Chapter 8

Managing Applications Portfolios

Introduction

• A firm’s portfolio of application programs is a valuable asset

• A firm must seek to preserve its applications’ value and optimally manage the portfolio’s growth and development

• This management must be systematic and prioritize efforts so as to yield optimum return from limited resources

Application Program Resources

• The firm’s 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)

Application Program Resources

• Application programs codify the rules and procedures of a firm’s business process

• Over time programs to some extent shape how the firm operates (speed of response, flexibility, structure) and the firm shapes the program’s development and features to offer needed features to the users

• Taken together, the application/data are symbiotic with the enterprise

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

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

Data Resources

• Databases represent the long term accumulation of business information– Data enables advances in the firm’s

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

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

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

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

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

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

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

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

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

Why Application Maintenance is Costly

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 management’s expectations

Typical Expenditures on the Portfolio

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

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

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

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

Factors Used in Satisfaction Analysis

A Graphical View of Some Satisfaction Analysis Results

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

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

Strategic vs. Operational Value

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

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 portfolio’s condition objectively assessed

Compilation of Program Ratings

Additional Management Factors

• This process places the decisions over the firm’s portfolio at the senior level of management where it belongs– Eliminates ad hoc deals at lower levels of the

organization– Helps optimize a firm’s allocation of resources– Works to educate senior management on

complexities of technology leading to organizational learning and rational expectations

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

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

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

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

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