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Application Value Assessment

The amount a company invests in each business application should directly correspond to the value and the impact to the business. By treating all the company's applications as a total investment 'portfolio', and by applying portfolio management best practices, it is possible to quantify the business value of each application, and reprioritise applications spending to enhance the business contribution with the same level of investment. The starting point of this process is an Application Value Assessment.

Why reprioritise applications spending?

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.

The potential rewards are significant

  • Comprehensive view of total application spend
  • More flexible, cost effective operations as a result of rationalising and decommissioning some applications
  • Improved focus on current business requirements through re-allocation of application support budgets and resources
  • High confidence that new applications investments will be aligned with and contribute to strategic business objectives
  • Better decisions about the best sourcing strategies for reducing the cost of applications support while still meeting service needs and managing risk
  • Faster rollout of new products when supported by optimised applications.

Understanding the basic concepts for evaluating the application portfolio and prioritising associated investments is the first step to realising these rewards.

Five critical questions

  1. Are you doing the right things?
  2. Are you doing them the right way?
  3. Are you getting them done well?
  4. Are you getting the benefits?
  5. How are (or will) the benefits be delivered?

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