IT departments manage thousands of applications, but they don’t know which ones are strategic and which ones bring less value. The number of these applications has grown significantly over the last decade incurring increasing IT costs and risks. The goal of Application portfolio management (APM) is to manage the inventory of these applications and give a comprehensive understanding of their value from both technical and business perspectives within an organization. With APM, IT leaders can efficiently streamline their application portfolio while ensuring their IT systems are ready to embrace new business projects. In this post, learn more about Application Portfolio Management, how to implement an APM project, and the best practices.
Definition: What does Application Portfolio Management (APM) provide?
Application portfolio management is the process by which an organization identifies and assesses the value of business applications to determine which ones to keep, modernize or eliminate. It is a proven methodology used by many IT departments to successfully reorganize their IT systems and significantly reduce their costs.
IT Departments' challenges: Main examples and benefits of APM
Increasing complexity and a lack of flexibility
IT departments are often burdened with a large number of applications stemming from past mergers and acquisitions, geographic expansion, or organic growth. These applications have been accumulated without a planned roadmap, many are redundant, under-used, or obsolete. This results in complexity and a loss of agility, preventing IT departments from supporting new business projects.
Growing IT costs and IT risks
In many cases, IT teams are unable to downsize these applications without precise knowledge of their business value. They are unable to assess the impact of change when adding or removing an application. They may also encounter difficulties to migrate applications from on-premise to the cloud. In addition to soaring IT maintenance costs, these applications can also induce risks such as obsolescence risks or non-compliance risks.
No central repository to store information on applications
The use of Excel spreadsheets or home-grown portfolio management solutions might seem useful and flexible when initializing an application rationalization project or for a one-time exercise. However, they rapidly become limited for repeated, long-term use, making rationalization efforts difficult to succeed.
“CIOs understand that cost optimization initiative is important for the efficient delivery of IT services, but often struggle to maintain momentum and end up in a repeated cost-cutting cycle.” (Gartner, Three-Year Roadmap for Cost Optimization, 2019)
To go further, read the Five Main Benefits of Application Portfolio Management
Why do organizations need an application portfolio management practice?
Get visibility into all applications used in the organization
- Create, in a single repository, a comprehensive inventory of applications
- Get a clear view of how current applications support the business
- Identify and reduce risks
- Impose a formal process around new application approvals
Assess the application portfolio to identify rationalization projects
- Understand how and where current applications are used, and by whom
- Identify redundant applications
- Understand the applications that are critical and the ones to be retired or modernized
- Analyze the impact of change
Transform applications to consolidate the application landscape
- Reduce application costs
- Improve business alignment
- Keep IT systems flexible for new business projects
- Regiment and impose better governance on the application portfolio
Methodology: steps to successfully implement an application portfolio management project
1st step: Perform IT Inventory
With APM, IT departments create a detailed inventory of their assets, including applications, technologies, data flows, and business capabilities, to provide a comprehensive view of their IT landscape. Based on this inventory, they can link together business capabilities, applications, and technologies to perform impact analysis. They can also add other perspectives such as application costs, deployments, lifecycles, supported processes, and risks.
Inventory applications under multiple perspectives
A. Define roles and responsibilities
Managing the application and technology inventory is a teamwork effort. Distinct categories of stakeholders are typically involved, and the scope of their responsibilities varies from one organization to another. Typical roles include:
- Application portfolio managers who monitor the application portfolio, provide reliable information about it, and work with application and business line owners to keep the data updated.
- Technology portfolio managers who look after the technology assets, monitor technology obsolescence and identify when changes are necessary.
- Application owners, who manage one or more applications, provide updated business and technical information about their applications for the inventory, and monitor application performance.
- Business owners, who provide information about the business value of the application and their satisfaction through surveys.
- IT owners, who provide information on the technical fitness of an application through surveys. For example, they can describe the level of complexity of the architecture required by an application.
B. Plan and prepare for data collection by defining the data needed
Before collecting the information about applications, create corresponding reference objects linked to applications including organizational and site structure, business capabilities, business line, and business process.
Define the scope of inventory including application systems, applications, software technology, portfolio structure, and portfolio criteria. When doing the inventory, look at these specific items:
- How applications support business activities (lines of business, business processes, business capabilities)
- How applications interact with each other through data flows
- Where applications and technologies are deployed (company branch, site, server, consumers)
- Application costs, including recurrent, non-recurrent, maintenance, and labor costs
- Application lifecycles and their corresponding deployments
C. Collect data
In that stage, it is important to speed up and automate the collection process. You can use and set up APIs to connect and retrieve data from third-party solutions available in your organization. The collection process can also be crowdsourced to application stakeholders that will provide accurate information on their applications.
- Identify existing sources of information, such as spreadsheets, CMDBs, existing application portfolio management tools, IT asset management tools, and any existing collection processes (for example, surveys via email or web).
- Collect business data using a collaborative approach (crowdsourcing) with key stakeholders and deposit all information into a centralized repository for use company-wide.
- Design and submit relevant questionnaires to various stakeholders including application owners.
- Validate the data collection process and the information collected by checking the accuracy of the new information with what is already commonly known and by having stakeholders and subject matter experts verify it.
D. Enrich Application Data Inventory
Once the initial data collection has been performed, there are several ways to enrich the application inventory: for example, by linking business capabilities to applications and applications to underlying technologies, by defining application lifecycles, dataflows, costs, and deployments.
- Map business capabilities to get a clear picture of the current state from a business perspective. Link applications to business capabilities to view the applications that support business capabilities.
View how applications support business capabilities over time
- Map underlying technologies to applications to get a better understanding of the technical fitness of an application.
In this example, Microsoft technology support the listed applications on the right pane
- Map data flows between applications.
Monitor data flows between applications to understand the effort needed to remove or update an application
- Map application deployments in the different branches and departments of your organization
Get a clear picture of application deployments
- Capture the life cycles of applications and their deployments
View application lifecycles as well as deployment and underlying technology lifecycles
- Capture application costs including labor, infrastructure, license and service costs over the years.
Understand application costs
E. Define the approval process for new applications and technologies
Once the inventory of the IT landscape has been performed, implement a formal approval process for new applications and technologies, so the application portfolio management (APM) practice is the single source of truth for applications and technologies
2nd step: Assess the application portfolio to identify the applications to be removed or modernized
Application portfolio management (APM) enables IT leaders to assess their applications and get a consolidated view of their application portfolio using various factors such as costs, application lifecycles and deployments. They can also send surveys to business and IT owners to get a precise measure of the business value and technical efficiency of various legacy applications. Through this assessment, IT leaders can make well-informed decisions to eliminate some applications that no longer fit the company’s strategy or modernize applications with a strong business value but with poor technical fitness. They can even decide to outsource some applications that are too costly to maintain but still supports key business processes.
A. Run objective analysis
In that stage, you can run an objective analysis based on the collected data to assess your application portfolio. It will give you a first insight about the value of your applications.
- Using collected data, applications can be assessed based on objective KPIs such as lifecycle, cost, risk, supporting technologies, vendor dependency.
- Align applications to business capabilities to ensure the IT roadmap supports the organizations goals and is helping meet business objectives.
- Identify redundancies as well as applications requiring attention in business capability maps
identify redundant applications in business capability maps
B. Run subjective analysis
Subjective analysis is performed by stakeholders who assess the business value and technical efficiency of the applications they use. Again, the assessment can be crowdsourced with the portfolio manager coordinating the efforts. Questionnaires are sent to business and IT owners and other stakeholders who then provide the required information.
Submit questionnaires to business and IT owners to assess their applications
C. Rank applications
Rank applications is done by consolidating scores and cross-referencing KPIs. This type of analysis ensures that the most important investments and resources are focused on the most critical applications and become the first recommendations for improving the portfolio.
- Applications can be ranked in four categories:
- Eliminate: Applications with little value to the organization or impact on the business, such as those that are rarely used, not critical, replaceable by any existing application, or have excessive maintenance costs
- Tolerate: Applications with functional shortcomings and low business value, but with no major technical issues or low maintenance costs
- Modernize: Applications adding real value to the business, but with poor operational performance –failing to meet technological standards, require re-engineering the application platform, or needing a code review (also the case for candidates to be moved to the cloud)
- Invest: High value for the business or high technical efficiency
Rank applications and view candidates for rationalization
3rd step: Transform the application portfolio to reduce costs and increase flexibility
The last step of the process is to initiate and prioritize the transformation projects based on the identified applications to be removed or modernized. A business case that explains why the project should be done, how it supports business objectives, the related costs, as well as a timeline and possible risks, is an essential deliverable because it enables decision makers to make informed decisions.
Projects are prioritized based on their alignment to the business objectives and the criteria as defined above. Once projects have been prioritized, they can be put in a timetable, forming the IT roadmap. With a clear IT roadmap, IT leaders have a comprehensive view of future IT modernization projects and can plan resources as well as budget accordingly.
A. Create rationalization projects (retirement, modernizing)
Through the assessment of the application portfolio, rationalization projects have been identified. The corresponding projects need now to be created as a first step to transform the application landscape.
- Create an IT project portfolio of potential transformation projects based on the identification of applications to be removed or modernized.
- Build a business case stating the benefits in terms of operational performance and cost reduction.
- Link projects to business capabilities to assess the project’s impact on the business and strategic objectives.
- Understand the impact of retiring an application from the portfolio by for example monitoring data flows between applications and removed functionalities.
B. Prioritize rationalization projects using what-if scenarios
Because all projects can not be performed at the same time, it is essential to prioritize these projects first. The prioritization can be performed based on the criteria you have defined. It is also recommended to perform a what-if scenario analysis by combining multiple projects, so that the best mix of projects are prioritized.
- Prioritize projects based on various factors, such as financial (ROI, initial investment), resources, deadlines, risks, and strategic alignment.
- Build what-if scenarios based on a mix of different projects.
Compare and prioritize transformation scenarios based on multiple criteria
- Build an IT roadmap that includes the planned transformation projects.
Create an IT roadmap encompassing current and future transformation projects
What are the best practices for an application portfolio management project?
To successfully implement an APM project, it is recommended to follow the points below, which are based on the experience and feedbacks from the multiple application projects already in place.
- Avoid trying to do too much too soon – a steady and measured approach to setting up Portfolio Management and wider Enterprise Architecture practice – it is important to take the wider stakeholder community along the journey to help them understand as maturity increases overtime.
- Establish a core APM team and set clear roles and responsibilities
- Set up an executive board that defines and monitors the inventory, sets technology standards, and identifies major business or technology changes that could impact the application portfolio and transformation plans
- Ensure accurate data is being populated and is updated regularly
- Avoid attempting to integrate with other solutions too soon, namely CMDB, Service Manager, Discovery Tools (SCCM, DDMI).
- Focus on key data metrics at first, expand to enhance analysis as necessary
- Ensure KPIs are relevant to operational and strategic goals
- Set quantifiable objectives, e.g., a 10% reduction in application maintenance costs per year
- Use dashboards suited for each stakeholder such as cost reports for CIOs and portfolio assessments for portfolio managers
- Implement a communication plan sharing the vision to the wider stakeholder community.
Use dashboards to monitor key indicators such as costs, application by status (in production, retired) and percentage of completion of the application inventory
Use dashboards to monitor key indicators such as costs, application by status (in production, retired) and percentage of completion of the application inventory
Key learnings about Application portfolio management
At a time when software is not new, when large organizations have accumulated thousands of applications over the past decades representing growing maintenance costs, but when applications have never been so strategic to get new customers and stay ahead of the competition, application portfolio management (APM) has become instrumental for organizations to know exactly what applications they manage, if they need to be replaced and when.
APM is not a simple inventory, it’s a single source of truth where applications are inventoried under multiple perspectives providing a comprehensive understanding of an application. And certainly, because of this extra visibility, IT leaders can identify the applications to be removed or to be modernized by performing impact analyses, but also by sending questionnaires to the different stakeholders within the organization.
Overall, an application portfolio management (APM) practice will help IT leaders to maximize the governance of their application portfolio while ensuring IT systems are ready to embrace new business projects. It will help organizations regain control of their application landscape resulting in an increase of agility and a reduction of costs.