Unlocking value from the applications portfolio

Application analysis

Introduction

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 necessary to optimise the IT portfolio.

Increasingly executives are using Portfolio Management method 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.

Within the IT Assets portfolio, we believe managing the application assets has the greatest upside. In this paper summarises benefits of Applications Portfolio Management and key learning from my experience in implementing APM.

Executive Summary

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 fact-based assessment of organisations applications. Determining which applications receive same, lower, or increased levels of funding optimizes portfolios over time. The assessment helps refine application management practices, namely, which applications to cut, which to keep, which to renovate. The focus is to make sure that the business value and ownership costs are appropriately aligned and the portfolio is streamlined by rationalizing duplicate or obsolete applications. Over time, the applications portfolios as a whole should show 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.

Application portfolio management

Figure 1 – Applications portfolio management lifecycle

APM Implementation

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 take part 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 find 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 help the identification of duplicate applications across the entire organisation.

Benefits of Application Portfolio Management

APM benefits over time

  • 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 show 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

  1. Executive Sponsor: Project must have sponsorship from the CIO or the Head of Applications. Proper understanding their goals and constraints ensures that the last recommendations can be acted upon.
  2. Engage Business: APM gives an excellent opportunity to tell and engage the business executives. Obtain business value and functional quality data from the real users and owners. Their support is critical for decisions to rationalise the duplicate applications or to adjust maintenance levels.
  3. 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.
  4. 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.
  5. 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.
  6.  Assessment: Assessment typically covers business, technical, financial and operational perspectives. The typical questions are:
    1. Business: How well applications support the business process? What synergies we could achieve?
    2. Technical: Are the applications scalable/ extendable/ adaptable/ supportable? Do they fit the architecture?
    3. Financial: Do the applications cost too much to run? Why?  How can costs be reduced?
    4. Operational: Are the applications sustainable? What are the key vulnerabilities? Is the support infrastructure too complex? Can we find the right skills for support?
  7. 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, such as, 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.
  8. 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.
  9. Applications portfolio: Typically the assessment results would group each application in one of the four categories. These are Invest, Divest, Re-engineer and Tolerate.Application analysis
    1. Invest – These are applications of high business value and good technical quality
    2. Divest – Low value/ low quality or duplicate applications.
    3. Re-engineer – High business value but low quality applications are candidates for modernisation.
    4. Tolerate – High technical quality but low business value applications are possible candidates for cost reduction.
  10. 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 check progress of the initiatives. Track and publish the benefits.
  11. 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.
  12. Communicate the results:  Widely communicate the logic of the recommendations. Use the application roadmaps with the results of the assessment to tell business executives about the issues/ risks and various choices. This will result in a stronger business agreement.

If you would like further information or help please contact Kogekar Consulting.

Take control of your IT costs

Introduction

These days there is increasing pressure on the IT group to contain costs. Being a smart manager, you have already negotiated reduced rates with your suppliers, cut headcount, tightened travel / entertainment expenditure but the organisation still needs to find more savings. While resources are cut, the demand from business for IT services continues to grow unabated.

As organisations begin to exhaust the supply side cost reduction opportunities, controlling consumption and demand offer the next level of cost savings.  Organisations have achieved additional long-term savings of 10-20% by managing consumption on top of the supply side savings.

Executive Summary

The challenge of managing costs means that the IT group must look for cost savings beyond the supply side costs controlled within the IT department. Demand Management aims to control consumption of resources by helping the business managers understand how their decisions drive costs, and how IT can help find ways to optimise demand on IT resources.

  • As IT has become an part of business, demand for IT services and resources, continues to grow. Requests for business process changes, enhancements and procurement of new technologies and e-commerce means the demand for services continues to increase unabated despite business cycles.
  • The demand for IT resources appears to be poorly controlled. Most organisations don’t appear to have the right information on the total demand nor credible costs. Appropriate information and incentives for the business to cut the demand do not exist. Two common reasons are:
    • Inadequate IT cost transparency
    • Inadequate responsibility on business heads to control consumption
    • While most organisations have processes to control the demand for the new projects; in areas such as applications support, infrastructure operations and help-desks, such controls are hard to find.
    • Even when there are controls on the discretionary project initiation, once underway, there is limited control and almost no incentive to stop the distressed or wayward projects.


IT Demand management

Figure 1 – IT demand management

While there are many benefits, demand management is also more difficult because, according to Forrester Research, it is not just about assessing the business appetite. For effective demand management IT has to put in place processes and people who can understand the business needs and strategies; and then begin a meaningful dialogue on cost and performance tradeoffs. Demand management requires an ongoing focus. It thrives with a continuous improvement approach. Reducing IT supply costs has many one-off activities and is usually quicker. Increasing the scale helps bring the unit costs down. While demand management is a longer-term initiative, it can offer much larger savings beyond what is achievable by the scale alone. Once managers understand what they are paying for their focus quickly changes. When organisations become wise consumers of IT resources, they begin to have robust control over projects and capital investments. There is a reduction in the redundant applications and reduced maintenance. Hence there is more money available for the strategic initiatives. There is also the benefit of also improving IT’s credibility as responsible managers.

Successful demand management needs a high level of cost transparency from IT in a form and language that is understandable by the business customers. Some form of charge-back / user-pays mechanism too is necessary to create the right incentives. Care should be taken that the charges don’t create unintended consequences such as maverick buying. Benchmarking charge back costs with external providers ensures that they are reasonable.

Some organisations believe outsourcing of IT services and the resulting cost transparency will drive demand management. But the reality can be quite different.  First, the service provider is looking to increase revenue and reduced consumption is against their interest. Secondly, there is very little collaboration between the business and the service provider to optimise costs and increase value. In fact, we have seen one business asking staff not to call help desk to cut charge back but with a possible reduction in the productivity.  Care has to be taken to avoid such unintended consequences.


Tips for successfully managing business demand and consumption

There are three drivers of IT costs. Namely, the demand caused by the business changes, the demand (often unrecognised) resulting from the past business changes/ decisions and the business driven consumption of IT services. Here are a few tips to address each of these three.

Demand created by the business changes

  1. Business case discipline: Question whether the business change will deliver value greater than the costs. Establish a project / investment governance board with business.  Apply the filters of business case, strategy alignment, ease of implementation and risk assessment to weed out low value/ high-risk proposals and to prioritise high value changes. Select only the promising ideas for further detailed analysis. Ensure ongoing support costs are included in the business case.
  2. Revisit business cases: The project scope and risks change over the project life cycle. Reassessing the business case and risk /benefits at critical life-cycle points helps find unviable projects early. Reduce scope, look for increased benefits or stop projects that don’t pass the hurdle.
  3. 80-20 solutions: Avoid gold-plated solutions and always demand alternative solutions that would meet business needs. If 80% functionality can be provided with 20% costs, very good justification is required to go for the 100% solution. Leverage and reuse the functionality already provided by existing applications.
  4. Pilots and trials: Using trials and pilots instead of a full-blown project is a low-cost way to confirm new ideas. It is also easier to end a pilot than a big project.
  5. Benefits realisation: Hold sponsors accountable for the realisation of project benefits. Seek help from CFO/ finance department to make sure that the benefits are tracked and are built into the future budgets. Check if the IT department has fully realised benefits from it’s own past investments.
  6. Realign maintenance: Focus maintenance dollars on high value/ strategic business applications while cutting the budget for changes to others. Eliminate duplicate applications.

Demand (unrecognised) created by the past business changes

  1. Outdated features and applications: Work with the business users to rationalise outdated product/ features that add cost and complexity but little value. Analyse the applications portfolio to find and cut duplicate or obsolete applications thus reducing complexity and the support costs.
  2. Shared Services: Duplicate applications and services increase complexity and cut agility. Consider a shared services function to end the duplicated IT services and functions across business lines.  Virtualization would allow sharing servers for different applications.
  3. Standardisation: Past decisions may have resulted in greater variety of hardware, operating systems and divisional applications, which significantly increase the complexity, need multiple skill-sets to support and add costs.  Aim to standardise and simplify the environment.

Optimise business consumption of IT resources

  1. Adjust service levels: Rewrite service levels based on real business process support requirements. E.g. credit card authorisation within 5 seconds, Order processing completed by 8PM.  Discuss trade-offs between costs and service levels. E.g. 7 / 24 support vs. a lower cost weekday only support.
  2. Business friendly IT service costing: Help the business users understand the cost of IT services and what they can do to optimise the use. Define the service in business terms and use business friendly usage metrics such as ‘number of days’ retention for email, rather than MB. Create ‘service catalogues’ with information about the service; it’s costs and tactics for optimising use. Provide reports to the business on usage and costs.
  3. Realise the savings: As business adjusts IT consumption, IT department needs to adjust related resources and expenses to make sure the resultant savings are realised. Changes to contracts and staffing arrangements may be required to realise the savings.
  4. IT Asset management: Many businesses have unused equipment (PCs, printers, data links, software tools and servers) for which costs are being incurred. Work with business to reclaim/ recycle the surplus equipment and cut costs.  “Sweat existing assets” before acquiring new ones.
  5. Account managers as “buyers”: Use IT savvy “account managers” as “buyers” of IT service and place them within business units. Task them to find ways to rationalise demand and remove duplication.  These “buyers” must have strong knowledge of the business and IT processes to be effective.

For a detailed discussion and/or information on how you can start demand management in your organisation please contact the author.