Execute “Application Rationalization” to manage and optimise your Application Portfolio (suggest this to your CIO and get some brownie points!)

All the organizations, especially CIO office, face the imperative to reduce IT costs, improve operations, reduce risks and improve customer service – all the time (more so in this economy). When efforts to do so are not aligned with business objectives, organizations end up spending millions of dollars on initiatives with only short-term benefits. One way to address is this issue is with “Application Rationalization”. If Application Rationalization is coupled with right Enterprise Architecture, IT Strategy, sound Project Management principles, organizations can improve bottom-line benefits and strive for top-line growth.

What is Application Rationalization?
Application Rationalization is a process of analyzing the applications in the enterprise to determine overlapping functionalities, unused applications, bottlenecks in systems – with a goal of improved efficiency, cost reduction and effective Business-IT alignment.

Most of the enterprises have proliferation of applications across departments with no control. Research shows that as much as 80% of IT budgets go in just maintaining the current systems. So, over time, there are several duplicated efforts, resulting in increased costs, increased time to market and thereby defeating business agility. So how does an organization understand what applications are worthy of additional investment, replacement or retirement? Answer: Application Rationalization.

The biggest benefit, in my experience, is that Application Rationalization helps CIO’s and IT Managers, understand their current environment better (what services are provided and associated costs to develop/operate them) and provides starting point for improvising IT. There are several other benefits as well –

  • Helps enterprise get lean and more efficient
  • Helps enterprise focus on high business value projects
  • Reduced IT costs and in particular, Operational costs with significant service improvement
  • Helps eliminate software/hardware maintenance costs
  • Helps organization invariably think about emerging technologies like Web 2.0, Virtualization, Cloud computing etc, while crafting future roadmap
  • Eliminates duplicate functionality, aids in building centralized enterprise services
  • Reduce points of failure
  • Clear SLAs
  • Predict performance and scalability more accurately, and many more

In fact, Application Rationalization could aid in building a sound Enterprise Architecture, thereby supporting Enterprise Business Strategy.

What factors should be considered while analyzing applications:
Applications have to be analyzed from 4 perspectives – Business, Technology, Operational, and Financial

  • What is the business value of these applications?
  • Development, Training cost spent already and ongoing Operational costs (includes hardware, software maintenance and licensing costs)
  • Business processes these applications support
  • Total users (types, geography)
  • Performance and scalability of these application
  • Usability and User Experience of these application
  • Dependency amongst applications

These perspectives are combined to determine the posture of the application, and thereby determine the appropriate remediation strategy, and to provide recommendations for managing the application portfolio over time.

Methodology/Approach for Application Rationalization
Organizations can use a simple 3-step methodology to strengthen and optimize their application portfolio.

Step 1: Collect, validate the application data (Build Application Inventory)
This step entails collecting and building the application inventory, which should include major data elements like –

  • Name and description of application
  • Business and IT owners
  • Application type
  • Business processes enabled
  • Business value/criticality
  • User information
  • Costs (Internal Personnel, External Personnel, Hardware, Software, Other External Costs)
  • Application architecture and Design
  • Tools and technologies
  • Data quality
  • Application business quality
  • Security
  • Regulatory compliance
  • Risk profile etc

Step 2: Perform application assessments along 4 perspectives (Analyze Portfolio)
Each application in the portfolio is analyzed along 4 perspectives as stated above, to determine the business, technology and enterprise fit. This is done with stakeholder interviews, workshops, research and analysis activities. Analysis should include identifying the KPIs and metrics to measure the ROI on these applications.

Step 3: Determine Transition Roadmap
Identify the Problems/opportunities, Alternative approaches and best actions for managing applications over expected life spans. For each application, determine whether to –

  • Remediate
  • Technical renovation/enhancement
  • Functional enhancement
  • Replace (COTS or custom)
  • Sunset/eliminate/decommission
  • Consolidate
  • Continue maintenance

With this, a final set of applications and business functionalities are well-defined, in alignment with Business Strategy and goals. This is the first strategic level where business strategy stating the target application portfolio is defined. A clear application transition road-map (implementation, timeframe) should be developed at the end of this step. This strategy should be rehashed several times to drive the organization closer to its target application portfolio and thereby business goals.

In order to demonstrate early benefits, identify “low hanging fruits” (alternatively said, decommissioning of the unused/deprecated applications should be the first activity).

What next?
The output of Application Rationalization activity is the “Application Transition Roadmap” -> which should feed into Investment Portfolio Management to fund these new Application initiatives. The funded projects are then fed to Project Portfolio Management process for execution.

Application Rationalization should be part of continuous rolling wave IT Project and a part of framework for management of IT Investments. As with any initiative, it is important to understand the big picture first, and then take a phased approach with industry leading practices in Project and Quality management while executing the Application Rationalization initiative.

There are several challenges that have to be overcome during Application Rationalization effort – 1) Managing all the stakeholders or business owners of application (remember legacy/old applications have multiple owners) (2) Management committment and buy-in for this initiative throughout the process (3) Not treating this as one time effort, rather use this framework as part of continuous IT Investment Portfolio Management process.

All the IT Managers are constantly thinking about this, are you?

3 thoughts on “Execute “Application Rationalization” to manage and optimise your Application Portfolio (suggest this to your CIO and get some brownie points!)

  1. Sebastian June 16, 2011 / 5:05 pm

    I stumbled upon your website and it’s indeed quite interesting. Great article on App Rationalization. Would you have any templates for assessment? Also, if you could explain the best way to map out applications to business functions, that would be helpful. Thanks and keep up the good work.


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