Technology Portfolio Management (TPM) Best Practices

Overview

The true cost of any technology in the portfolio is substantially greater than its license fee or subscription price. Organizations that evaluate technology costs using only the most visible line items — the license renewal invoice, the cloud service billing, the hardware purchase price — consistently underestimate the total organizational investment that each technology represents and make rationalization and investment decisions based on incomplete financial information. The financial case for technology rationalization is weakened when total cost is underestimated, because the savings from eliminating a technology appear smaller than they actually are. And the financial case for technology investment is strengthened when total cost is properly quantified, because the business value of the investment can be compared against the complete cost baseline.

Best Practice

Capture and maintain the Total Cost of Technology for every technology in the Technologies Inventory family, using a consistent cost model that addresses all material cost categories regardless of their visibility in standard procurement and finance reporting. The total cost of technology model should address the following cost categories.

Direct acquisition cost: the license fees, subscription costs, hardware purchase prices, and professional services fees associated with acquiring the technology. This is typically the only cost category that appears in procurement records and technology budgets, making it the most visible but the least complete component of total cost.

Infrastructure and operational cost: the cost of the infrastructure required to operate the technology, including compute, storage, and network resources; the cost of operational personnel whose time is devoted to operating and maintaining the technology; the cost of monitoring, backup, and disaster recovery capabilities deployed specifically for the technology; and the cost of the facilities and utilities required to house and power the technology.

Integration cost: the cost of the integration work required to connect the technology to other systems in the portfolio, including the initial integration development cost and the ongoing maintenance cost of those integrations. Integration costs are frequently invisible in technology budgets because they are attributed to the integration projects rather than to the technologies being integrated, but they are a real cost of the technology that should be counted in its total cost assessment.

Training and skills development cost: the cost of training organizational personnel to use and support the technology, including formal training programs, certification costs, and the productivity loss associated with the learning curve during initial adoption. For specialized technologies with limited available talent, the skills cost may include premium compensation required to attract personnel with the required expertise.

Technology debt cost: the cost attributable to the technology debt the organization is carrying as a result of deferred modernization, outdated platform versions, or poor architectural decisions embedded in the technology. This cost manifests as developer productivity loss, additional development effort required to work around platform limitations, security incident costs attributable to unpatched vulnerabilities, and the compounding remediation cost described in the Technology Debt Management subsection.

Hidden and indirect cost: the organizational costs that do not appear in any line item but are real costs of the technology, including the management overhead of governing the technology, the meeting and coordination time consumed by issues and decisions related to the technology, and the opportunity cost of IT capacity devoted to maintaining and operating the technology rather than delivering new capabilities.

Benefit(s)

Capturing the full Total Cost of Technology for every technology in the portfolio produces a financial picture of the technology landscape that is substantially more accurate and substantially more actionable than license-cost-only financial management. Rationalization decisions are better grounded because the financial benefit of retiring a technology reflects the elimination of all its cost components rather than only its license cost. Investment decisions are better grounded because the financial return on investment is measured against the complete cost baseline rather than an incomplete one. And financial leadership develops confidence in technology portfolio financial reporting because the cost data is comprehensive and defensible rather than limited to the costs that happen to appear in procurement records.