Adopting An Application Portfolio Management Approach: Key Principles and Good Practices
Adopting An Application Portfolio Management Approach: Key Principles and Good Practices
Adopting An Application Portfolio Management Approach: Key Principles and Good Practices
Portfolio Management
Approach
Key principles and good practices
V. Conclusion ................................................................................................22
CIOs face the daily pressures of providing high quality IT services, introducing new, innovative
technologies to advance business objectives and keeping costs under control. Along with mee-
ting these demands, they must develop a pragmatic IT budget each year that fits within the
company’s financial parameters. Sometimes, because IT operational costs continue to rise, they
must eliminate or reduce new services or technology plans in favor of keeping existing services
running.
However, when CIOs have better information about the company’s IT assets, they can find ways
to reduce operational costs so that important new IT initiatives can be launched. By managing
the application portfolio on an ongoing basis, identifying the applications that are redundant,
underused, no longer the best technology option, or too costly, CIOs can apply their IT budget to
the most necessary, mission-critical options that will advance the enterprise’s goals.
Many CIOs have used some type of application portfolio management (APM) to monitor IT assets
and make decisions about application retirement, changes or acquisitions. However, companies
often limit their APM approach to a one-time inventory of IT assets or use very limited office
management tools. These approaches aren’t sustainable over time and don’t deliver the rationa-
lization capabilities and decision making support that a mature and well-designed APM program
should provide.
APM should reduce the complexity and cost of an application portfolio, help manage risks and
align the portfolio with business challenges. To achieve these goals, two primary actions are
necessary:
–– regular and special circumstance review and analysis of the portfolio in order to inventory,
evaluate and plan the transformation of IT applications.
–– a governance plan that relates the strategy of the IT department to a common framework
for IT asset review.
Successful APM is an ongoing process, with measurable goals and deliverables. The IT team
must understand:
–– what roles and responsibilities should be established
–– what skills are necessary and where they can be found
–– the best way to effectively initiate the inventory of applications
–– how to keep the inventory updated
–– what governance should be implemented
By combining a sustainable approach with a well-designed APM software solution, and inte-
grating the program with IT governance, CIOs are better able to support fast-changing business
needs and innovation.
Read on to learn about the key principles of effective APM and discover the primary actions to
take in setting an APM approach that will contribute to corporate goals.
Redundant
Lack of application Need for flexible use
applications due
flexibility of new technologies
to mergers / acquisitions
Time to market
Aging technologies is too long IT Systems
underperforming
Business strategy
not well supported
A formal and ongoing APM program is an important practice today that allows CIOs to:
–– obtain a precise view of the application inventory, dependencies, interfaces between
applications, required infrastructures and technologies, and more
–– evaluate the application portfolio based on different perspectives and needs, such as value,
costs, and risks
–– identify potential improvements in terms of performance and costs
–– organize and manage portfolio transformation initiatives, focusing specifically on reducing
Total cost of ownership (TCO).
Likewise, management of the application portfolio must integrate IT transformation rules, if any,
as well as technology standards and strategic guidelines for IT and the business.
Some APM approaches have shortcomings because of their ad hoc or limited nature:
–– a scope limited to an application inventory. Limiting APM scope to just the inventory process
does not meet a fundamental requirement to optimize the application portfolio and link it
to IT governance.
–– the one-time evaluation, often proposed by consulting firms. While this may provide a
relevant analysis of the portfolio and areas of rationalization at a single point in time,
every major change (merger, change of IT/business strategy, etc.) means carrying out a new
inventory, evaluation and identification of opportunities for improvement. Repeating this
process from the beginning is just as costly and time-consuming as the first time.
CIOs need the appropriate tools to manage their assets, which could consist of thousands of
applications used in numerous subsidiaries worldwide, and based on a range of technology.
Today, it is impossible to imagine an accounting department trying to function without accoun-
ting software or a human resources (HR) department without specialized HR tools. Why should
a CIO try to work without a portfolio management solution?
1. Portfolio review and analysis carried out by cycle, and covering objectives, issues and
IT/business priorities. This review will suggest improvements that can be quantified and
prioritized.
2. Application portfolio governance for proactive and ongoing portfolio management. This
provides a common framework for reviews of the portfolio using standardized evaluation
criteria, rationalization objectives, and IT transformation rules. It enables comparative
analyses and ensures comprehensive portfolio management.
APM Process
Review & Analysis of the Application Portfolio
IT transformation
Periodic review cycles for
Arbitration
projects
ongoing alignment and
improvement Arbitration, Staffing,
Validation of Planning, Execution
Governance framework of recommendations and Oversight
the application portfolio
Main actions –– sets targets for the rationalization and optimization of the application port-
folio
–– coordinates the team of application portfolio managers and sets their targets
Application Owner
Main actions –– provides inventory information related to the application under their res-
ponsibility
–– mobilizes appropriate individuals (business manager, support) to update the
application record if needed
Other Participants
Main actions –– provides inventory information related to the applications within the scope
of their responsibility
–– mobilizes other individuals (business manager and support) to update the
application records with relevant information
The following participants may be requested to contribute, as required, by the application owner and/
or directly by the portfolio manager (for example, for applications evaluation)
Business Manager –– provides or validates information related to the business coverage of applica-
tions, such as evaluations on user satisfaction and level of business support
Enterprise –– ensures alignment with the target architecture and compliance with archi-
Architect tectural standards and modelling rules. Enterprise architects may provide
experience and best practices gathered from enterprise architecture projects
Supplier Manager –– oversees the performance of providers and fulfillment of service level agree-
ments (SLA)
Responsibility –– decision making body, chaired by the CIO and composed of IT and business
representatives and key stakeholders of APM
Main actions –– agree on joint objectives, scope and limitations (budget and priorities) in IT
transformation
–– validate and prioritize opportunities for rationalization and transformation of
the portfolio presented by the application portfolio manager
Composition –– CIO
–– Enterprise architecture practice leader
–– Business representatives
–– Portfolio manager/infrastructure manager
Additional members may be added depending on the needs and agenda of
the committee.
There are two primary cost models: total cost of ownership (TCO) and relative cost of operations
(RCO).
The TCO model is the most commonly used. It calculates the total cost of an IT asset, from
acquisition or development of the solution to its retirement. TCO includes:
–– annual hardware and software maintenance costs
–– lease or lease-credit costs if the hardware is not bought outright by the company
–– insurance
–– installations and migrations
–– procurement/purchase and IT asset management
–– product monitoring and testing
–– costs linked to equipment reconditioning
Infrastructure
(service) Infrastructure
Infrastructure Licenses (service)
Operating costs (service) (maintenance) Personnel / Service
Personnel / Service (operation)
(operation)
Infrastructure
Licences
Investment costs (procurement)
(acquisition)
Personnel / Service
(development)
Other organizations prefer the RCO, a simpler model recommended by Forrester Research. It is
short of a complete TCO analysis, but provides more information than a return on investment
(ROI) calculation. RCO is used by IT organizations to compare the impacts of several options
using relevant inputs, but using fewer resources than required to conduct a complete TCO ana-
lysis. RCO can be used to evaluate cost impacts of changes to the application portfolio.
The collection and verification of information gathered from different sources is the founda-
tion of the application inventory, the key element for analysis, cost reduction, identification of
opportunities for improvement and choice of investment.
Category Examples
General Information Name, ID description, status, age and type
Responsibilities / Organization User / owner / manager
Functional information Business necessity, processes supported, functions supported and
capacities
Usage Number of users, user entity, frequency, availability and deployment
site
Technology Database technology, programming language, security and status of
technical documentation
Integration Application interfaces, incoming and outgoing (number)
Support Number of support FTEs and incident count
Costs Fixed costs and periodic costs (support, licenses and hardware)
Collecting this data involves interviewing IT and business subject matter experts and having
them formally validate the information that will be used for analysis.
2. Collecting data
–– collecting information using questionnaires and interviews
–– organizing and cleaning data, then capturing it in the repository; once this is complete,
providing initial reports to interviewees to validate the information
–– sharing the progress of data collection with executives using dashboard summaries
An analysis of the information collected through the different analysis criteria enables the
evaluation of the portfolio and identifies the subsequent actions to be taken about individual
applications.
Business value
– Aligns with the new
business strategy/
operational needs
– Contributes to growth of
revenue
– Improves operational
TCO costs effectiveness, reduces Technical
costs, risks
– Operating and support
efficacy
– Necessity for the business
costs
– Maintenance and – Performance
development costs – Flexibility
– Costs of licenses – Ease of maintenance
– ... Application – Configuration flexibility
Portfolio – Security
Functional Data
condition – Quality
– Usability – Accessibility of data
– Availability – Ease of maintenance
– Productivity – Flexibility
From the inventory information, applications are scored according to each of the chosen ana-
lysis criteria. The evaluation is collective, with the portfolio manager coordinating the efforts.
As with the inventory collection process, the application portfolio manager gathers the scores
from different individuals, using the same collection tools: Excel, Intranet survey, APM tool, or
others.
A pre-defined score sheet sets a company standard for the entire portfolio, leaving as little room
as possible for subjectivity.
The use of graphs and diagrams facilitates the analysis of information and allows effective deci-
sions on the best options for application modernization.
Recommendations made during the previous phase must now be analyzed in greater detail, in
terms of time planning, costs, risks, benefits and impact.
The preparation of a business case encompassing all of these elements is an essential delive-
rable because it will enable decision makers such as the application review committee or mana-
gement to make informed decisions regarding initiatives and projects to be in the budget. The
CIO must filter the projects using specific, pre-defined criteria. The business case justifies the
investments needed for transformation initiatives, evaluating the benefits generated in terms of
operational performance, improvement in services offered to the business and cost reduction.
Based on the collected information and recommendations, it is appropriate to further refine the
assessment of impacts and risks of high-priority actions.
There are key questions that should be answered before applications are retired or changed in
some way:
–– What would be the impact on the application interfaces?
–– Which functionalities would no longer be available?
–– What would be the impacts on current projects?
–– What impact would these changes have on the IT roadmap?
Before final decisions are made, all of these questions must be answered in order to predict the
full impact of projects.
A prior analysis of transformation scenarios ensures the right decision is made based on the
organization’s capacity for change. This reduces the financial, organizational and human risks
of transformations.
Recommandations ranking
Preliminary
recommendations
1
Prioritization criteria
Business value
Implementation cost
2
Recommendation
grid
3
Weak Strong
Implementation cost
In some cases, several transformation scenarios may need to be considered. To do this, and to
have access to all available decision-making elements, APM solutions provide a wealth of tools
and maps to show different options for the future of the lifecycle (for example, retirement date
in the short or long term) and to help in selecting the target roadmap.
APM solutions can also help compare the different transformation scenarios according to prede-
fined analysis criteria (costs, risks, business, etc.) based on business and IT strategies.
1. Executive summary
2. Objectives of the business case
2.1. Objectives
2.2. Scope
2.3. Hypotheses
3. Findings on current development areas
3.1. Key business factors
3.2. Key technological milestones
3.3. Description of the current situation
4. Conclusions of the technical evaluation
4.1. Application map
4.2. Technical infrastructure
4.3. Specific needs
5. Recommendations
5.1. Modernization and maintenance proposal
5.2. Other alternatives
5.3. Proposed application map
5.4. Technological recommendation
6. Cost/benefit analysis
6.1. Risk assessment
6.2. Costs
6.3. Benefits
6.4. Value proposal
Key figures 800 Business applications / 100 people under the CIO
Organization 15 Portfolio managers responsible for 15 application portfolios broken down into:
of application –– 1 portfolio by cross-sector application: Finance
portfolios –– 8 portfolios by regions: USA, UK, Germany and France
–– 6 portfolios by functional cross-sector: management of rights, management of
the logistics chain and management of catalogues
40 application managers
Organization 10 Portfolio managers responsible for 10 application portfolios broken down into
of application 10 portfolios by business line: markets, monetary funds and real estate
portfolios
A clear view of existing applications is a prerequisite for any plan to rationalize and develop IT
systems. APM is the process by which the CIO ensures proper understanding of applications and
makes effective decisions to develop application portfolios.
The information to be collected in terms of portfolio optimization criteria is quite large, so cri-
teria must be adapted to each company. These may include cost, sustainability of the vendor,
legal constraints, user satisfaction, ease of adaptation for future needs or respect for architec-
tural principles. For the different stages of the APM process, the stakeholders, decision-making
bodies and the software solution to be used must be defined and adapted according to the
specific requirements of the company.
Adopting a sustainable APM solution, integrated into other major IT transformation processes,
provides the CIO with a powerful governance tool. It also facilitates better communication
throughout the company about IT resources.