Think Tank: Unlocking value from the applications portfolio
- 03 August, 2009 08:50
In today’s IT dependent world organisations have accumulated an array of applications from the modern to the ancient. Successive mergers and acquisitions have further added to the inventory. What’s more, because they accumulated over time, these IT portfolios are often patchy, redundant and lacking proper management oversight. The resulting IT portfolio has become complex and difficult to manage. According to reports, almost 70% of the IT budget is consumed by sustaining business-as-usual activities. When CIO’s are increasingly being asked to “do more with less”, it is absolutely necessary to optimise the IT portfolio.
Increasingly executives are using Portfolio Management methodology to tackle this challenge. IT portfolio management concept is not dissimilar to managing financial assets. In both, the aim is to collect data on the assets to be able to enhance returns and reduce risks. There are two types of IT portfolios, namely, IT asset portfolio and IT projects portfolio. Although the principles of portfolio management are similar there is great deal of difference in the processes used.
Organisations are using Applications Portfolio Management (APM) to make rational decisions about reducing the cost of application ownership, improving the functionality and the strategic alignment and reducing portfolio risks. The reason for the rapid growth in the use of APM is that organisations have achieved successes in cost reduction, managing the complexities of hundreds of established assets, and improving budget effectiveness.
Application Portfolio Management is a periodic objective assessment of organisations’ applications. Determining which applications receive same, lower or increased levels of funding optimises portfolios over time. The assessment helps refine application management practices, namely, which applications to eliminate, which to keep, which to renovate. The focus is to ensure that the business value and ownership costs are appropriately aligned and the portfolio is streamlined by rationalising duplicate or obsolete applications. Over time, the applications portfolios as a whole should reflect the greatest business value and closest architectural fit with the lowest costs and risks.
APM generally consists of the following elements:
- Applications Inventory: Identify and catalogue what applications you have and what they do and how much they cost.
- Applications Assessment: Assess applications in terms of business value, alignment with strategy, technical architecture or standards and cost and ability to support. Identifying cost saving opportunities via removing duplication or overlaps.
- Recommendations and Roadmaps: Develop changes to the application management strategies and create potential application transformation initiatives or roadmaps. The goal is to get prioritised action plans for tailoring maintenance spending, rationalising or migrating applications and addressing health risks.
- Portfolio Governance: Assign responsibility for governance including managing the repository and tracking recommendations. Track and communicate the benefits.
APM implementation does not have to be too complex. The focus is on the big picture and identifying aspects that stand out from the norm. First step is the application inventory. Business users, IT support staff, IT architects and IT managers participate in the data gathering stages. In the second step, gather data on operational performance, fit with the architecture or standards and the known vulnerabilities. This begins to identify applications that need further attention. Next step is to analyse the application cost data and compare it with business value from other similar applications. Applications with too high costs or too low costs need further analysis. Final step in the process is to develop recommendations and migration scenarios, engage stakeholders in priority setting and begin detailed business cases for the selected roadmaps.
Where there are many application managers (e.g. in a federated structure), it would be ideal to assign responsibility to a central function such as Head of Architecture for creating uniform application inventory and assessment processes. A common repository would facilitate the identification of duplicate applications across the entire organisation.
Benefits of Application Portfolio Management
- APM improves the understanding of the applications so they can be managed effectively.
- It helps track and communicate the technical and business health of applications to identify problems and take advantage of opportunities.
- With APM organisations can better align the applications portfolio to the business strategies and the technical architecture, thus improving business value over time.
- Looking at how the portfolio supports key business processes, creates opportunities to remove the complexities and streamline support.
Over time APM enables focus to shift from application health and costs, to flexibility and responsiveness and ultimately to competitive advantage. By evolving applications in a planned and methodical way, organisations can maximise returns on their existing investments while making steady progress towards a stronger applications environment.
Tips for effective application portfolio management
- Executive Sponsor: Project must have sponsorship from the CIO or the Head of Applications. Proper understanding their objectives and constraints ensures that the final recommendations can be acted upon.
- Engage Business: APM gives an excellent opportunity to inform and engage the business executives. Obtain business value and functional quality data from the actual users and owners. Their support is critical for decisions to rationalise the duplicate applications or to adjust maintenance levels.
- Be pragmatic: In the first iteration, focus on applications that account for bulk of the costs and business support. Similarly, in data gathering focus on few important attributes and costs. Where exact data is not available stake-holder/ user surveys can be used.
- APM tools: Spreadsheets may be used to record the inventory data. There are a number of third-party tools, which can help manage the applications inventory and the associated information such as costs, business value and risks. Tools would be of benefit for large portfolios and especially to keep inventory up-to-date.
- Source code analysis tools: These tools will help analyse the source code of applications and give information about the function points, complexity, etc. This data is valuable for understanding the reasons for complexity and the maintenance cost.
- Assessment: Assessment typically covers business, technical, financial and operational perspectives. The typical questions are:
a. Business: How well applications support the business process? What synergies we could achieve?
b. Technical: Are the applications scalable/ extendable/ adaptable/ supportable? Do they fit the architecture?
c. Financial: Do the applications cost too much to operate? Why? How can costs be reduced?
d. Operational: Are the applications sustainable? What are the key vulnerabilities? Is the support infrastructure too complex? Can we find the right skills for support?
- Analysis: Looking at the data using a variety of criteria from business, technology, operations and financial perspectives would highlight ‘anomalies’ and areas for actions. Using a combination of factors would highlight anomalies, for example, if two applications are similar complexity and size but one has high costs, indicates an issue. Some solutions will become obvious when you see the problem, e.g. 17 versions of warehousing applications.
- Trend is your friend: Collecting cost and performance trends over time can give you richer insights than just point in time data. 18-24 months data would begin to yield useful information.
- Applications portfolio: Typically the assessment results would group each application in one of the four categories. These are Invest, Divest, Reengineer and Tolerate.
a. Invest – These are applications of high business value and good technical quality.
b. Divest – Low value/ low quality or duplicate applications.
c. Reengineer – High business value but low quality applications are candidates for modernisation.
d. Tolerate – High technical quality but low business value applications are possible candidates for cost reduction.
- Ongoing governance: Treating APM as a one time activity is a mistake. Any short-term gains would soon be lost. Assign responsibility for governance and ensuring inventories are regularly updated and assessed and recommendations are followed through. Establish key metrics and scorecards to monitor progress of the initiatives. Track and publish the benefits.
- Link with Enterprise Architecture: APM inventory provides data for the current state and recommendations should be aligned with the Enterprise architecture ‘desired end-state’. Application roadmaps create the migration path between these two states.
- Communicate the results: Widely communicate the logic of the recommendations. Use the application roadmaps with the results of the assessment to inform business executives about the issues/ risks and various choices. This will result in a stronger business buy-in.
Hemant Kogekar is the principal of Kogekar Consulting. He has previously held CIO/ IT director positions with Suncorp, Citigroup and Franklins. He can be reached at hemant[at]kogekar.com
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