Microsoft Licensing

Microsoft Licensing Usage Review Template: A Practical Guide to Internal Audits Before Renewal

Microsoft Licensing Usage Review Template A Practical Guide to Internal Audits Before Renewal

Microsoft Licensing Usage Review Template

Enterprises should conduct a thorough internal licensing usage review before entering a Microsoft agreement renewal or negotiating a new contract. Think of this as a self-audit or โ€œhealth checkโ€ of your Microsoft software and cloud subscriptions.

The goal is to compare what you have licensed (entitlements) against what is actually in use. This proactive review empowers CIOs and sourcing professionals to identify unused licenses (โ€œshelfwareโ€), spot shortfalls, and optimize license allocations before committing to another expensive term.

This section provides a practical guide โ€“ essentially a template โ€“ for conducting an internal Microsoft license audit before renewal.

By following a structured approach, organizations can confidently enter renewal discussions with data-driven insights, avoid overpaying for unneeded licenses, and ensure compliance.

Read Microsoft Contract Renewal Planning & Strategy

Key Considerations for an Internal Licensing Audit

An effective usage review involves several key components: gathering data, analyzing gaps, involving the right people, and documenting everything. Here are the core considerations and steps:

1. Define the Scope and Objectives

Start by determining which Microsoft products and services to review. Ideally, encompass all major licenses in your environment โ€“ for example, Office 365 (Microsoft 365), Windows and SQL Server licenses, Dynamics 365 subscriptions, Azure consumption, etc. If a full sweep is overwhelming, focus on the highest-spend or most critical areas first.

Clearly outline the review’s objective: identify unused licenses that can be eliminated at renewal, discover any under- or over-licensed situations, and establish a clean โ€œEffective License Positionโ€ (ELP) for negotiations.

Set a timeframe for the review (e.g., perform this audit 3-6 months before the EA expiration) so that findings can inform your renewal strategy.

2. Assemble the Review Team and Assign Responsibilities

An internal audit should be a cross-functional effort. Identify who will lead and who needs to contribute:

  • License Manager / SAM Lead: Appoint someone (or a team) from Software Asset Management or IT Asset Management to coordinate the review. This person ensures the process is followed and results are documented.
  • IT Operations: They provide data on deployments and usage. For example, your M365 admin can pull reports on active users for each license type; infrastructure teams can report how many servers are running Windows or SQL.
  • Procurement or Sourcing: They gather entitlements โ€“ all the purchase records, licensing contracts, and Microsoft License Statements (MLS) that show what you are entitled to use.
  • Finance (optional): They may provide insights into current spending and help quantify the costs of unused licenses.
  • Business Unit Reps: For user-based services (like Office 365), it helps to involve department IT reps or application owners to verify if users still need certain software.
    By involving these stakeholders, you ensure no critical information is missed and everyone is aligned on the exercise’s importance. For instance, neglecting to include a key application owner could mean overlooking deployed licenses that are not actually needed by users (or vice versa).

A common pitfall to avoid isย not assigning clear ownership. Make sure itโ€™s understood who is driving the project and who must deliver which data. An internal audit works best when someone is accountable for chasing down all the pieces.

3. Gather Usage Data

The next step is collecting data on actual usage and deployments:

  • Cloud Services Usage: Use the Microsoft 365 admin center reports to get active user counts for each subscription (E3, E5, etc.). Check Azure Portal or Azure Cost Management for consumption details (e.g., Azure resource usage, and any Azure Reserved Instances in place). Identify inactive usersโ€”e.g., accounts that have an assigned license but havenโ€™t logged in or used the service in X days.
  • On-Premises Software Inventory: If you have on-prem servers and desktops, run discovery tools or scripts to list installations of Windows Server, SQL Server, SharePoint, etc. Leverage tools, if available (System Center, SCCM/MECM, or third-party SAM tools), can be used to scan for deployments. Ensure you capture version and edition information; licensing often depends on those.
  • User and Device Counts: For products licensed per user or device (like Windows 10 Enterprise or Office installations), verify the number of qualified devices/users in use. For example, count how many PCs are running Office Professional Plus if thatโ€™s in your EA.
  • Feature Utilization: Check if those features are being used for higher-tier licenses (like M365 E5, which includes advanced security or voice features). Sometimes, users have an E5 license but only use core Office apps, indicating they might be fine with E3.

It may help to create a central spreadsheet or inventory that consolidates this information. Each row could be a product/SKU, with columns for โ€œLicenses Entitled,โ€ โ€œCurrently Deployed/Assigned,โ€ โ€œActively Usedโ€ (if you can determine that), and notes on usage levels. This will form the basis of your Effective License Position.

Read Microsoft EA vs CSP vs MCA: Choosing the Right Contract Model for Your Organization.

4. Compile Entitlement Records

In parallel with usage data, collect all records of what licenses your organization owns:

  • Enterprise Agreement or Contract Documents: These will list quantities of each product you have under that agreement.
  • Microsoft License Statement (MLS): Microsoft can provide an MLS, which is a report of your volume license entitlements across agreements. Review it for accuracy (ensure all affiliates and purchases are included). Remember that the MLS might not include certain items, like CSP purchases or OEM licenses, so supplement it with those records.
  • Purchases via CSP or Others: If you bought some licenses via CSP or other channels (Open, MPSA, etc.), gather those purchase logs too. Every license counts.
  • True-up Records: If you had an EA with annual true-ups, compile the last true-up report showing where you added licenses in the past year. These records give insight into growth.
  • Current Contract Entitlement Summary: Use the EA portal or Volume Licensing Service Center (VLSC) to generate a current license summary.

Ensure this entitlement data is organized by product as well, matching the format of your usage inventory.

5. Reconcile: Identify Gaps and Surpluses

Now, compare usage vs entitlements to find discrepancies:

  • Unused Licenses (Surplus): These are licenses you have but are not being used. For example, if you pay for 1,000 Visio Pro licenses but discover only 600 installs in use, thatโ€™s 400 potential cuts. Cloud example: 500 Office 365 E5 subscriptions are assigned, but only 450 active users (50 are assigned to dormant accounts) โ€“ those 50 can likely be removed or downgraded.
  • Under-licensed (Shortfall): Hopefully, you wonโ€™t find youโ€™re under-licensed (which would mean non-compliance), but check for any instances of usage beyond entitlements. For instance, an inventory shows 110 SQL Server instances running Enterprise Edition, but you only have licenses for 100 โ€“ thatโ€™s a compliance gap to address before an audit finds it.
  • Oversized Licenses: Sometimes, you have the right number, but the edition or plan is overkill. A classic example is assigning a premium license where a standard would doโ€”e.g., giving all users Microsoft 365 E5 when perhaps a portion only requires E3 or even E1. Identify these opportunities to โ€œright-sizeโ€ license levels based on usage patterns (if only 10% of E5 features are utilized, consider downgrading some users).
  • Duplicate or Redundant Licenses: Check if users or devices consume two licenses for the same service due to misconfiguration. For example, a user might have an E3 and an E5 license in certain tenant misconfigurations or two different security add-ons that overlap. Eliminating this waste is important.

One effective way to present the reconciliation is a license review worksheet for each product or SKU, listing Entitled vs Used vs (Unused or Needed).

Highlight the ones that are candidates for removal or downgrade at renewal.

This essentially builds your Effective License Position (ELP) โ€“ a snapshot of your compliance and usage.

6. Validate and Investigate Findings

Donโ€™t do this in a vacuum. Validate the findings with stakeholders: For each potential reduction, double-check if itโ€™s truly safe to drop:

  • If 50 Office 365 accounts appear inactive, are they associated with users who left the company? Confirm with HR or IT.
  • If a department has 100 Project Online licenses but only 70 active users, ask that department if those 30 can be eliminated or if they anticipate needing them (maybe they have seasonal usage not captured in your point-in-time analysis).
  • For high-value server products, confirm with the infrastructure team that inventory data is correct (sometimes automated scanners can miss or double-count, so a sanity check helps).

This step ensures that you wonโ€™t inadvertently cut something thatโ€™s needed. It also gets buy-in from business units; theyโ€™ll appreciate being consulted, and it avoids surprises later (โ€œWhy did you remove my license?โ€).

7. Take Action on Quick Wins

If your review uncovers unused licenses, you can often start addressing them even before renewal:

  • Reharvest Unused Licenses: Reclaim licenses from inactive users and put them back in the pool. Before you buy any new licenses, always assign reclaimed ones first.
  • Suspend or Reduce Consumption: In Azure, if you find resources running that arenโ€™t needed, shut them down to cut costs (this has an immediate impact because Azure is pay-as-you-go).
  • True-down Plans: Make note of every license you plan to terminate or reduce at renewal. There are no penalties for reducing quantities when an EA term ends โ€“ in fact, Microsoft expects you to right-size at renewal. One organization discovered 20% of their licenses were unused and could avoid renewing that 20%, directly cutting costs in the future.

Also, flag any compliance gaps (shortfalls). Ideally, resolve those before an external audit or before renewal negotiations. Itโ€™s better to quietly purchase a few licenses to become compliant (or adjust usage) than to have Microsoft discover the issue in an audit and charge back-support or penalties.

8. Document the Findings in a โ€œLicense Review Templateโ€

Finally, all this information should be compiled in a clear report or template that can be used internally and in negotiations.

A suggested template structure:

ProductEntitledIn UseUnused (to cut)Action Plan
Office 365 E51,00095050Renew 950 on E5. Consider downgrading some to E3 if E5 features are not used.
Visio Plan 220012080Renew only 120. Reassign or drop 80 unused licenses.
Windows Server Std50 cores50 cores0Renew all 50. Usage aligns with entitlement.
Azure Consumption$500k/year$450k/year$50k headroomPossibly reduce commitment to $450k, or plan for growth before committing.

Having this documented not only guides your renewal negotiation (you have a clear idea of what to ask for in terms of quantities and can resist pressure to renew unused stuff) but also is great evidence of good IT governance. If Microsoft or auditors ask how you manage licenses, you can demonstrate that you perform regular internal audits.

Examples

Real-world examples underscore the importance of an internal usage review:

  • Example 1: Eliminating Shelfware โ€“ A global manufacturing company performed an internal audit 6 months before their EA renewal and discovered they had ~300 Microsoft 365 E3 licenses assigned to ex-employees or unused test accounts. These licenses had quietly accumulated as people left or projects ended, but the company still paid for them under the EA. By identifying this shelfware, they planned a 300-seat reduction in their renewal. In doing so, they avoided roughly 15% of their Office 365 costs for the next term. Additionally, they noticed 100 of their users with E5 licenses were not using any E5-specific features (they only used email and Office apps). Thus, they decided to downgrade those 100 users to E3 in the renewal, further saving costs. The audit findings gave them leverage to negotiate a smaller, optimized EA and saved an estimated $200,000 over three years.
  • Example 2: Ensuring Compliance โ€“ An IT services firm has rapidly added Windows Server VMs to Azure. Their self-assessment found they were under-licensed for Windows Server because some deployments werenโ€™t covered under their existing licenses (which only covered on-prem, not some Azure VMs). This internal review flagged the compliance gap. The firm addressed this issue by properly using Azure Hybrid Benefit and purchasing additional core licenses before Microsoftโ€™s auditors got involved. By catching this proactively, they avoided a potential hefty true-up surprise. The CIO used this example to justify the importance of regular license tracking to the CFO.
  • Example 3: Data-Driven Negotiation โ€“ A large retail enterprise credits its internal audit with strengthening its negotiation hand. Before renewal, they inventoried all Microsoft licenses and usage. When Microsoftโ€™s sales team came with an initial renewal quote assuming theyโ€™d need 1,000 Visio licenses and 800 Power BI Pro subscriptions (based on the previous EA), the company countered with their data showing that only ~600 Visio and ~500 Power BI were in use. They negotiated the proposal down to those numbers, eliminating hundreds of unnecessary licenses from the contract. Microsoft accepted the reduction because the customer had clear evidence. This example shows that having concrete usage data prevents overselling โ€“ Microsoft canโ€™t easily push licenses you donโ€™t need if you have the facts.

These examples highlight both cost optimization and risk mitigation. In one case, a company saved money by not renewing idle licenses. In another, an internal audit acted as a safety net against compliance issues.

Across the board, organizations that โ€œdo their homeworkโ€ with internal license reviews are better prepared for renewals and often achieve better outcomes.

Read Building the Microsoft Renewal Negotiation Team.

Recommendations

Performing an internal licensing usage review should become a standard practice in your renewal planning. Here are actionable recommendations to implement:

  • Schedule Regular Internal Audits: Donโ€™t wait for a Microsoft-initiated audit or the eve of renewal. Establish a cadence (annually or semi-annually) to review license usage. Many organizations tie an internal audit to the annual true-up cycle or a few months before renewal so that findings feed into negotiations. Consistency is key โ€“ track usage trends over time, not just once.
  • Use Tools and Templates: Leverage Software Asset Management (SAM) tools to automate data collection. Microsoft 365 admin center, Azure Cost Management, and third-party SAM platforms can gather usage info efficiently. Utilize or develop a License Review Template (spreadsheet or dashboard) to record findings each time. Using a standard template, you ensure you cover all bases in each audit and can compare results yearly.
  • Involve the Right Stakeholders: Ensure IT, procurement, and finance collaborate on these reviews. Each brings a piece of the puzzleโ€”IT knows deployment and user needs, procurement knows contracts and costs, and finance knows budget impacts. Also, consider involving an internal auditor or compliance officer to bring rigor to the process. High-level support from senior management can underscore the initiative’s importance and ensure cooperation from all departments.
  • Document Everything: Keep meticulous records of your findings and the data sources. If you reclaim 100 licenses now, note that and how you did it. If you identify 50 unused licenses to cut at renewal, include that in a formal recommendation report. Documentation not only helps in negotiations (you can show internally why youโ€™re not renewing certain items), but itโ€™s invaluable in case of a later audit, demonstrating a โ€œgood faith effortโ€ at compliance. It also helps train new team members on the process in the future.
  • Optimize Before You Renew: Treat the internal review as an opportunity for cost optimization. Donโ€™t simply identify โ€“ execute. Reassign licenses that were purchased but never allocated (you paid for them, so someone might as well use them). Remove or turn off services that arenโ€™t needed (for instance, if you realize youโ€™re paying for 100 Power BI Pro but only 50 people actively use it, consider downgrading or removing the others now, not later). Many cost-saving measures can be taken in advance, and any reductions in use now will be reflected in lower renewal needs. One expert noted that the real waste in modern licensing is often over-licensing, not under-licensing, so focus on eliminating excess.
  • Leverage Findings in Negotiations: Use the outcome of your review as a negotiation tool. When you enter renewal discussions, confidently assert what you need (and what you donโ€™t). If Microsoftโ€™s proposal includes licenses above your demonstrated need, push back with data. By showing you have done an internal audit and have an accurate handle on your license usage, you signal to Microsoft that you are a savvy customer. This can deter them from aggressive upselling and even make them think twice about initiating a formal audit, since you manage compliance diligently.
  • Consider Third-Party Expertise: If your organization lacks the resources or knowledge to conduct a deep licensing review, consider engaging an independent licensing consultant (like Redress Compliance or a SAM specialist). They can provide an unbiased assessment and often have specialized tools to find unused licenses or compliance gaps that in-house teams might miss. An external review before renewal can validate your internal findings and add credibility when negotiating with Microsoft. Plus, paying a consultant to find savings is often cheaper than overpaying for licenses for years.

Implementing an internal licensing usage review template and process will transform renewal time from a risky guessing game into a data-driven decision point. Ultimately, this practice ensures you only pay for what you truly need, stay compliant, and approach Microsoft from a position of knowledge and confidence.

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  • Fredrik Filipsson has 20 years of experience in Oracle license management, including nine years working at Oracle and 11 years as a consultant, assisting major global clients with complex Oracle licensing issues. Before his work in Oracle licensing, he gained valuable expertise in IBM, SAP, and Salesforce licensing through his time at IBM. In addition, Fredrik has played a leading role in AI initiatives and is a successful entrepreneur, co-founding Redress Compliance and several other companies.

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