Application Portfolio Management: Towards Value-Driven Architecting

Jul 30, 2016
Written by
Marc Lankhorst
Marc Lankhorst

Application Portfolio Management: Towards Value-Driven Architecting

Many organizations with large legacy application landscapes can no longer postpone a major overhaul of their IT. But how do you avoid creating tomorrow’s legacy today all over again? And how do you spend your IT budget in the most sensible way? Next to appropriate design and development practices (e.g. enterprise architecture, agile and DevOps, as we addressed in our previous blog) you need to manage your application portfolio as a whole, to decide where it is most important to invest.

Strong vs. Weak Portfolio Management
Portfolio Management is a dynamic decision-making process in which a coordinated set of applications, projects, programs, or products is routinely monitored, analyzed and managed to maximize their effectiveness. Evaluation and prioritization of projects and activities associated with the inventory provide the opportunity to prioritize, accelerate, terminate, or “de-prioritize” portfolio components and to allocate or reallocate associated resources.

When organizations lack strong portfolio management, they are reluctant to terminate projects or exercise end-of-life retirement of applications or products. In addition, project “Go/No Go” criteria are ineffective or non-existent. Weak performing inventories are not evaluated or cut. Some projects take on a life of their own, while others are added with little consideration for resource requirements, management attention, or impact on other projects. Resources may be reallocated to the latest “urgent” project, without full consideration of the disruptive effect this may have on “important” efforts already in flight.

As a result, a true lack of focus sets in — resulting in far too many inventory items for the available resources to manage effectively. Backlogs of work start to accumulate, cycle times begin to increase, and processes that are in place become ineffective. Efforts become more reactive and quality suffers, resulting in increased failure rates. The most significant impact of weak portfolio management is the impact on strategic direction — projects that are not aligned with the business strategy or are strategically unimportant are competing for and consuming valuable resources that should be focused on more strategic efforts. Many organizations suffer from this “innovation squeeze”: all available resources and budgets are used to keep the lights on in the legacy landscape, squeezing out strategically important innovation.

There are several challenges to achieving strong portfolio management:

  • Too many applications
  • Lack of resources (subject matter experts are often assigned but may be pulled to support “more urgent” requests)
  • Lack of clear priorities
  • Growing backlog of application support projects
  • Tendency to gather data which doesn’t actually provide useful information for decision makers
  • Insufficient criteria used for portfolio selection
  • Lack of effective monitoring and management of the portfolio

How to Do APM the Right Way
Generally speaking, Application Portfolio Management (APM) is the process of managing a collection of applications in order to make effective decisions on investment opportunities. Like an investment portfolio that contains a collection of assets selected to support specific growth or income objectives, application portfolios should be managed to effectively support the enterprise’s key business strategies and objectives. In general, portfolio assets may include products and services; business capabilities and processes; software such as business applications, middleware and databases; infrastructure such as servers, networks, desktops, mobile devices; and finally resources to support it all. In APM, we focus on software assets.

Unfortunately, many organizations approach APM as just one-shot application rationalization, mostly focused on cost and short-term technical problems. This has some major issues. First of all, cleaning up your application landscape just once and then forgetting about it again will result in the same problems you have today reappearing in the near future. Instead, a lifecycle approach to the application landscape is needed. Regular monitoring and governance, including clearly defined business value criteria of the (technical and business) health of applications and assessing options for their future is necessary to manage the entire application portfolio properly towards the business needs.

Application assessment Time Analysis

Furthermore, applications are often judged on a stand-alone basis, but the landscape as a whole is more important, considering dependencies between applications and with the business processes they support, and the complexity, risks and business value of application landscape as a whole. Simply replacing or switching off an application in isolation is usually not an option.

Knowing the business value of applications and how they support the business, its processes and capabilities is essential. But how do you determine this in an objective way (i.e. not just by asking users)? To this end, you need to use enterprise architecture models across all architecture domains to show traceability to business processes, business capabilities, products/services, and business goals and strategy. This also includes showing use cases, value chains and workflows and how they are supported by the applications, their functionalities, and data objects, e.g. for a product or a customer. This helps in assessing applications in context instead of stand-alone and this may also improve the value of applications by uncovering new potential uses.

Moreover, different categories of applications are judged on different aspects. Innovative front-end applications need to meet different criteria than stable systems of record. Appropriate portfolios should be defined for such categories. You want to ensure a balanced distribution of investments, both within and across portfolios, and both for your assets and your projects and programs. It is important to choose criteria based on business objectives.

Typically, strong application portfolio management relies on five key performance measures:

Applications are aligned with business objectives
The application portfolio comprises high value components
Resources and spending reflect the business strategy and priority
Application projects and activities are completed in a timely manner and within budget
The application portfolio comprises the right number of components

Portfolio Management in context

How to relate APM to other disciplines
As we already outlined above, strong APM critically depends on a clear line of sight with the business strategy and a strong foundation in enterprise architecture. One useful way to relate your application portfolios to the strategy is via business capabilities. Business capabilities define what an organization needs to be able to do, in order to achieve the outcomes that are defined in the corporate strategy. They are the key building blocks of the business, unique and independent from each other, and tend to be stable over time. As such, they are a very useful foundation for structuring application portfolios and determining the strategic importance of the applications therein. This paves the way for true value-driven architecting.

Moreover, strong APM needs to be part of the day-to-day processes that maintain and enhance your application landscape. Its value-based approach makes it well-suited for approaches such as the Scaled Agile Framework (SAFe), outlined in our previous blog post. Tying it in to the value streams at the portfolio level of SAFe and funding such streams based on (among others) APM outcomes is relatively straightforward.

In summary, strong application portfolio management takes a lifecycle approach to the full application landscape, relates it to the business strategy and is founded upon a solid enterprise architecture practice. This may sound easy, but it is still a difficult discipline: switching off applications hurts, and rationalizing decision making may not be in everyone’s interest… But by focusing on business outcomes, better decisions can be made and more business value attained something every organization strives for.