Application Portfolio Optimization (APO) and Project Governance Prepared for: Indiana Digital...

Application Portfolio Optimization (APO) and Project Governance

Prepared for:

Indiana Digital Government Summit June 7, 2005

Doug Masten, PMP

Service Delivery Manager

Application Portfolio Optimization Review

• What is APO?

• Why do it?

• Approach

• Outputs & Results

• Moving to Project Governance

• Aligning IT Investments With Business Strategy

• No Budget

• Failed Development Projects

• Poor Project Management

• Inadequate Performance Metrics

• Inefficiencies

• Escalating Costs

• Poor Process & Management Disciplines

• Reactive

• Expensive, Antiquated Technologies

• Inflexible Systems

• Unmet Business Needs

• Redundant Applications

• Disparate Applications

• End-of-Life Applications

Application Lifecycle OptimizationChallenges

Benefits

Costs

ApplicationDevelopmentApplication

DevelopmentApplication

ManagementApplication

ManagementApplications

RationalizationApplications

Rationalization

Co

st

& B

en

efi

t

Benefits

Costs

ApplicationDevelopmentApplication

DevelopmentApplication

ManagementApplication

ManagementApplications

RationalizationApplications

Rationalization

• Increase ROI by reducing development costs

• Gain benefits faster by cutting time-to-market

• Lower risk through strong project mgmt

• Fund with budget taken from low value projects

• Increase business value by:

– Extending usage

– Expanding functionality

• Reduce costs through

– Rigorous processes

– Higher productivity

– Proactive mgmt

• Increase business value by:

– Extending the life of useful applications

– Enhancing flexibility

• Reduce costs by:

– Consolidating redundancy

– Retiring low value applications

– Standardizing technology platforms

Co

st

& B

en

efi

t

Application Lifecycle OptimizationOpportunities

Why APO?

• APO provides an objective framework to:

– Assess, align, and strengthen the existing application portfolio based on inherent value, cost, and risk to the business

– Assure alignment with key business objectives to gain the most business advantage from each IT dollar invested

– Change the business view of applications to assets for investment to achieve business objectives, not costs with un-quantified business value

APO is Focused on Existing Applications

Source: META Group

IT Strategy

Establish Enterprise Priorities

Identify AssetImprovements

Manage AssetUsage

Assess Value

AssetRetirement

Manage PortfolioExecution

ImplementProjects/Programs

Assess Value

Adjust ProjectPortfolio

Asset TransformationProject Proposals

New/ModifiedAssets

EnterpriseProgram(Project

Portfolio)Management

Asset PortfolioManagement

TransformationalProcess

OperationalProcess

APO FocusGovernance Focus

Potential APO Benefits

• Significant cost reductions

• Free IT staff and budget for higher value purposes

• Enable simplification of IT platforms

• Extend the life of value-generating functionality

• Accelerate portfolio evaluations as part of mergers and acquisitions

• Minimize risk, maximize potential of core and emerging applications

• Builds business alignment and buy-in

• Institute IT Governance / Portfolio Management processes and tools

APO makes extensive use of Portfolio Analysis methods and tools

Portfolio Analysis:

• Portfolio Analysis is used to objectively assess the value, cost, and risk of applications using a limited set of meaningful, traceable criteria

• Each application:

– is viewed as an asset

– should produce a value which exceeds its cost to the enterprise

– should operate within appropriate risk profiles relative to its value

HighL

ow

Hig

hLow

Bu

sin

ess

Val

ue

Cost

Risk

High

Medium

Low

Large

Medium

Small

Business Volume

PUR

MON

ACC

PAY

ACR

ACP

SUBINV

WOR

EIS

TAX

MAR

MAN

TIM

TRT

IDA

FCS

PPSAPS

CLS

Portfolio Quadrant Chart

Comparative analysis allows IT Executives to identify on which competing needs to spend its limited IT dollars

APO Assessment Framework

Cost

Risk

Value

StrategicAlignment

OperationalEfficiency

TechnicalCapability

InvestmentCosts

SupportCosts

Platform ServicesCosts

BusinessRisk

Technology Risk

– The customization of the framework centers around three Key Performance Areas (KPAs):

• Value

• Cost

• Risk

– Each KPA consists of several categories used to rate each application

– The ratings are used to determine an application’s index within each KPA

APO Context Diagram

OptimizePortfolio

Portfolio Recommendations

/ Deliverables

Business Objectives

Current Portfolio (e.g,

Scorecard, Disposition)

Current Initiatives

Other Constraints

APO Key Elements of Success

Key ComponentsKey Elements

Standard templates and tools

Objective assessment

Measurable metrics

Information Gathering

Clear business strategy

Defined decision criteria

Authority and budget to act

Recommendations and Decisions

Objective and believable data

Data is tied to a source

Metrics tell a story

Validated Output

Business Value

Cost

Risk

Evaluation Framework

Stakeholders agree to the approach

Participation in the process

Value the results

Business Buy-in

Portfolio Management Tools support Comparative Analysis

Application X1: RETIRE CANDIDATE

It had been previously noted by Company Z IT that Application X1 has redundancy in functionality with Application X2. AR Analysis indicates that there would be a business case for retiring Application X1 and migrating its functionality into Application X2 in the near-term. The dollar-based business case is supported by the $2.3 million for the annual IT cost of ownership of Application X1, including nearly $950,000 in annual investment cost. Figure A.55 below maps the Business Value of all applications which have annual investment costs between $250,000 and $3,000,000. Application X1 has the lowest Business Value of all the applications in this segment of the portfolio. This indicates that the dollars spent on Application X1 are getting an abnormally low rate of return for Company Z IT.

Figure A.55:Business Value vs. Investment Cost(Applications w/ Investment b/t $250K and $3)

Application X1 has the lowest Business Value of all applications with annual investment costs between $250,000 and $3,000,000.

Low Business Value

Application X1 continued

The business case for retirement of Application X1 is also supported by Application X1 being identified as one of the worst performing applications throughout the overall portfolio in measurement of Operational Efficiency vs. Business Risk. This is not a desirable profile for an aging application processing 35,000 mission-critical transactions per day.

Figure A.56:Operational Efficiency vs. Business Risk(Overall Application Portfolio)

Application X1 under-performs against the Overall Portfolio in measures of Operational Efficiency vs. Business Risk.

Low Operational Efficiency and

relatively higher Business Risk

$250K & $3M)

Sample Deliverables: Application Roadmap

• To ensure detection of redundant functionality and to present the aggregate changes in the portfolio over time via execution of AR Recommendations, functional-based Roadmaps are developed. A Current View, Intermediate Views, and Recommended View are created through the course of the engagement.

Methodology Details – Disposition Definitions

• Each application is given one of four dispositions:

Develop substantive, defendable recommendations for each application, or logical group of applications

Disposition Description

Retain Application supports business needs adequately; current maintenance and investment strategy will be continued

Invest Incrementally increase investment in the application to positively impact value, cost, or risk to the organization

Replace Replicate current functionality within a new application

Retire Migrate functionality into another application, or cease utilizing the application

Sample Deliverables: Executive Summary

BS = Develop Business StrategyPS = Develop Product and Services StrategyMP = Market Products

PO = Process OrdersSC = Service CustomersCR = Manage Customer Relationships

FS = Manage Financial SolutionsBO = Manage Business Operations

Key:

Application Process Retain Enhance Replace Retire Application #1 CR App #2 PO App #3 BO App #4 SC App #5 BO App #6 BS App #7 PO App #8 BS App #9 BO App #10 MP App #11 FS App #12 PO App #13 PO App #14 SC App #15 SC App #16 SC App #17 PO App #18 CR App #19 SC App #20 CR App #21 SC App #22 SC App #23 SC App #24 CR App #25 FS App #26 CR App #27 SC App #28 SC

• This table provides an example of applications by Business Process, Portfolio Category, and Action Code.

• Potential business case exists to replace or retire the application

• Significant risk can be mitigated by replacing or retiring the application

• Strong asset can potentially be leveraged more broadly to increase business value or reduce cost

Take Action

• Similar functionality exists in whole or in part within another application

• Lacks a strong business case to replace or retire the application, despite lower business value score

• Moderate to high technology architecture risks threaten long-term viability of the application

Seek Additional

Opportunities

• Strong Business Value vs. Cost vs. Risk ratios

• Strong Cost vs. Risk ratios with moderate to low Business Value

Monitor as Needs

Change

Attribute PossibilitiesMeaningAction Code

• Potential business case exists to replace or retire the application

• Significant risk can be mitigated by replacing or retiring the application

• Strong asset can potentially be leveraged more broadly to increase business value or reduce cost

Take Action

• Similar functionality exists in whole or in part within another application

• Lacks a strong business case to replace or retire the application, despite lower business value score

• Moderate to high technology architecture risks threaten long-term viability of the application

Seek Additional

Opportunities

• Strong Business Value vs. Cost vs. Risk ratios

• Strong Cost vs. Risk ratios with moderate to low Business Value

Monitor as Needs

Change

Attribute PossibilitiesMeaningAction Code

BS = Develop Business StrategyPS = Develop Product and Services StrategyMP = Market Products

PO = Process OrdersSC = Service CustomersCR = Manage Customer Relationships

FS = Manage Financial SolutionsBO = Manage Business Operations

Key:

Application Process Retain Enhance Replace Retire Application #1 CR App #2 PO App #3 BO App #4 SC App #5 BO App #6 BS App #7 PO App #8 BS App #9 BO App #10 MP App #11 FS App #12 PO App #13 PO App #14 SC App #15 SC App #16 SC App #17 PO App #18 CR App #19 SC App #20 CR App #21 SC App #22 SC App #23 SC App #24 CR App #25 FS App #26 CR App #27 SC App #28 SC

Sample Deliverables: Executive Summary

• Segmenting the portfolio by action codes dramatically highlights that nearly 27% (15 of 55) of the applications in the portfolio presented this organization with an immediate opportunity to “Take Action”, and improve business value or reduced cost.

Portfolio Category Applications

Total FTEs People Cost ETS Cost

Total Annual Cost

Retain 28 383 $44,156,886 $40,789,955 $84,946,841Enhance 0 0 0 0 0Replace 0 0 0 0 0Retire 0 0 0 0 0Totals 28 383 $44,156,886 $40,789,955 $84,946,841



Total Annual Cost

Retain 5 118 $13,869,350 $6,506,896 $20,376,246Enhance 4 463 54,160,514 20,287,698 74,448,212Replace 2 17 1,867,763 1,492,129 3,359,892Retire 1 30 3,441,409 1,330,159 4,771,568Totals 12 628 $73,339,036 $29,616,882 $102,955,918



Total Annual Cost

Retain 0 0 $0 $0 $0Enhance 4 37 4,569,403 2,296,129 6,865,532Replace 6 163 18,771,925 5,609,649 24,381,574Retire 5 28 3,418,947 1,793,620 5,212,567Totals 15 229 $26,760,275 $9,699,398 $36,459,673

Key Questions Answered by APO

• What are the most valuable activities to pursue, and why?

• How does the current state of the application portfolio impact current activity and spending related to new development, incremental enhancement, and maintenance?

• How well aligned is IT spending with strategic objectives?

• How much redundancy exists in the application portfolio, and is there value in reducing it?

• What is the disposition strategy for each application in the portfolio (Retain, Invest, Replace, Retire)?

Governance Focused on New and Existing Assets

Source: META Group

IT Strategy

Establish Enterprise Priorities

Identify AssetImprovements

Manage AssetUsage

Assess Value

AssetRetirement

Manage PortfolioExecution

ImplementProjects/Programs

Assess Value

Adjust ProjectPortfolio

Asset TransformationProject Proposals

New/ModifiedAssets

EnterpriseProgram(Project

Portfolio)Management

Asset PortfolioManagement

TransformationalProcess

OperationalProcess

Governance FocusAPO Focus

Continuous Operational Loops

Governance Committee Role

Governance Committee ensures benefits are achieved:• At Project Selection

– Prioritize projects based upon value, cost, risk

– Align investments with objectives

• At project initiation– Clear understanding of the mechanisms through which benefits will be

achieved

– Measurements (quantification and qualitative) determined during planning

– Risks identified

• Review at key points to ensure all required mechanism are in place

• Assessment at project end MAKINGTHECASE

RISK OPTIONANALYSIS

OPTIONS CONSIDERATION

BENEFITSDEFINITION

& ANALYSIS

COST SCENARIOS

ONGOINGREVIEWS

DOCUMENTING

THE CASE

Maintaining Optimization Through Governance

IT GovernanceIT GovernanceIT GovernanceIT Governance

Project Governance processes ensure they receive value Project Governance processes ensure they receive value from investments in projects and that risks are managedfrom investments in projects and that risks are managedProject Governance processes ensure they receive value Project Governance processes ensure they receive value from investments in projects and that risks are managedfrom investments in projects and that risks are managed

Selection andSelection andApproval of Approval of

ProjectsProjects

Selection andSelection andApproval of Approval of

ProjectsProjects

Project Project Oversight Oversight

MechanismsMechanisms

Project Project Oversight Oversight

MechanismsMechanisms

Project Project ManagementManagement

Project Project ManagementManagement

Monitoring of PerformanceMonitoring of PerformanceMonitoring of PerformanceMonitoring of Performance

Summary

• Budget Constraints, Competing Priorities, and Accountability Demand Optimization of Investments

• Application Portfolio Optimization Delivers Cost Reduction and Alignment with Strategic Objectives

• Once Application Portfolio is Optimized, Keep it that way through Governance Processes

• View Applications as Assets vs. Expenses

• Align IT with Business

QUESTIONS?

THANK YOU!

[email protected]

(513) 218-1671

State of Indiana Service Delivery [email protected]

(513) 520-2372

Application Portfolio Optimization (APO) and Project Governance Prepared for: Indiana Digital...

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