Managing Applications Portfolios

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Chapter 8

• Managing Applications Portfolios

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Introduction

• A firms portfolio of application programs is a
  valuable asset
• A firm must seek to preserve its applications
  value and optimally manage the portfolios growth
  and development
• This management must be systematic and prioritize
  efforts so as to yield optimum return from
  limited resources

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Application Program Resources

• The firms information system includes hardware,
  OSs, databases, network, and support programs
• The applications and databases to run them
  represent the most valuable part
• They represent the long-term codified business
  processes and information
• They are operationally and strategically vital to
  the firm and can define the firm and business
  (such as in e-businesses)

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Application Program Resources

• Application programs codify the rules and
  procedures of a firms business process
• Over time programs to some extent shape how the
  firm operates (speed of response, flexibility,
  structure) and the firm shapes the programs
  development and features to offer needed features
  to the users
• Taken together, the application/data are
  symbiotic with the enterprise

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Depreciation and Obsolescence

• Over time an application program begins to lose
  value just as any other piece of business
  equipment loses value
• Depreciation occurs when business process changes
  result in functional inadequacies in the
  application rendering it less useful
• Obsolescence results when an application no
  longer reflects the current business process

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Maintenance and Enhancement

• Software design, maintenance, and enhancement are
  people driven, personnel intensive activities
• While moving from older to newer hardware is
  relatively fast and yields immediate results,
  moving from an older to a newer application is
  much more difficult and disruptive to an
  organization
• Y2K cost several hundred billion dollars world
  wide in maintenance

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Data Resources

• Databases represent the long term accumulation of
  business information
• Data enables advances in the firms application
  technology
• Data mining has become useful because of the
  sheer amount data firms accumulated
• Because of the close linkage between databases
  and applications, data can lose value as
  applications depreciate

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Data Resources

• Data dispersion is a critical organizational
  issue
• As computing resources have dispersed throughout
  the firm, data has followed
• Managers must track and secure critical data and
  applications where ever they may be. Effective
  measures must be taken to reduce critical data
  vulnerability to physical loss or destruction

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Applications as Depreciating Assets

• As applications age, they become less useful to
  the firm. Managers are faced with the dilemma of
  using resources (people and financial) to
  maintain and enhance systems, or replace them
• This task of resource allocation is one of the
  most difficult any IT manager must face

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Internet Influences on Application Development

• Many applications were developed prior to the
  Internet revolution, and are unable to extend to
  a Web-based process
• Web-based business processes effect not only IT,
  but billing, shipping, inventory, etc.
• Skill requirements also changed for IT
• Java, HTML, and PHP are now required
• At the same time, older workers are valuable to
  the firm because of their knowledge of
  undocumented but critical information

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Programming Backlog

• Backlog equals person-months of work remaining
  divided by number of people available (and
  qualified) to do the work
• There also exists an invisible backlog which is
  work that departments know exists but do not
  report
• The total backlog is the sum of these two
  components

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Priorities

• Given limited financial and personnel resources,
  backlog must be addressed in a systematic manner.
  A transparent method of prioritizing must be
  developed and consistently applied
• Managing an applications portfolio is similar to
  managing other strategic resources
• IT portfolios are an important source of
  management expectations and demand high-level
  consideration

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Portfolio Alternatives

• Prior to 1980, the principal means for obtaining
  applications was local development.
• With the development of the PC, a ready supply of
  applications was available off the shelf
• With the rise of the Internet, now ASPs are able
  to offer the first new alternative to application
  provisioning since the adoption of the PC

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Enhancement and Maintenance Considerations

• Hardware vendors have focused on offering
  solutions that allow legacy programs to run
  unchanged on newer hardware.
• This allowed firms to realize greater performance
  with little business interruption
• This yielded many applications portfolios with
  state of the art hardware and ancient software
• Upgrading critical business software is difficult
  and risky

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High Cost of Enhancement

• Firms are trapped in their old applications
• The cost of correcting and enhancing software is
  high, and the results are slow to be realized
• Risk of business continuity exists when
  transitioning to critical new software
• Software development requires excellent project
  management to hit time and budgetary objectives

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Why Application Maintenance is Costly
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Trends in Resource Expenditures

• With a mixture of legacy programming and new
  development, IT expenditures increase over time
• Higher percentages of the budget go towards
  maintenance and enhancement of legacy systems
  with less available for new development
• This results in deterioration in application
  quality at higher expenditures
• Failure of managements expectations

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Typical Expenditures on the Portfolio
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Maintenance

• What is maintenance?
• Repair of defects
• Bridging old programs to work with new programs
• Minor rewrites to increase functionality
• As each of these activities takes place,
  subsequent changes become more difficult because
  the code becomes less organized. Over time, costs
  to maintain and enhance old code spiral upwards

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Ad Hoc Processes

• Deciding which programs get enhanced first can be
  as much political as personal
• Common unsatisfactory approaches include
• Greasing the squeaky wheel
• Reacting to the perceived threat of failure
• Recovering from embarrassing situations
• Meeting threats from competition

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Superior Portfolio Management

• A firm must develop a process that objectively
  prioritizes backlog activities
• You must consider a range of qualities an
  application has including
• Importance to business objectives
• Financial and operational benefits
• Technical importance
• Long term importance

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Satisfaction Analysis

• Client organizations and the IT organization
  develop satisfaction ratings on each application
• The rating system focuses on important attributes
  of the application and quantifies emotional
  perceptions
• The organization can use the ratings as a
  quantifiable measure of an application across
  several axes

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Factors Used in Satisfaction Analysis
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A Graphical View of Some Satisfaction Analysis
Results
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Satisfaction Plots

• Generally fall along the diagonal
• New applications reside in upper-right
• Fit current environment well and have modern user
  interface
• Applications needing enhancement reside on
  lower-left
• Poor user and IT satisfaction
• Bulk of applications in the middle
• Not bad enough to fix, yet

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Strategic and Operational Analysis

• More information must be gathered on the
  strategic (long range) and operational (short
  range) importance of applications
• This is a labor intensive undertaking requiring
  evaluation of possibly hundreds of application
  programs
• Participants must include senior executives, IT,
  and user managers

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Strategic vs. Operational Value
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Analysis by Quadrants

• Analysis by Quadrants
• Lower-right payroll, accounts payable
• Upper-right Sabre reservations system for an
  airline or middleware for an e-business
• Upper-left Cash Management Account in 1977 for
  Merrill Lynch (high future value)
• Lower-left Commodity applications like MS Word
  or Excel

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Costs and Benefits Analysis

• Users generally supply the benefits portion and
  IT staff supply the cost portion
• Benefits may be intangible, but costs need to be
  real
• With completion of the cost benefits analysis,
  the complete set of data can be tabulated, and
  the portfolios condition objectively assessed

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Compilation of Program Ratings
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Additional Management Factors

• This process places the decisions over the firms
  portfolio at the senior level of management where
  it belongs
• Eliminates ad hoc deals at lower levels of the
  organization
• Helps optimize a firms allocation of resources
• Works to educate senior management on
  complexities of technology leading to
  organizational learning and rational expectations

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Outcomes

• With the results of an in depth analysis, firms
  can make more informed judgments on hiring
  additional programming staff vs. bringing in an
  ASP
• The detailed information generated helps in the
  project management phase with tracking time
  frames and budgetary goals
• The results help senior management focus on
  strategic IT goals and future IT directions

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Managing Data Resources

• Databases are oftentimes inextricably linked to
  applications as such, they need to be evaluated
  together
• In organizations with extensive databases, a
  prioritization scheme similar to that discussed
  for applications should be undertaken prior to
  maintenance or enhancement
• The interplay between applications and databases
  must be clearly understood

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Prioritizing E-Business Applications

• Transitioning to a Web-based business strategy
  requires many new systems and processes
• Rigorous analysis is imperative because
  e-business applications are both strategically
  and tactically important
• Costs and benefits are extremely difficult to
  determine initially
• Requires hardware and infrastructure improvements
  concurrently, increasing risk

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Value of this Process

• This process
• Provides a framework to objectively evaluate
  applications
• Focuses evaluation and decision making at the
  upper levels of management where it belongs
• Discourages ad hoc techniques
• Educates and informs executives helping to
  establish reasonable expectations from IT spending

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Summary

• Applications portfolios and related databases are
  large, important assets for modern firms
• Senior executives must participate in portfolio
  management because these assets represent
  enormous value to ongoing operations
• Successful portfolio management is a critical
  success factor for IT managers