//Does APM reduce cost? That depends.

Does APM reduce cost? That depends.

The goal of Application Portfolio Management is to reduce the cost of owning the portfolio.  The fundamental premise is this:

  • We own a lot of code.
  • It costs a lot to maintain our code.  (too much)
  • Management wants to be able to make cuts in the maintenance budget.
  • We don’t know which costs are optional and which costs are necessary
  • APM answers that question, allowing us to cut unnecessary maintenance costs

Something like that anyway.  (OK… it’s a bit over simplified.  sue me).

There are some problems with the notion, problems that show up in the details.  Systems are not simple marbles that you can remove from your bag and sort into neat little buckets.  They are tied to business problems that need to be solved.  They are part of a solution that automates activities in a business process.  The criticality of those business processes, and their rate of change, does more to drive the cost of maintenance than most other factors in play.

Yet, most APM tools are simply catalogs where you write down things about the app, but don’t do much to help you to analyze the importance, or rate of change, of the business processes that they are attached to.

And thus, all the data collection in the world won’t help without that analysis that puts things into perspective.

Some folks do that analysis, and they see costs decline… sometimes by large margins.  Others expect the tools to help, or they measure the wrong things, and costs don’t drop.

My gut tells me that APM will only succeed when it is tied to tangible analytic methods like Six Sigma.  Without that tie… it may not do very much.  A car, without an engine, won’t get you to the church on time.

By |2007-08-18T15:12:00+00:00August 18th, 2007|Enterprise Architecture|6 Comments

About the Author:

President of Vanguard EA, an Enterprise Architecture consulting firm in Seattle focused on the Pacific coast of the US. Nick has over 30 years of professional experience in management, systems, and technology. He is the co-author of the influential paper "Perspectives on Enterprise Architecture" with Dr. Brian Cameron that effectively defined modern Enterprise Architecture practices, and he is frequent speaker at public gatherings on Enterprise Architecture and related topics. He coauthored a book on Visual Storytelling with Martin Sykes and Mark West titled "Stories That Move Mountains".

6 Comments

  1. Andreas Sjöstedt August 19, 2007 at 2:08 am - Reply

    My opinion is that some sort of APM (or call it what you want) is a necessary delivery of any successful Enterprise Architecture work. I would claim that without it (or something equivalent) you can’t really do your EA job properly.

    I would also like to add that APM is a way of thinking/working, not a technology. So to consider what the tools do and don’t is not really fair while evaluating APM is it?

    To conclude, I think you’re right in stating the need for analytic methods, but I would put it the other way around: the concept of APM is a subset of any chosen EA planning methodolgy.

  2. GeorgeJetson August 26, 2007 at 10:30 pm - Reply

    Good post.  I agree with your wariness of misapplications of this potentially useful concept.

    I work for a fixed income investment manager, and while I’ve never worked with an "APM tool", I have observed allocations of IT resources that weren’t as thoughtfully optimized as our client’s portfolios.

    ———————————————–

    "Systems are not simple marbles that you can remove from your bag and sort into neat little buckets.  They are tied to business problems that need to be solved."

    Portfolio management offers the notion of idiosynchratic risk, the risk tied to the particular individual investment (application),

    in addition to systematic risk, the risks that are shared in all instruments.  Note that idiosynchratic risk increases total risk (unless it is diversified away, which doesn’t seem to apply here).  

    ———————————————–

    "The criticality of those business processes, and their rate of change, does more to drive the cost of maintenance than most other factors in play."

    While we first calculate an "unnormalized" sensitivity (in a mathematical sense) of our instruments to all of the significant (external) risk factors, we also account for the expected variation in that (external) factor.  

    ———————————————–

    "The goal of Application Portfolio Management is to reduce the cost of owning the portfolio."  

    If that’s the case, then I say sadly it’s too narrow an application.  The goal of portfolio management is to account for everything.  To maximize profit while incurring an acceptable risk.  In my book, that has to include an attempt to assess the cost of business inefficiency in an uncertain world.  Tools that leave that out of the framework are donning blinders.

    ———————————————–

    Lastly, one useful concept from portfolio management is that of correlation of risk.  The lower the correlation of risks, the lower the total risk.  Which means you can take more pieces of indivdual risk while incurring no more total risk if you find a way to lower the correlations.

    What can management do?  Google, for one, has its explicit policy of encouraging its developers to expiriment/play for one day a week.  

    Borrowing from http://dougfinke.com/blog/?p=169, it seems to me that if the driving motivation of APM is an incomplete measure of cost, then the focus is on keeping the lights on.   If the motivation is to maximize efficiency and agility (and the number of shared components is certainly a measure of that–too bad this Mom & Apple Pie baseline is unobservable), then we can work to change the cost rules.

  3. NickMalik August 26, 2007 at 11:04 pm - Reply

    @GeorgeJetson,

    That is one of the best responses I’ve had on this blog.  

    I’d love to chat with you offline to improve the APM work that I’m involved with.  If you see this response, please send me e-mail through the site.

    — Nick

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