Understanding the Value of Application Portfolio Management

January, 2009

The concept of application portfolio management (APM) first emerged in the early 1990s, but its benefits really became apparent during the Y2K buildup. When organizations began preparing for Y2K remediation, they often discovered they had accumulated a large number of applications that were redundant, costly to maintain, and of little real business value. Moreover, the majority of applications were not cataloged in any logical, searchable fashion. As companies began to review their application portfolios, the benefits of having an ongoing process of doing so became apparent. For example, IBM claims it was able to reduce the number of its application systems from 15,000 in 1998 to 6,800 in 2000, following a companywide effort to optimize its portfolio.

More recently, financial services companies realized the benefit of APM as they came under pressure to merge systems, modernize legacy applications, and stabilize software maintenance costs. Software maintenance costs represent a major component in most IT budgets, and one that is difficult to manage. Nearly all organizations today have similar needs, and APM is a critical starting point for addressing them.

This Research Byte is a summary of our full report, Application Portfolio Management: Adoption Low Despite Value

APM Requires Grouping, Governance, and Tools
APM is largely the practice of grouping together applications with similar functions, assessing their financial value, and cataloging them in a way that allows for analysis at multiple levels.

During Y2K remediation, organizations often assessed their portfolios and consolidated applications, but then failed to implement a process for ensuring ongoing maintenance of this information. They failed to reap the long-term benefits from their short-term fixes. Thus, APM must also include an ongoing process for ensuring that all future developments, upgrades, and other changes are reflected in the portfolio. APM is only effective if organizations implement governance processes at the same time they rationalize applications.

The principal uses of an application portfolio are similar to those of a financial portfolio. A financial portfolio groups together similar investments, such as stocks, bonds, and real estate, and associates values with those investments. The financial portfolio can then provide a consolidated view of investments by class, assess the risk associated with the portfolio, and enable the portfolio owner to make sound decisions based on his or her strategic goals. Similarly, APM provides a view of all applications in the aggregate, as well as by functional attributes and financial values.

For example, functional attributes in a retail IT shop might include:

  • Administration
  • Distribution
  • Purchasing
  • Advertising
  • Finance
  • Inventory management
  • Customer experience

In this example, an organization might index customer experience and finance applications as having the highest risk, while inventory management and distribution applications would have the highest value. An effective APM system provides the CIO with an aggregate view of the total value, risk, and number of applications within the organization, along with the ability to drill down to a more detailed view of each of the primary groups. Thus, APM enables the IT organization to closely align its budget priorities with the organization’s business strategies.

As with any management practice that relies on gathering and maintaining information, automation of the data collection helps. APM requires some type of up-front investment–in building custom tools, deploying commercial software packages, obtaining the services of a consultant, or some combination thereof. There are several software vendors that provide solutions to support APM such as Hewlett-Packard, Clarity, and Relativity Technologies.

Ensuring a Successful APM Implementation
The software to support the process is only part of the solution, though. The key to success is implementing a governance process that ensures the APM solution will be maintained as an organization changes and develops its applications.

The full version of this report presents six critical steps on the road to APM implementation, examines current adoption trends by organization size, discusses the key benefits of APM, and concludes with a discussion of the obstacles and complexities that IT managers need to consider when incorporating this practice into their IT governance processes.

An effective APM process, implemented across an enterprise, allows IT organizations to align with their business partners and provides the ability to quickly assess the impact of new development on existing applications. APM tools provide CIOs with a clear view of their products, the value of their products, and the intricate relationships between their products and the business strategies–both current and future.

This Research Byte is a brief overview of our report on this subject, Application Portfolio Management: Adoption Low Despite Value. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website at https://avasant.com/report/application-portfolio-management-adoption-low-despite-value-2009/ (click for pricing).