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 highlevel 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