Beyond Portfolio Management to Comprehensive Application Governance

By Chris Nuttall and Alan Houghton

with all the different functions around their applications and have found themselves unable to reap the full benets of a portfolio management implementation. Some have found serious disconnects between senior management perceptions and user experiences and been unable to justify the costs of their applications. Other companies have found themselves in serious compliance risk due to application contracts, sometimes for contracts covering applications that are no longer used by their employees! New thinking is needed to manage the complexities of the modern corporations application footprint and to ensure that risks are managed while true strategic value is created. Any approach to address Application Governance must effectively address all of these serious issues in a way that ties together the operational details and allows management to truly control their application investment. Not only is it critical for management to be capable of inuencing the makeup of the portfolio, but they also need to control the usage and nancial aspects of those applications. Such an approach goes beyond portfolio management and links all of the critical aspects of Application Governance: portfolio management, license and user management, and the nancial aspects. We look at all of these application processes as part of a single framework that ties these functions together into a single management view. Our framework denes three main areas: 1. License & Contract Management 2. Portfolio Management 3. Financial Management A fourth process area describes the various supporting processes that can help to keep the previous three integrated. While not one of the primary three areas, they are nonetheless important to giving management visibility and for providing the glue that holds the framework together. The process framework on page 25 is a high level view of how we look at these interrelated processes: License & Contract Management License & Contract Management is the tactical side of application management. It manages the demand side and user requests, the contract and compliance aspects of determining the number of active licenses versus the number of licenses that are contractually allowed, along with the projects that bring new products into the portfolio while retiring older products that have been removed. In many ITIL organizations, a help desk/service desk would handle the demand for applications while the license management aspects are often assigned to the procurement and/or conguration management functions.
Demand Management: How do users go about requesting applications? How many requests and licenses are expected to be needed next year? Which applications are widely used and which ones in the
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echnology has driven incredible gains in productivity in recent decades, but it has also exponentially increased the number of applications in almost every organization leaving many with thousands to manage. While Application Portfolio Management has helped them to clarify the costs of these applications and to understand their portfolios better, it does not effectively address all of the different complexities of application governance. For instance, how should they control the huge numbers of licenses and contracts they are now obligated to manage, or how should they deal with the complexities of forecasting and budgeting for these applications, or even how should they manage the various risk factors that applications bring to their portfolios? Companies have had difculties in coming to grips with these problems. Many companies have maintained a legacy silo structure tasked
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1. Application and License Management Description: Manages all tactical aspects of application demand management, license and contract management, and introduction and retirement of applications for lifecycle management
Processes: Demand Management License and Contract Management Lifecycle Management

2. Application Portfolio Management Description: Develop portfolio strategy, plan steps and processes for implementing that strategy and regularly review and optimize the portfolio

3. Financial Management

PORTOLIO MANAGEMENT
A&G right evaluation and scoring methods help management to understand the value, criticality, and overall risk of the applications in their portfolio.
Portfolio Planning: What are the various constraints and risks for implementing the planned portfolio optimization? Too often companies engaged in portfolio planning fail to realize that there are real constraints on their ability to change. Organizational concerns along with infrastructure, architecture and resource constraints will all affect the companys ability to implement the planned portfolio mix. This can be loosely understood as a PMO/governance function over the implementation of the optimized portfolio.

Description: Supports all aspects of forecasting and budgeting, managing costs and accounting, and allocating costs to the appropriate business users

Processes: Portfolio Strategy Development Portfolio Optimization Portfolio Planning

Processes: Budgeting and Forecasting Accounting Management Allocations Management

4. Supporting Processes

Description: Supports the implementation and usage of the first three processes. Important for ensuring process transparency and understanding
Processes: Knowledge Management Operational Delivery and Support Management Communications Management Management Reporting and Control Architecture Strategy Risk Management

portfolio are no longer being used? For many application groups, effectively selling their applications is an important part of what they do.
License and Contract Management: What are the terms of the

contract for this application? Does it meet our needs in terms of costs and ability to distribute licenses efciently in the origination? Many applications can be almost impossible to manage across a global implementation. How many licenses are in use, and are we in compliance with the terms of our agreement? Are we at risk due to a particular contract and its compliance issues?
Lifecycle Management: How to we start and manage the projects to bring new applications into the portfolio and retire ones that are leaving? This is tied in closely with the Application Portfolio Management processes and is the tactical side of implementing the decisions made in that area.
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Application Portfolio Management Application Portfolio Management encompasses the strategic side of Application management and determines the appropriate mix of applications in the portfolio. It is highly dependent on the strategic business drivers for the corporation and includes:
Portfolio Strategy Development:

Financial Management The third primary process area is Financial Management. The areas here are:
Budgeting and Forecasting: Too many companies dont have the information needed to effectively forecast and budget their application spending. Without an effective budgeting and forecasting process the benets of portfolio management can be nullied due to inaccurate estimates or due to the inability to plan for and have sufcient time to evaluate an applications portfolio position prior to license renewals.
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What are the key drivers for the company and what is the right priority on those drivers? This area attempts to understand the real needs of the organization, and our experience has shown that must be driven by strong input from the business side of the organization.
Portfolio Optimization: What is the right mix of applications to support those goals? Which of the applications in the portfolio should eventually be retired? Which new applications should be added? The

ALAN HOUGHTON is a principal consultant at PA Consulting Group, specializing in IT strategy and systems development and integration. CHRIS NUTTALL is a managing consultant at PA Consulting Group, specializing in IT strategy, sourcing, and service management.

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PORTOLIO MANAGEMENT
A&G

Accounting Management: Track-

ing application spend against budget is a traditional need. Any technology solution that is implemented should have the capability of matching vendor invoices to budget and should be effectively integrated with the companys nancial software (e.g., SAP, etc)
Allocations Management: Proper allocation of application spending provides the business with transparency into their real cost structure and in many cases can be implemented in a way that inuences positive behaviors and moderates demand.

Supporting Processes The fourth process area contains the supporting processes that tie together other process areas. They include: Knowledge Management, Com-

munications Management, Management Reporting, Architecture Strategy, Risk Management, and Operational Delivery and Support Management. These areas may be managed by the overall Application Governance Process, but also may be managed by other groups. While they may not be the rst things thought of for application governance, they are critical to success. While every company fulls these functions to some extent (and in many cases fullling them very well), few take a holistic look at this process as an integrated framework or understand which of these functions are weaknesses in their organization. Understanding how effective a company is at each of the process areas in the framework is a key building block for implementing an effective application governance framework. Experience shows that a short diagnostic of a companys application governance processes ver-

sus our process framework quickly identies the organizations strengths and weaknesses and develops a solid basis for improvement. In some cases, simple process changes can add signicant value and decrease a companys risk, but in many cases, greater benets can only be produced through the implementation of portal-type functionality that effectively integrates and shares information across all of these processes. Experience and skill are necessary to determine where an organization should start to implement an application governance framework tailored to their own particular needs. One thing is certain, though, as technology continues to drive productivity, comprehensive application governance will become an even more essential step for companies wishing to manage their risks and costs while continuing to gain strategic value from their portfolios. A&G