Application Portfolio Management (APM) Best Practices

Overview

Technology costs managed as a centralized IT overhead without allocation to the business capabilities and organizational units they serve create persistent governance problems that undermine both portfolio quality and business-IT relationships. Business leaders do not understand the true cost of the technology that supports their operations, creating neither the financial accountability nor the informed demand management that rational technology investment requires. IT investment prioritization is disconnected from business priority because the cost of serving different business capabilities is invisible. Technology cost reduction opportunities are missed because the business impact of cost reduction is unknown when costs are not allocated to the business outcomes they enable.

Best Practice

Allocate the cost of every application in the portfolio to the business capabilities and organizational units it serves. Use the business capability mapping established in the Application Portfolio Data and Inventory subsection as the allocation framework. Where an application serves multiple capabilities or business units, allocate its cost proportionally based on the best available proxy for usage, value contribution, or user population. Present the allocated cost view to business unit leadership alongside the total technology cost view - business leaders who can see the technology cost attributed to their capabilities are better positioned to make informed, responsible decisions about technology investment, rationalization, and right-sizing.

Benefit(s)

Cost allocation to business capabilities and organizational units creates the financial accountability that drives rational technology demand and informed investment. Business leaders make more considered requests for technology investment when they can see the current cost of the technology serving their capabilities and understand what they are already spending. Cost reduction opportunities are identified by business leaders who have both the cost visibility and the incentive to optimize their technology spend. The relationship between IT and business leadership improves when technology costs are transparent and business-attributed rather than opaque and centrally absorbed in a way that makes the cost invisible to those who drive the demand.