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POSTED ON: May 15, 2020

What is Application Portfolio Management?

The act of streamlining the current application portfolio with an expressed goal of improving efficiency, reducing total cost of ownership (TCO), and modernizing legacy applications to resolve complexity.

Application Portfolio Rationalization sets the foundation for cost-saving endeavors, like software license optimization, server optimization, application retirement, data storage optimization, project rationalization, retiring and aged as well as low-value applications, standardizing common technology platforms, and eliminating redundancies.

Remember active application portfolio management solutions are critical to the overall health of your company. Your business will foresee events that demand you to adjust the application landscape. There are several business events that occur naturally and directly contribute to the complexities of the IT landscape. These events can be rapid growth, global outsourcing, mergers and acquisitions, and new business processes or goals.

Application Rationalization: The Six-Step Process

The six-step process is a structured and iterative approach to application rationalization meant for IT portfolio managers. These steps are nothing but discrete actions that agencies need to consider at the time of adopting and implementing application rationalization. Agencies should customize these steps, determining the organization’s mission, structure, and unique needs.
Application Portfolio Management

Step 1

Identify Needs and Establish the Governance Framework

Enterprises should work with stakeholders, including the agency’s Office of the Chief Information Officer (OCIO), or other leaders to develop governance, put in place suitable decision-making processes, recognize the right agency staff to support the implementation of application portfolio rationalization programs, and create working groups that offer insight from across the enterprise.

Use existing systems, such as the Capital Planning and Investment Control (CPIC) process, to inform the scope and governance of the application rationalization effort. CPIC provides agencies with a baseline system and corresponding product component inventory that is reported to OMB, sets IT governance structures, and can serve as an initial framework for application rationalization.

 Step 2

 Inventory the Applications & Validate Against the Existing Application Inventory

This implies sending a questionnaire to stakeholders to obtain relevant information on each service and application, including cost data. Application owners, end-users, IT managers, and others across the enterprise form these stakeholders. It is crucial for IT leaders to have an authoritative application inventory. Only then can they make informed decisions and rationalize the application portfolio of the enterprise.

Step 3

Evaluate the Business Value & Technical Fit of All Applications

Once you have inventoried the applications and validated them against the existing application inventory and financial systems of record, it’s time to evaluate the business value and technical fit of all applications. Analyze and validate business value as well as technical fit information captured through the questionnaire sent to program offices in Step 2. Besides, you should engage program offices in an iterative way to assure collaboration across the enterprise. Review the application inventory to find out duplication and dependencies. You can thus make informed rationalization decisions.

Step 4

Examine the Total Cost of Ownership (TCO)

In collaboration with the program offices for all applications, you should examine the total cost of ownership (TCO). Information on TCO is also gathered via a questionnaire sent to program offices. Once the information is captured, you need to compare TCO in the current state against the anticipated one in future-state architectures.

Step 5

Score Applications

In this step, enterprises need to score applications based on the technical fit, business value, and TCO information collected before. You thus obtain relative scores for all in-scope applications, which in turn, help to ascertain what should be done with the application.

Step 6

Ascertain Application Placement

Based on the application scores and other key information captured throughout this process, which includes input from stakeholders, you need to ascertain application placement. Program offices then develop and implement a repetitive application migration and change management strategy.

When can Application Rationalization Help?

Like other strategic initiatives, it is crucial to build a strong business case, before you move ahead in your application rationalization journey. Application Portfolio Management (APM) assures your investments are in sync with the ever-dynamic business needs and trends. Besides, it improves the overall effectiveness of your IT functions.

APM enables businesses to do more with less, helping them achieve their set objectives. As a business, you can understand the value and effect of Application Portfolio Management in the context of several strategic initiatives.

  • Mergers and Acquisitions (M&A): You can perform application rationalization before and after M&A to evaluate the best strategic fit as well as post-merger consolidation.
  • Compliance Management: Enterprises should figure out if their applications endanger them for non-compliance. APR allows them to look at their systems from an aggregate compliance score perspective. This helps to facilitate transparency, while managing application investments from a lifecycle management perspective.
  • Business Process Management: Application portfolio rationalization solutions offer insights into redundancies or gaps in the current application portfolio. This in turn increases the ability of an enterprise to improve its business processes. Businesses can thus introduce innovative products, provide an excellent customer service experience, and ensure risk management better than before.
  • Vendor Management: APR can support management for vendor negotiations by offering them benefits of a comprehensive application inventory, risks associated with it, and the business value. The enterprise can then put terms into an agreement that creates demands on the vendor itself to mitigate risks or add business value, thus going beyond chasing just price reductions.
  • Enterprise Architecture: Enterprises can minimize their infrastructure costs by integrating technical and enterprise architecture. This results in business agility, allowing for faster rollouts of new products and technologies driving the bottom line.
  • Audit Prioritization and Remediation: Enterprises should know about the aspects of operations that run maximum technical and business risks. Only then can they effectively communicate about the risks and address them. Remember application portfolio rationalization solutions permit executives to share their insights into such risks, as they can create a single system of record that lends a consistent live view of application inventory’s business benefits.

What are some of the major benefits of application rationalization?

The IT environment is ever-evolving, wherein the IT leaders are required to integrate new technologies, such as machine learning, cloud computing, big data, and artificial intelligence. Though doing so takes much time, energy, and focus, but it improves the overall efficiency.

  • Application portfolio management acts like an effective means to identify capital for the purpose of reinvestment.
  • It enables organizations to streamline processes, lower the cost of maintenance, reduce TCO, enhance agility, and guarantee compliance.
  • Application rationalization approach frees up resources needed to research and execute innovations that generate higher revenues, and ultimately, profits.

In the absence of active application portfolio management, enterprises may encounter the issue of application sprawl. IT portfolios experiencing application sprawl become inefficient owing to poor design, redundancies, slackness, and drained resources. Enterprises can thus fail to stay innovative and competitive. Application sprawl refers to the unmanageable growth of an IT portfolio.

A few of the key stats

  • Application rationalization can result in cost savings of over 2 million US$ in an enterprise.
  • 75-80% of IT budgets are currently spent on operating and managing applications.
  • More than 70% of corporate data yet lies in legacy systems.

Let us now understand the benefits of application portfolio rationalization services in a more comprehensive manner.

1. Saves costs substantially for new initiatives: The evaluation phase helps to uncover key opportunities for cost savings. You can apply these savings to applications that are crucial to fulfill business needs.

2. Reduces application purchases in the future: Remember good portfolio management offers mechanisms for new application screening requests. Once you have application modernization in place, you can make decisions to deploy all future applications in the informed context of what has been deployed already. You should also be able to consider the advantages of deployment to the business.

3. Removes unnecessary investments: It isn’t prudent to invest in applications that don’t play any role in driving business. The strategic value of a formal evaluation of each application can be derived only when you understand its contribution to your organizational goals.

4. Eliminates redundancies: You can easily detect applications that perform identical functions for different parts of the organization. Doing so is possible through strong application portfolio management tools and processes.

5. Reduces need to adhere to standards: A diversified portfolio of applications costs much to maintain. This is not the case with a consolidated portfolio. As you consolidate applications, you end up minimizing standards you need to comply with, thus saving money.

6. Avoids recurrence of the patchwork problem: Once you have a sound application governance framework in place, the formal mechanism ensures application deployments constantly contribute towards accomplishing your business objectives. These deployments should also be consistent with your IT architecture, align with the main business as well as reduce operating and support costs.

Remember ongoing governance pays dividends in the future.

7. Minimizes training and support needs: Each application in use needs some amount of support from the internal staff or the vendor. This support requires resources. Costs trim down for a given population, only when there is a reduction in the number of vendors or applications.

8. Guarantees follow-through on application decisions: Application portfolio management enables you to employ a governance framework. Using this framework, you can supervise all your projects. Irrespective of the mechanism used, you should track portfolio changes through till completion.

Key Success Drivers

Application Portfolio Management

Factors Critical to Success in Application Portfolio Rationalization

  • Collaborative Efforts of Technology and Domain Experts: To succeed in the application portfolio rationalization exercise, a cross-functional team of technology and domain experts is crucial. This team comprises of app developers, technology architects, and domain specialists, and is responsible to assure reliability and high performance is built into the entire application portfolio. Solutions can be designed, built, and implemented faster to solve complex issues, when technology as well as business is taken into consideration.
  • Stakeholder Active Participation: Stakeholders should act as active participants of the application portfolio rationalization and optimization process, that demands a wide cross-section of respondents to be balanced and fair. These stakeholders consist of application managers, business owners, end users, technical architects, and IT managers. They continuously monitor key performance indicators, including costs and performance of apps, the total cost of ownership (TCO), and business user performance. These indicators enable measurement of the overall application portfolio effectiveness, align business goals with IT, and foremost, improve governance.
  • A Robust Model for Analyzing Application Health: When you have a model in place to analyze application health, it will be more profitable to develop recommendations that help to drive successful application portfolio rationalization. You can assess based on business, technical, commercial, and strategic dimensions, using a detailed questionnaire for interviews and surveys.
  • Resource & Budget Availability: Due to the unavailability of resources and most importantly, budget, the majority of the application portfolio rationalization programs fail. An application portfolio rationalization program can succeed only when enterprises comprehend and assess resources as well as budget beforehand. Once the assessment is done, you can leverage the recommendations to achieve the desired results within a reasonable time. Remember an enterprise should evaluate the cost and level of involvement needed before implementing application rationalization efforts to ensure the realization of looked-for benefits.
  • Support from the Top-Level Management: Application rationalization program should have the support of the top management due to the multi-dimensional change it implies most of the time. The APR roadmap needs changes in the business environment and not simply technology changes, thus affecting job responsibilities and authority as well as people and structure at times. To succeed, the top-level management should align the application portfolio rationalization project with the vision and goals of their organization. In addition, they need to clearly communicate top-priority objectives clearly, including strategy and training, to align stakeholders with the objectives.
  • Clear Communication of APR Objectives: It is quite critical to clearly communicate top-priority goals to all relevant resources. Your objectives need to be “SMART”, i.e. specific, measurable, achievable, realistic, and timely. 
  • Reliable Financial Data and Information: Based on the interpreted financial benefits, decisions are made regarding the recommendations implemented and their order. The financial model developed to realize benefits should be sturdy and strengthened by a high degree of trust in the financial information that supports it. 
  • Assess APR as a Continual Process: Application portfolio rationalization is known to be a continuous improvement program that demands re-evaluation on a regular basis to ascertain the effectiveness of the portfolio as well as its alignment with organizational goals.  

Note: To address funding and prioritization, rationalization programs need result-oriented governance from top-level management. What is important for application rationalization solutions are a high-level review and allocation of resources.



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