.)
• ✔️ Maintain Compliance Documentation: Keep proofs of licenses and compliance handy. This includes documents such as the MCA acceptance (which can be digital – consider saving the confirmation), EA order history, and records of license assignments. In case of an audit (Microsoft can audit, though it’s rarer for purely cloud services), you want to readily show you’re within bounds. (Stay audit-ready even if you expect it rarely.)
• ✔️ Continuously Educate Teams: Provide training or at least reference materials for your IT staff on how to manage licenses and subscriptions. Microsoft’s admin portals change frequently; ensure your admins stay up to date on new features, such as the new consolidated Microsoft 365 admin center license management experiences or Azure cost management updates. Additionally, educate finance and business managers on how Microsoft licensing works at a high level – it will make conversations smoother when explaining why something costs what it does. (Knowledge prevents missteps.)
• ✔️ Keep an Eye on Costs and Value: Finally, as a CIO, regularly ask the question: “Are we getting the value out of our Microsoft investments that justifies the cost?” This might lead you to sponsor adoption programs (to drive usage of tools you already pay for) or to cut redundant capabilities (if you’re paying for two tools that do the same thing). Align your Microsoft cloud spend with business outcomes – e.g., if you invest in Power Platform licenses, track how many apps or workflows were built and the efficiencies gained. This turns licensing from a pure cost discussion into a value discussion. (Maximize ROI, not just minimize cost.)

By following this checklist, you will establish a robust governance framework for Microsoft cloud services. This ensures predictability in cost, agility in operations, and strategic alignment with your organization’s goals. Microsoft licensing need not be a painful compliance chore – with the modern cloud model and proper management, it can be an enabler for innovation on a controlled budget.

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