The need for a lifecycle approach to IT portfolio management
Marc Lankhorst
Wednesday, 12 January 2011
A while ago, I wrote a blog post on the evils of project thinking. Now let’s look again at this issue, and in particular the need for a lifecycle approach to IT management I wrote about.
We all know that many organizations with a large installed base of enterprise applications often have a poor insight into the quality, cost-benefit ratios and risks of their application portfolio. As a result, information systems are often maintained far beyond their original technical and business life expectancy, as replacement risks are often overrated in comparison to maintenance costs.
And let us not forget that “maintenance” is a misleading term: bits and bytes do not rust and do not need to be painted or oiled. Most maintenance consists of adding functionality, either to accommodate new business requirements or to integrate with other systems, so these systems only grow (have you ever seen functionality being removed from a system?) This additional functionality also needs to be maintained, thereby increasing maintenance costs even further!
Moreover, the complexity of a system increases with its size. More complex systems are harder to change, so each new business requirement becomes more difficult and costly to accommodate than the previous one. This can also be shown empirically; many benchmarks show that the productivity per function point goes down with the system size, and thus maintenance costs go up. Hence, over the entire lifecycle of a system, the initial development costs are only a fraction of the total cost of ownership, and the older the system, the more dominant maintenance costs become. In addition, failure risks of old systems increase and the last remaining people with knowledge of these systems leave, incurring additional costs for dealing with these risks and knowledge gaps.
Furthermore, the size of an organization’s application portfolio usually tends to grow, since somehow it is very difficult to really switch off a system. This may lead to a situation in which the entire IT budget is spent on maintaining old systems, and no budget is left for innovation or replacement. In such a situation, the only way out is a significant increase of the budget, since shutting down and replacing old systems also requires an up-front investment.
If this budget is not available, an organization has painted itself in a corner; if new market entrants come along that start from a blank slate with a modern system landscape and the associated lower cost level, they will outperform and out-compete the incumbents. Over the last years, this is what has happened in many markets, for example with online stock brokers, new utility companies, or mobile virtual network operators.
Only some government organizations have the “luck” that they do not have to face such competition, but they come under pressure from an increasingly unfavorable comparison to the marketplace. This will lead to even more radical “solutions”, such as wholesale outsourcing to commercial parties, forced mergers or break-ups of organizations, or the elimination of services altogether. In the current political climate, with on the one hand the economic need for radical budget cuts and on the other hand a rampant disdain for the efforts of government organizations to provide value for citizens, in the near future we may (again) expect some major and minor disasters on the government IT front.
In order to make well-founded decisions about the development, maintenance and replacement of their enterprise applications, organizations need insight into the current and future maintenance costs, replacement costs, business value, and technical quality of the applications, and in particular, how these develop over time. When a development project ends, the fun is just starting, and a full lifecycle approach to portfolio management is the only way to avoid painting yourself in a corner. And since projects and systems do not live in isolation, this portfolio management needs to be integrated with the enterprise architecture of the organization. Hopefully, responsible CEOs and CIOs recognize this need and act accordingly. However, the short-term focus of many managers does not bode well for such a long-term approach…
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