Theoretically, the amount invested in a particular business application should directly correspond with the amount of value the application contributes to the business. Those applications with the most value should receive the most funding, and vice versa. Unfortunately, this rarely occurs. For example, legacy applications with heavy maintenance requirements often absorb a disproportionate share of the budget. In this situation, new strategic spending becomes severely limited. Or, conversely, a major new application initiative can stretch internal resources so thin that routine maintenance suffers. Users complain, day-to-day business operations start to degrade, and the replacement application starts developing a bad 'rep' before it even has a chance, slowing its adoption when it eventually does go into production. Other worthwhile projects get ignored or undertaken as back-door projects, and the company's applications 'strategy' spirals out of control.
A portfolio management approach, in which applications spending across the company is treated like any other investment portfolio, offers a coherent, holistic strategy with clear ROI. The approach is not new. Two years ago, the Gartner Group made the following statement: "Enterprises that use a portfolio management approach for the first time typically identify opportunities to improve efficiencies by cutting project expenses from 10 to 30 per cent … even before the portfolio is balanced or adjusted." (Gartner 2001)
Looking even further back, to 1998, Fujitsu wrote the first book applying the principles of financial portfolio management to information technology, The Information Paradox, by John Thorp. The book detailed how to get more value out of IT investments using three fundamentals: (1) good program management practices, (2) portfolio management, and (3) full cycle governance. Many companies have profited from this approach over the last five years, and Application Value Assessment is largely an application of these same fundamentals.
However, like any discipline, portfolio management must become embedded in the company culture if it is to be effective. The old truism, "there's no silver bullet," is still true. Employing portfolio management to reprioritise applications spending takes commitment at every level of the organisation.
Ideally, it should be possible to prioritise all the company's applications and balance business risk across the entire portfolio - without disrupting day-to-day operations.
Understanding the basic concepts for evaluating the application portfolio and prioritising associated investments is the first step to realising these rewards.
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