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Why Organizations Don’t Understand the TCO of Their Applications

Application Portfolio Management

Published By John Sims
Why Organizations Don’t Understand the TCO of Their Applications

Application Portfolio Management (APM) is a process used to attempt to capture application performance and spending over time. Recently, Gartner published a report stating that “Fewer than 10% of Global 2000 organizations understand the full costs of their applications.” ¹ Why are so many organizations failing to do this right? I believe these organizations are using a “bottom-up approach” instead of the “top down approach” as mentioned in my previous blog titled Application Portfolio Management: How Much Are Your Applications Really Costing You?

What’s the Difference?

The commonly used bottoms-up approach starts with trying to understand and integrate with the asset relationship data in the configuration management database (CMDB). It also requires the gathering of asset data attributes from an asset management system and the creation of financials to track the assets that relate to the applications. Then, any projects that relate to those assets or applications are verified. What’s wrong with this approach? It is extremely time consuming to implement. The data may not be accurate in these systems, which then starts an initiative to clean up the data. The goal becomes complete transparency and precision of all assets and applications, as well as building out the service catalog rather than application portfolio management.

My previous blog briefly discussed using an automated, top-down analysis technique that breaks down large application portfolios into smaller departmental subsets that are easier to manage. To be more specific, this top-down approach begins with simply listing all of the applications that IT manages. This can be accomplished by asking each business unit what applications they use most and what drives the most value in the organization. Once the list is created, identify the attributes that should be tracked for each application, such as number of users, business and technical value scores, and the technology platforms the application runs on.

Next, determine costs by:

  1. Talking with Finance to determine the current process for tracking application costs. If it’s not tracked at the application level, work with Finance to establish better application cost and forecast tracking methods moving forward. It’s okay to start with estimating the cost allocation percentage per application and refining over time.
  2. Looking at the project portfolio already implemented. Many projects are tied to application releases or implementing new applications. The labor and other costs related to those applications can be rolled into an application portfolio management software solution.

You now have the beginnings of an application TCO and portfolio that enables you to make decisions to eliminate redundant applications or de-scope planned projects tied to non-strategic applications. This will lower your “run-the-business” costs and expenses while fostering a better relationship with the CFO and your business sponsors.

I want to hear from you. What are your strategies for understanding the TCO of applications? Share your experiences and best practices — leave a comment below.

¹ Gartner, Inc. (Darryl Carlton), “APM Has a Critical Role to Play in Developing Your Application Strategy” March 15 2012.

Related post: Application Portfolio Management: How Much Are Your Applications Really Costing You?

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Written by John Sims

John Sims is the Planview Product Manager for Analytics and Reporting, Service Portfolio Management, Brand Impact Analysis, and Ideation Management. John came to Planview from Business Engine, where he was in product management and consulting for 14 years, specializing in project portfolio management and IT financial performance measurement. John’s passion is to understand the market and customer needs for reporting and analytics. He was part of the Planview team that released Insight Analytics and continues to focus on how companies publish their project and financial performance to their internal and external customers.