Companies have usually good process for identifying, selecting and acquiring new applications. The IT group has been for many years helping the business units in understanding, which application best match their specific needs both from a business requirements point of view as well as a technical point of view.

However most organizations are pretty poor in the way they manage their application life cycle. Once the application has been acquire, it tends to live by itself and most of the time is never retired. There is no process in place to identify what should be done with the application portfolio, what is the application life cycle, when they should be upgraded, when they should be enhanced or when they should be retired. How many applications did you retire this year? How many of us have a clear plan describing what should happen with their applications over the next 7 years? How many of us have the visibility on how our application costs, benefits and value will evolve over time?

Gartner is recommending looking at the applications as being key assets of the enterprise. Application deployment costs represent on average only 9% of the total application life cycle cost and most organization lack the management discipline for the remaining 91% of the costs. Basically we need to move from a focus on ROI (Return On Investment) to ROA (Return On Asset). How many of us, could easily put a value tag e.g. in Euro on their application portfolio? Gartner predicts that by 2015, CIOs will be responsible for reporting both the value of the application portfolio as well as the value delivered by each application.

At the same time, the proportion of the IT budget consumed by application always increases.

What are some of the typical consequences in case you do not start actively managing your application portfolio?

• Applications keep on always being more expensive to maintain and enhance.
• Applications continue to proliferate i.e. the number of applications you have to manage keeps on always increasing.
• It is more and more complex and difficult to manage and implement application changes as the number of layers, dependencies between applications, and various technologies to support keeps on continuously growing.
• Applications become out of touch with the business, as they can not cope with the fast speed of change required by the business
• Meeting SLA is always harder, while the applications are getting older
• Supporting innovation is more and more difficult as the applications tend to take longer to enhance and change, which delay moving the business forward.

So what should be done in order to start managing applications as assets?

• The first thing to do is to build a long term view of your applications and how their values and costs will evolve over time. Gartner recommends using the “half time” rule: you need to have visibility on your application life cycle over the next seven years or for one-half of the expected life of the application, which ever is the greater.
• You need to look not only at current costs but also at future costs over this period. Of course what you need to understand is the cost profile rather than the exact number.  Look at the Total Cost of Ownership (TCO) including maintenance costs, operation costs, software related costs (e.g. license), Hardware related costs, but also costs related to upgrades, retirements as well as depreciation of your asset.
• Besides costs you need to capture the evolution of the value or benefits of your application over the period as well as the risks. Benefits should focus on application utilization and understanding the utilization trends. Risk should consider both integrity risks i.e. risks associated with vendor viability and commitment, platform viability, and the availability of appropriate skills to support, maintain and operate the application but also value risks i.e. risk for the application of loosing business value e.g. due to not supporting business direction changes.
• Do not stop once you have collected all the information in an excel sheet. The value of this approach is not in the excel sheets where the data are stored but on:
• Communicating based on facts and not rumors
• Driving decisions based on agreed status
• Get buy-in on the decisions
• Update your governance approach. Governance should involve demand side, supply side as well as architecture view. So business should have a key role in capturing the information. IT should not lead the application portfolio effort but it should be a business driven activity that IT is supporting. Business sponsorship is not enough to make it a success. Enterprise Architecture will provide the “glue” between demand and supply side.
• When the business direction changes there should be a formalized process for re-purposing and re-evaluating the applications.
• Finally create scenarios, options and alternative plans and when the business conditions changes re-evaluate your options.

So now we know what is to be done, where should we start?

A good place to start is to get a snapshot of the current status of your applications portfolio. For that best practice is to start conducting surveys in order to assess current value of your portfolio.

The value should be evaluated across 3 dimensions.

• The first dimension relates to the technical capability of the applications. It should consider area like reliability, scalability, extensibility… as well as compliance with enterprise architecture standards and technical risks like vendor support or security or capacity constraints.
• The second dimension that a lot of companies would typically skip is to look at how well the application supports the business. Criteria to be considered are ability to meet current and future requirements, support of business processes, fool proofness, usability …Other criteria to consider is how well the application support business strategy e.g. looking at how well application support flexible costs or support for specific regulations or support of specific SLAs. Finally business related risks should also be considered like business disaster recovery capability.
• The 3rd dimension relates to the application costs. Costs should consider both acquisition costs as well as maintenance and operation costs.
  

Once the application insight has been collected, one of the outputs should look like the quadrant presented in the following figure.

This will enable you to classify applications in four categories Tolerate, Invest, Migrate and Eliminate (TIME):

• Applications, which are technically sound but where the business value has been decreasing over the time can be considered as “good enough” applications. As long as the costs and risks associated to theses applications are manageable they can be Tolerated. 
• Applications presenting strong business value and good technical capability should be continuously Invested on.
• Applications, which are delivering good business value but which are not technically sound anymore (e.g. Hardware and Software no longer supported), are the ones to be Migrated e.g. to new platforms.
• Applications, which have low technical qualities and are not supported the business should be Eliminated i.e. retired.

Marketvisio and Gartner consulting is conducting multiple projects around Application Rationalization and Application Portfolio Management. Using proven framework and methodologies, we can help you deliver fact based evaluation of your application portfolio within a couple of weeks.

More information

Jean-David Muller, Director
Tel. +358 40 739 8712
firstname.lastname@marketvisio.fi
Market-Visio Oy
Gartner Consulting