If “application portfolio” sounds like it has a bit of a financial connotation to it, it should – but not because the term is related to the finance industry.
Information technology used the financial lingo as inspiration for defining a term that began emerging in IT some years back.
What is an Application Portfolio?
Application Definition: The term “application” is short for “application program,” and it refers to a program that performs a specific action. Most people are familiar with apps that can be purchased and downloaded for mobile devices nowadays, and these also fit into the broad category. However, so do things like automated punch clocks for employers and even programs most everyone is familiar with, such as Microsoft Word or Excel. Apps also manage data in various ways, whether it’s by storing it, making calculations, allowing people to view it, allowing for edits, or other actions.
Application Portfolio Definition: An organization’s array of apps is directly tied to the group’s profitability, which is why the financial use of “portfolio” makes sense. However, even using it as a synonym for “collection” is appropriate too. As companies grow in size, their IT needs grow as well, and many companies wind up with dozens, if not hundreds, of apps.
How an Application Portfolio Determines Profitability
Reliability: Often referred to as “legacy software,” older programs keep companies in the dark ages. They don’t have the same technological capabilities, nor are they always written in an advanced programming language. Even if they’ve been updated through the years, they’re often unstable and prevent companies from being truly competitive.
Usability: Users have high expectations for the usability of programs nowadays. They expect technology to respond to commands instantaneously, to operate without any failures, to work across all devices, and to be intuitive. If any of these aspects don’t meet the user’s expectations, it’s seen as a glitch. This is bad for productivity and morale.
Agility: IT departments need to be able to react quickly- in advance of a problem whenever possible. Slow programs, as well as those that lack predictive capabilities, stand in the way of having an agile team.
Costs: Arguably, cost is probably the biggest way an application portfolio affects a business’ bottom line, but not in the way one might think. It’s not so much the initial costs of purchasing programs, but in the constant maintenance and monitoring of them. It’s commonly believed that most IT departments pour 70-90% of their budgets into maintain them. There is room for improvements in most cases, though, and it comes via application portfolio management (APM).
How the Value of an Application Portfolio is Determined
The financial value of individual apps can be assessed in a number of ways. Although there are several proprietary algorithms and formulas in use by technology companies, those outlined below are the ones most commonly applied universally.
ROI: The return on investment is a purely financial figure that takes into account how much money the app has brought in or saved as compared to its cost.
TCO: The total cost of ownership works similarly to ROI, but involves other expenses involved in calculating the expenses associated with having an app, such as maintenance and hardware costs.
EVA: The economic value added or economic profit is determined by deducting the cost of capital from profits, adjusting for taxes on a cash basis.
The Role of Application Portfolio Management Software
While financial indicators identify the profitability of apps, there is much more going on in the background. Having apps run smoothly, integrating well, making use of the latest technology, and allowing an IT department to be proactive in maintaining the portfolio leads to a more efficient and agile team. This is where application portfolio management software comes in, as it enables the IT department to oversee the health of the entire collection of apps in one place and provides detailed analytics about how they are operating as well as where improvements can be made. Armed with this information, the team can create a powerful modernization roadmap that brings all apps up to date and improves functionality overall.