Optimize Applications Cost Management

1. Optimize Applications Cost Management Focus on four key tactics to control costs within the next 12 months.

2. Introduction Cost Control must be executed within a 12 month gap. Address discretionary spend and maintenance on non-core apps for the most benefit. Applications Managers concerned about the uncertain financial forecast. Applications Managers looking for cost cutting solutions. Applications Managers looking for value deliverable solutions. Applications Managers looking for solutions to implement in a compact timeframe – ideally within a year’s time. This Research Is Designed For: This Research Will Help You: Identify key challenges to your position as Applications Manager. Understand the top tactics to apply within the next year that will cut costs and add value to your applications and service delivery. Identify possible pitfalls of the strategies, such as cost, and solutions to them, to ensure all of your cost management bases are covered. Leverage the applications you have, and prioritize which strategies you need to pursue in relation to them.

3. Executive Summary • Cost Control is a tactical exercise that must integrate with other strategic responsibilities, such as assessing the lifecycle of individual applications and establishing an applications roadmap. • Cost Control is particularly important in the current economic environment. There is a great deal of concern about financial conditions, particularly among senior managers. Info-Tech indicates that the most concerned of those enterprises also have the greatest remaining opportunity for cost reduction. They are well-positioned to exploit Cost Control tactics. • Info-Tech conducted interviews with experts to identify the nine most popular tactics for Cost Control. • Each of these tactics contribute to Cost Control success if done by themselves. Certain tactics provide far more benefit than others. • Only four of the tactics provide any degree of unique benefit for Cost Control. Applications Managers (AMs) should focus specifically on those four tactics if they are responding to an immediate cost reduction mandate. It is unlikely that conducting the other five tactics will result in additional Cost Control benefits. The four key tactics are: • Eliminating maintenance on non-core applications. • Deploying zero-based budgeting to reduce waste. • Platform standardization with the applications portfolio. • Triaging development initiatives based on effort. • The other tactics may result in different benefits. AMs specifically identified that tactics should also be assessed in terms of Controllable Cost and Value Recognition. • Controllable Cost refers to the amount of spend over which an Applications Manager has authority. In many cases, AMs are unable to cut costs due to the demands of senior management or external business units. • Value Recognition refers to the amount of respect that external departments give to applications organizations. Certain tactics, for example, have a negligible effect on actual cost reduction, but are very effective at enabling external stakeholders to recognize the value of applications groups.

4. Cost Control: Positioning the Problem Cost Control: Positioning the Problem Understand the Business Situation and Develop a Response Adopt the Appropriate Tactics for the Business Situation Cost Control Tactics for Applications Managers Conclusion What’s in this Section: Sections: Understand what Cost Control means to Applications Managers. Understand how “business value” applies to Cost Control.

5. Understand Cost Control and what it means to Applications Managers Cost Control: an effective means of managing and, if necessary, decreasing the necessary budget of a particular department or section. What is Cost Control for Applications Managers? Info-Tech interprets Cost Control as a set of tactics that Applications Managers can adopt to deploy and consume resources within the organization more effectively. Cost Control can be deployed in a variety of ways ranging from immediate triage to reduce costs, to a more proactive approach initiated in the anticipation of future cuts. Cost Control is a set of tactics that are pursued within a single calendar year. These tactics necessarily segue into broader strategic issues related to application staffing, lifecycle, and platform. What Does Cost Control Do? • Eliminates redundant costs from the enterprise. • Enables better allocation of limited resources, particularly in development projects. • Improves the external perception of the applications group.

6. “Business Value” is the key concept of both Cost Control and related strategic activities Business Benefit EQUALS Maintenance Cost Time Business Value Time Time Business Value Deteriorates Business value is the key concept for Applications Managers. It combines both the cost of maintaining applications and their overall value to the business. AMs must restore business value either through controlling cost, or improving business benefit by updating or extending applications. Support and Maintenance Costs Increase Costs increase even as the business benefits decay. The costs include ongoing and increased maintenance costs, and creeping problems due to quality issues caused by ongoing development initiatives. Business Benefit Decays Businesses change. The only time an application meets the needs of the business is at the end of its implementation – the first day it goes live. The constant erosion of business benefit must be addressed by Applications Managers. PLUS

7. Business Value varies across the four phases of an application’s lifecycle • An application goes through four distinct stages. • Birth. The birth phase includes formulating the initial business plan for an application and how it will best serve the needs of a particular business unit. • Growth. The initial growth phase of an application involves the implementation and customization of a particular application. • Maturity. Following implementation, the application begins to age. Its business value erodes as its associated costs increase, and its ability to meet the demands laid out in the growth phase diminish. An aging phase can be addressed by a new growth initiative that either updates the application, or involves custom development. • Death. Ultimately, an application must be retired and replaced with something else. Elapsed Time of Many Years BIRTH GROWTH AGING GROWTH AGING Business Value Applications Managers are responsible for the entire application lifecycle. They are also responsible for developing a strategy to address each phase. DEATH Time

8. This solution set addresses tactics that Applications Managers can adopt to mitigate aging over a single calendar year • Applications Managers often receive the mandate to improve business value within a 12 month period. • “Business value” can be accomplished in two ways. Tactics either reduce the overall cost of maintaining an applications portfolio or they improve business benefit. • Tactics are outside of overall strategies. The planning cycle involving the growth and retirement of applications occurs regardless of business conditions. Business Value One Year Time

9. Understand the business situation and develop a response What’s in this Section: Understand the current concerns of business leaders and where opportunities for Cost Control still exist. View the top tactics for applications Cost Control, and which ones offer the greatest impact. Understand what “controllable cost” and “value recognition” mean in regards to Cost Control. Acknowledge that cutting people will be part of the process. Cost Control: Positioning the Problem Understand the Business Situation and Develop a Response Adopt the Appropriate Tactics for the Business Situation Cost Control Tactics for Applications Managers Conclusion Sections:

10. First, the bad news: business leaders fear the current conditions The concern is felt mainly by executives and senior managers. Over 40% of executives are making cost-management a priority, and many of them are voicing their concerns. Tellingly, almost 30% of business units have started taking preliminary steps by voluntarily addressing controllable costs. Most people have not changed their own routines. The concerns are primarily based on larger processes within the enterprise. Only 24% of people are making any change to what they do on a daily basis. Many leaders are concerned about a downturn in the economy, such as was seen in 2008. Start planning now. Source: Info-Tech Research Group. N = 585-593, Q3 2011. Applications Managers and leaders must put a strategy in place to address the concerns voiced by management. Executives expect it, and almost 30% of your peers are taking steps to accomplish it.

11. The good news: there is still opportunity for Cost Control Discretionary budgets are easy targets to reach. Almost 40% of IT professionals believe there is still significant opportunity to make cuts to discretionary items. Many also feel that there is some opportunity for eliminating service contracts, projects, or deferring upgrades. However, the value proposition for these strategies is not clear. Certain things have already been done. Deferring renewals, reducing service, and accepting increased risk are deemed to be unacceptable to many enterprises. In some cases, these enterprises have already made the necessary cuts in response to the events of 2008. In others, the conditions are simply not sufficiently dire. Where there’s concern, there’s opportunity. However, most of it comes from discretionary budgets. Source: Info-Tech Research Group. N = 585-593, Q3 2011. There’s hope. The enterprises that are most concerned about economic conditions also indicate that they have they greatest opportunity for Cost Control (r=0.35; n=591). Furthermore, the enterprises that are most concerned recognize the most opportunity in every single category.

12. Interviews with experts revealed that Applications Managers typically pursue nine different Cost Control strategies Not all of these tactics are effective. So what actually works? Advantages Challenges Concern about patching and ongoing stability of the application. Eliminating maintenance on non-core apps Obvious part of the overall apps budget. 1 Deploying zero-based budgeting to reduce waste Focuses specifically on spend within the applications area. Budgeting is the concern of senior management, not IT. 2 Platform standardization within app portfolio Provides guidance to procurement decisions and shrinks app portfolio. Standardization may take more time than allotted. 3 The apps are in the portfolio for a reason and users don’t like change. Reducing the number of supported apps Reduces both maintenance costs and the required maintenance overhead. 4 Payments to major vendors represent a large part of overall spend. Optimizing licensing costs paid to major vendors The contracts might not be up for negotiation. 5 Shortening development cycles (e.g. Agile) There might not be an effect on actual staffing. Short lifecycles can improve quality and reduce development time. 6 These models might not have an actual impact on TCO. Alternative delivery models (e.g. SaaS, Cloud, etc.) Alternatives can eliminate the need for upfront licensing costs. 7 The business has expectations for what they need. Triaging development initiatives based on effort Controlling development demand is the only way to reduce cost. 8 External developers may be cheaper and more available. The overall development process is more complicated. Outsourcing development 9

13. Reducing maintenance and controlling discretionary spend accounts for most of the effect of Cost Control success Two tactics account for most of the success in actual cost reduction. Info-Tech asked Applications Managers which tactics they had used for cost reduction, and how successful their strategies had been. We then assessed the nine most popular tactics for their contribution to overall cost reduction success. The analysis indicates that the most successful tactics include eliminating maintenance and controlling discretionary spend with zero-based budgeting. Info-Tech then considered all of the factors in a regression model. Only two factors emerged as statistically significant (p<0.05), and two more emerged as marginally significant (p<0.1). All of the tactics contribute to success, but only four provide unique value. Source: Info-Tech Research Group. N = 63, Q3 2011. The benefit of most tactics overlap. Focus on the four that contribute uniquely. Info-Tech Insight The other tactics have value despite their relative lack of cost reduction effectiveness. During interviews, Applications Managers identified Controllable Costs and Value Recognition as crucial motivators.

14. Applications Managers are mostly wrong (but a little right) about what actually works Applications Managers rated which options work best for cost-reduction in terms of their potential to save money and ease of reduction. Source: Info-Tech Research Group. N = 65, Q3 2011. Unique Contribution to Cost Control Success Info-Tech Insight Strong Eliminating maintenance on non-core apps and reducing waste are key strategies. Weak Minimal Applications Managers consider optimization of licensing to be the most important tactic. It’s not. Zero-based budgeting is under-rated by most Applications Managers. Ability to meet the needs of the business.

15. Cost reduction isn’t the only factor. Also pursue “Controllable Costs” and “Value Recognition” $ Senior executives may mandate... Cost Reduction The impact of a particular tactic on overall cost reduction is important, but many Applications Managers feel limited by two particular scenarios: • It’s already been done. Many enterprises have already executed various tactics for reducing costs. • Necessary applications. The manager receives a mandate to implement a new solution because it’s required by the business. The Applications Manager has no say in the matter. $ C C …but Applications Managers must assess tactics based on: R V The VP of IT for a municipal region was told by the board that they needed a new application for the corrections department. He was concerned about the impact to his budget, but had little say. He felt like a victim. He elected to focus on controllable costs and value recognition. Value Recognition • Some tactics have little impact on cost reduction, but are important because they demonstrate the value of the applications group to the wider enterprise. Controllable Cost • The Applications Manager has some control over a more actionable metric: The impact of a particular tactic on the cost. If control lies beyond IT, the manager is in a position to push back, or at least express concern to senior management.

16. Select the right tactics for the business situation Eliminate maintenance on non-core apps. Deployzero-based budgeting to reduce waste. Triagedevelopment initiatives based on effort. Shortendevelopment cycles (e.g. Agile). Reduce the number of supported apps. Optimizelicensing costs paid to major vendors. Standardize platform within applications portfolio. Exploit alternative delivery models (e.g. SaaS, cloud, etc.) Outsourcedevelopment. This figure is a code to represent the relative benefits of different tactics. • Cost reduction effectiveness. • Impact on controllable costs. • Value recognition.

17. Cut: It hurts, but you must eliminate both applications and people Reductions of over 20% require painful and rapid action. IT leaders have a few different options when considering a phase-out, including: Termination:The system and its functionality is simply turned off. Consolidation:Functionality is moved to an environment that is currently supported by the organization. Replace: A new system is installed to take over for the old. Cut people Cut applications Enterprises leave staff cuts to the end of cost reduction initiatives because they are emotionally difficult. Keep in mind: • Avoiding cuts undermine real efforts. Compensation and hour reductions will only supplement a few percent at best, and may be impossible to implement given the corporate culture. • Improving efficiencies and reducing costs by avoiding over-hiring, consolidating roles, and reducing management overhead. Info-Tech Resources Info-Tech Resources • For guidance on making the necessary cuts, see: • Downsize IT Staff for Future Gain with Minimal Pain • For more resources on how to cut applications, see: • Address the Risks Posed by Legacy Applications Effectively addressing all aspects of the Cut scenario is beyond the scope of this note. Refer to the above resources for detailed guidance on how to eliminate applications staff.

18. Adopt the appropriate tactics for the business situation What’s in this Section: Sections: Identify the most applicable business situation: minor reductions, do more with the same, or get ahead. Choose your own adventure: identify which tactics apply to the business situation to incur cost savings. Learn from other enterprises’ experiences through an in-depth case study. Cost Control: Positioning the Problem Understandthe Business Situation and Develop a Response Adopt the Appropriate Tactics for the Business Situation Cost Control Tactics for Applications Managers Conclusion

19. Make minor reductions to the applications group Start with those tactics that actually contribute to cost-cutting success. Making minor reductions applies to Applications Managers that need to make cuts of 5-10% to their overall budget. This degree of cutting can generally be accomplished with a focus on efficiency and the reduction of applications. Greater cuts involve the loss of people. Goal Reduce the operating budget of the applications group by 5-10%. Situation Applications groups that must make minor reductions are characterized by the following: A mandate for cost reduction from senior management. A focus on eliminating waste and superfluous spend. The tactics will be adopted within the next 12 months. Opportunity for cost reduction still remains within the enterprise. Appropriate Tactics Applications Managers should assess the following tactics based on relevance to the concept of doing more with less: • Eliminating maintenance on non-core apps. • Deploying zero-based budgeting to reduce waste. • Triaging development initiatives based on effort. Focus on Metrics Look to broad operational metrics to track success: • Percent of initiatives that support business objectives. • Percent of software licenses deployed. • Percent of system processes requiring legacy applications or architecture. Info-Tech Insight A metrics program enables Applications Managers to track the ongoing success of their tactics and strategies. For details, see Info-Tech’s solution set, Use Applications Metrics That Matter.

20. Do more with the same: accomplish more without increasing the overall budget Use the entire planning horizon by exploiting all of the tactics. Doing more applies to Applications Managers who want to make their organization more efficient without increasing the overall budget. Goal Make the department more efficient. Situation Applications groups that need to do more are characterized by the following: No mandate for cost reduction from senior management. A need to improve overall initiatives and activities. The focus of the initiatives is largely internal to the department or applications group. The tactics will be adopted within the next 12 months. Opportunity for cost reduction still remains within the enterprise. Appropriate Tactics Applications Managers should assess the following tactics based on relevance to the concept of doing more with the same: • Eliminating maintenance on non-core apps. • Deploying zero-based budgeting to reduce waste. • Triaging development initiatives based on effort. • Shortening development cycles (e.g. Agile). • Reducing the number of supported apps. • Optimizing licensing costs paid to major vendors. These tactics drive cost effectiveness and enable the Applications Manager to work better with the enterprise. Focus on Metrics Look to broad operational metrics to track success:: • Applications department budget change from the last period. • Percentage of projects on budget. • The percentage of projects on time.

21. Get ahead: anticipate the mandate from senior management for reduced costs Use the entire planning agenda by exploiting all of the tactics. Getting ahead applies to Applications Managers who have time to adopt different tactics. They adopt tactics that can take up to a full calendar year to execute and segue into strategic applications activities. Goal Make pre-emptive changes in anticipation of a request from senior management. Situation Applications Managers that need to get ahead are characterized by these characteristics: No mandate for cost reduction from senior management. A desire to improve overall initiatives and activities. Conducting other initiatives focused on improving service delivery to the business. Opportunity for cost reduction still remains within the enterprise. Appropriate Tactics Applications Managers should assess their approach to each of the tactics. They are all relevant for getting ahead. • Eliminating maintenance on non-core apps. • Deploying zero-based budgeting to reduce waste. • Triaging development initiatives based on effort. • Shortening development cycles (e.g. Agile). • Reducing number of supported apps. • Optimizing licensing costs paid to major vendors. • Platform standardization within applications portfolio. • Alternative delivery models (e.g. SaaS, Cloud, etc.). • Outsourcing development. Focus on Metrics Look to broad operational metrics to track success: • Applications department budget change from the last period. • Percent of system processes supported by current technology plan.

22. Strategic Case Study: Hosting.com outsources Great Plains administration and maintenance to add value and save money Ultimately, the process is more important than individual tactics. One enterprise made the least successful tactic work by following a strategy. • Outsourcing offers an opportunity to obtain expertise not found in-house, and delegate workload. • Hosting.com adopted a strategy for controlling cost. It chose to outsource, but that decision required an assessment of core applications and a commitment to discover and reduce discretionary costs. • Hosting.com outsourced maintenance and administration of its Great Plains software. It saved $40,000 a year on maintenance and administration.

23. Choose your own cost cutting approach Details on each tactic are provided in the next section. Review the ones that are most appropriate to the business situation.

24. Cost Control Tactics for Applications Managers What’s in this Section: Sections: Top nine Cost Control tactics based on experts. Case studies based on the tactics. Cost Control: Positioning the Problem Understand the Business Situation and Develop a Response Adopt the Appropriate Tactics for the Business Situation Cost Control Tactics for Applications Managers Conclusion

25. Eliminate maintenance on non-core applications Info-Tech Insight Determine if application maintenance is a savings opportunity area for you, and what strategies to pursue for short, mid- and long-term goals by referring to Info-Tech’s Reducing Cost-to-Serve: Application Maintenance Services. Non-core applications should be phased out of the enterprise. In the short-term, cut maintenance. IT is already considered a cost to business, and having an overlapping collection of supported, but unused applications only supports this idea. By eliminating a major source of costs, IT can demonstrate clear savings to the business. Maintenance fees, in general, from vendors have been outlandish…They’re larger contributors to OPEX because of how we use (some of our) software. - CTO, Cloud hosting and recovery services The Common Scenario • Applications Managers are at the whim of other departments that mandate the continuance of different applications. • These redundant applications involve maintenance costs that often yield little value since IT never uses the available support. Applications Managers must first determine what represents a non-core application within the enterprise. The next step is to cancel pending maintenance payments. Info-Tech data reveals that eliminating maintenance is the most effective cost reduction strategy when executed in isolation. Adopting strategies of zero-based budgeting, eliminating maintenance on non-core applications, and standardizing platforms yields similar results. What does this mean for IT?

26. Reconsider what actually needs maintenance, or alter current agreements to cut costs Enterprises typically spend over 70% of app budgets on maintenance. Reevaluate agreements to save. 1 We look at whether we want to go for a yearly maintenance cost vs. we’ll call you and pay an hourly maintenance fee. - Thomas Stanmyer, Assistant Director of Programming If it can’t be eliminated, renegotiate it. Maintenance agreements do not have to be permanent. Contact vendors and look at different maintenance service options for non-core applications. For example, move from a yearly maintenance fee to a situational basis where you contact the vendor when you need them. 2 Explore alternatives. Even if it’s just to use as leverage against other vendors, do not be afraid to look at open source options for maintenance. Instead of paying a percentage of purchase price for support, open source allows Applications Managers to focus on the actual price of maintenance. We have semi-annual meetings with vendors about what they’re contributing to us in terms of value, and what the organization is paying them. Those organizations that are disproportionately expensive, I’m literally saying, ‘I have an active project to engineer you out of the project, so bring down your maintenance. - Craig McLellan, CTO 3 Battle vendor vs. vendor. Don’t be intimidated by vendors. Take control. Vendors should be vying for business instead of dictating conditions to Applications Managers. Take advantage of competing vendors under the applications portfolio, ask each what they’re willing to reduce to, pit the deals against each other and negotiate an overall better cost.

27. Case Study: Save by cutting or changing your maintenance agreements We’ve got to make sure we’re using our applications. Some get caught in the weeds… Information Services Municipal Government Assistant Director of Programming Industry: Segment: Source: Results By taking inventory of applications and reevaluating agreements, the department has managed to save money by either eliminating apps they no longer use, or changing their agreements from yearly contracts to paying for hourly maintenance on non-core applications. Situation Action Any contracts the IT department enters into must be scrutinized by the comptroller and accounting executive of the enterprise. It is vital that the department be aware of what they’re using and paying for in terms of maintenance agreements. The IT department has started to review their existing applications and yearly maintenance agreements to decide whether to renegotiate or rethink the necessity of an agreement. • Don’t need it? Get rid of it. If maintenance is no longer needed for an application, or the application can be eliminated entirely, do it. If maintenance is necessary, but can be renegotiated, examine alternatives like hourly maintenance. This is a key area of Cost Control, so don’t be afraid to stand up to vendors to make changes.

28. Info-Tech Insight Deploy zero-based budgeting internally to reduce waste Adopt zero-based budgeting. Applications Managers consistently under-value the activity despite its demonstrated contribution to cost savings. Applications Managers must make a formal strategy for eliminating waste. The Common Scenario • Applications Managers take the budget from the previous year and put it forward for approval for the following year. • The old budgets may contain items that are no longer appropriate given the cost cutting goals. • Managers have to ask if things like separate holiday parties or development efforts are still appropriate. Zero-based budgeting is not a commonly deployed strategy. However, those who apply this strategy report greater success in overall cost-reduction strategies. In addition to real cost reduction, zero-based budgeting focuses on the controllable costs within the applications group and is visible to the external enterprise. Zero-based budgeting also enables many other tactics. A focus on costs brings visibility to things like maintenance payments, redundant applications, and outsourced development. When I was at [a large brewer]…(it) realized a ton of savings by going to zero-based budgeting. (It) consolidated 250 apps. - Applications Manager, Professional Services • What does this mean for IT? • Zero-based budgeting is a must for Applications Managers. It is the most under-rated tactic for cost reduction within the enterprise.

29. Justify spending and cut costs in the process Zero-based budgeting requires more work in deciding what stays and what goes, but it also offers opportunities to save. 1 Create an opportunity to communicate with the business. IT will look like more of a worthwhile area of expense if it can show that it is keeping business interests in mind. When developing a zero-based budget, work with the business to determine what they are trying to achieve. The relationship becomes less about what the business dictates and more about IT recommendations. Don’t use zero-based budgeting alone. This method allows Applications Managers to see weaknesses in the department, ways to control them, and cost drivers. It also allows the manager to see the entire cost spread. It is a more accurate, justifiable, and transparent budget. However, the method is time-consuming. Use zero-based budgeting to initiate Cost Control activities, and as a yearly review strategy for audit purposes. 2 • Zero-based is only one aspect of effective budgeting. It just happens to be particularly effective in the context of overall cost-reduction. For additional guidance on budgeting, see Storyboard: Develop Successful Strategies for Budget Planning, Proposal, and Negotiationand Zero-Based Budgeting Makes Better Budgets. Look beyond the applications portfolio. Look outside of the portfolio at other “perks” that IT may be spending money on, such as Christmas parties or Internet for employees who work from home (see following Case Study). Cutting these expenses may have an impact on staff morale, but the cuts are always preferable to layoffs for both staff and management. 3

30. Case Study: Build your budget from the bottom up and trim the excess By cutting “perks” from the portfolio, from unused apps to Christmas parties, the enterprise could keep their core apps top-of-the-line. Food and Beverage Mid-size Applications Manager Industry: Segment: Source: Action Results Situation Enterprise moved from an annual budget that stayed relatively consistent year to year, to zero-based budgeting, which involves justifying any potential spending. Zero-based budgeting cut a lot of perks, such as Christmas parties, and stopped paying for employees’ Internet, employee cell phones, optional training activities, and IT-specific services that overlapped with – or were alternatives to – those that were offered to employees by the enterprise. By cutting the perks, the enterprise was able to select and maintain the best of their core applications. During times of financial concern, the extras should be the first to go, and priority given to applications the enterprise relies heavily on. Zero-based budgeting prioritizes by forcing enterprises to evaluate the necessity of certain apps and processes. • Be ruthless. Get rid of the excess costs and justify every spend to streamline the applications portfolio with only the applications that are necessary and top-of-the-line.

31. Info-Tech Insight Introduce greater platform standardization within the applications portfolio Most Applications Managers correctly realize that platform standardization is useful, but difficult in practice. Consider it to be a crucial enabler for ongoing cost-control initiatives. Standardization is key for ongoing Cost Control, but it is hard to incorporate into a 12-month tactical window. Standardization and really examining what products you’re standardizing on, i.e. MS Office (Standard and Professional, which is $100 more) – most users don’t use all the bells and whistles. - Consultant, Professional Services The Common Scenario • Applications Managers maintain large numbers of different applications and platforms within their portfolios. • Some of the platforms come with legacy applications that the manager cannot replace. • The different platforms lead to increased maintenance costs, the requirement for a diverse set of internal skills, and an environment that frustrates the formulation of technical direction. Platform standardization is one of the most effective tactics for cost-cutting success. Standardization restricts the number of applications within the portfolio, and identifies non-core applications. It is difficult to adopt a platform standardization strategy within a 12-month tactical cost-cutting window. However, the tactic is a crucial enabler for many of the other strategies and activities. • What does this mean for IT? • Standardization is a key competency for maintaining ongoing Cost Control. It is a tactic that affects upcoming activities, such as establishing the application roadmap.

32. Standardization helps reduce the number of applications and minimize overall customization Choosing a customized app means more work for the IT team, and more money for maintenance. Why standardize? 3. Save IT time 1. Cover more ground The AM will need to spend extra time making the applications compatible with what is currently in the applications portfolio. Adding time can add costs, depending on how long it takes, or if there is no in-house expertise, turning to the vendor. Use fewer resources to cover the same functions. For example, coding may require unique skills for enterprise applications. Avoid having multiple branches running two different applications with distinct programming types. 2. Save money on maintenance When there are many applications with different programming types, they are all going to require additional support unique to their requirements. More maintenance means more costs to IT. • For additional resources on how to effectively standardize on a specific platform, see Plan for Application Consolidationand Develop EA to Create An Engine for Growth & Competitive Advantage.

33. Case Study: Streamline and standardize apps to save We are looking to reduce the number of applications we run by 50%. A lot of the systems were home-grown…They’re highly customized. They operate on their own island, (so there’s) no data sharing going on or the benefits that go along with that. So we’re moving towards COTS applications. Professional Services IT IT Director Industry: Segment: Source: Situation Results Action IT shop that supports hundreds of branch locations within the professional services industry wanted to reduce maintenance and support costs. When multiple branches run two different applications with distinct programming types, additional support may be required, which means higher costs. In order to streamline maintenance costs, the department decided to standardize on specific packages and desktop images to reduce the number of supported applications. They had a number of customized solutions that did not allow them to share data, so they moved towards COTS applications. COTS applications allowed the enterprise to cover more ground with the same resources. Standardization means simplifying the process and lowering maintenance costs. • Target custom applications. This tactic not only simplifies IT processes, it also saves money because standardized applications do not require additional maintenance.

34. Reduce the number of supported applications Stay on top of what apps exist, while keeping an eye out for copies of specific versions. By doing this, you should notice any doubling or tripling up of applications, as well as redundant maintenance agreements. Supporting applications is about controllable cost as much as it is about real cost savings. People don’t even know what apps they have. - Consultant, Professional Services The Common Scenario • Applications Managers do not have a handle on their applications portfolio. • Enterprises could be running five of the same application, licensed to perform the same tasks, and no one would be aware. Reducing the supported number of applications is a common strategy for cost reduction. Applications Managers consider the attainment of decent success in cost reduction to be relatively easy to accomplish. Effective software asset management (SAM) practices can save as much as 30% of the software budget. Info-Tech data reveals that reducing the number of supported apps is the fourth most effective cost reduction strategy when executed in isolation. Adopting strategies of zero-based budgeting, eliminating maintenance on non-core applications, and standardizing platforms yield similar results. Info-Tech Insight What does this mean for IT? • There is no need for redundant applications. Unfortunately, users are often very attached to the applications they have. Applications Managers must be prepared for push back.

35. Follow three steps to reduce the number of applications MYTH:You can’t get rid of supported applications and still maintain the same application performance. FACT:Eliminating supported applications, particularly redundant ones, will free up room, save you money, and therefore make your performance more efficient. Before you start making cuts, consider the following: Collect inventory. Start by knowing what you have. List all applications that are currently deployed throughout the enterprise. This is more than just cataloguing, it’s detailing the features and functionality of each application in the inventory. 1 • Properly manage your applications portfolio to catalogue currently deployed apps, as well as their purpose and the value they bring to the business by using Info-Tech’s Application Inventory Tool. Accurately taking stock of every app in your enterprise is the first step towards lowering maintenance costs and improving efficiency. Assess value. This includes the application’s value to the business, maintenance costs, functionality overlap, performance, its age and architecture. Rate how many times the application was used, and its importance – critical, to don’t use it at all. 2 Rationalize the portfolio. Here’s where you can save some money. After performing inventory and assessment, you’ll be able to discover functionality overlaps, unused apps or high cost apps that are no longer serving the business. If app maintenance costs that account for about 50% of the app budget can be reduced by 20%, your overall app budget can be reduced by 10%. 3

36. Case Study: Save money by lightening your application load I celebrate killing an application. We haven’t brought down performance by consolidating. Cloud hosting and recovery services Small to midsize CTO Industry: Segment: Source: Action Results Situation When the CTO joined the company, it had around 183 applications, had not explored consolidation, and had many competing applications resulting in an inefficient and unnecessarily bulky portfolio. The CTO proceeded to consolidate the amount of applications under the portfolio, looking into open source and remedying competing applications by using one application for two functions, for example, instead of having two applications for two different functions. The applications portfolio went from 183 applications to 78. The CTO was able to save money on maintenance fees by moving to open source where possible because there is no added purchase price. Finally, the portfolio was streamlined with fewer competing and redundant applications. • Clutter breeds chaos. Getting a grip on what’s in the applications portfolio will make competing and redundant applications easier to spot and easier to get rid of. Fewer applications means fewer maintenance fees, especially if open source is explored.

37. Info-Tech Insight Optimize licensing costs paid to major vendors Optimized licensing costs are largely a result of other tactics. Use platform standardization and maintenance elimination as a way of attaining optimized costs. Most Applications Managers are wrong. Negotiation with major vendors is the most over-rated cost-reduction tactic. Talk to the vendor who is being clear and is easily understood. Better to make the decision right the first time than when you have contract renewals. - Consultant, Professional Services The Common Scenario • Applications Managers review their budget and are shocked at how much the enterprise pays to key vendors like IBM and Oracle. • The AM decides to negotiate aggressively with the vendor to reduce overall costs. Applications Managers should always negotiate aggressively with vendors. However, contract renewal periods rarely happen within the 12-month window required for tactical cost-reduction. The actual benefits of renegotiation often come from other tactics, notably zero-based budgeting, platform standardization, and the elimination of maintenance on non-core applications. The value of negotiation is recognition from the rest of the business, particularly senior management. • What does this mean for IT? • Negotiate aggressively because it’s the standard way of doing business, not for cost-reduction. Focus on the more successful strategies in order to enable better negotiation.

38. Vendor licenses can be easy steps when it comes to saving money These key moments should be examined for opportunities to cut costs. • Planning • Conduct a needs analysis upfront based on the functionality of the products you’re considering. • Determine what’s out there in terms of licensing agreements. • Right-size for future requirements. Updates Don’t be afraid to apply updates. Even if the software is customized, the upgrade will be closer to the newest edition of the product, and save you money on that purchase. It also serves as a lesson: customizing can keep you from upgrading. At the initial software buy, establish if customization and upgrades will work together in the future. • Renewal • Review licensing agreements when they come up for renewal. Keep costs low here by checking to see if you’re paying for maintenance on products you’re not using. • Renewal dates also offer an opportunity for potential renegotiation if right-sizing needs to take place. • Cost savings can occur at the start of negotiations. Refer to Info-Tech’s solution sets, Contract Negotiations: How to Prepare Like a Proand Storyboard: Maximize Vendor Performanceto get the most of contract discussions.

39. Case Study: Increase efficiencies and reduce software spend through contract analysis By reviewing their inventory, this manufacturing firm reduced the amount they spend on software by 22%. Manufacturing Mid-size IT Director Industry: Segment: Source: Action Results Situation The firm hired Info-Tech Consulting to review its software inventory as a means to uncovering potential savings. A review of 60 software contracts was produced, including licensing, maintenance and support, and help desk records, and the firm was astounded by the results. A process to review each contract annually was applied. Several contracts were combined to reduce annual renewal transactions and to negotiate higher discounts based on volume, while other contracts were flagged for discontinuation or modification based on required product changes, stagnation, or non-use of support. A reduction of 22% or $403,585 was found. North American manufacturing firm needed to find savings in all departments during the recession. • Read the fine print! Know what a contract involves up front and be diligent about reviewing it as business needs change. An application could be used less and less, and end up costing more than it’s worth.

40. Shorten development delivery cycles (e.g. Agile) Shortening development cycles leads to a better relationship with the overall business and opportunities for improving enterprise-wide processes. But it’s not much of an effective cost-cutting process. The business loves shorter development cycles. but they don’t contribute much to cost reduction. The Common Scenario • An Applications Manager adopts Agile development strategies in order to address a number of issues within the organization. • They consider cost to be one of those key issues. A focus on development cycles has little impact on overall cost cutting success. Neither applications nor people are cut. However, it does have a dramatic impact on value recognition. Shorter development cycles give the business greater visibility into the operation of the applications group. Leaders can see the value that the group delivers to the broader organization. While this tactic also presents opportunities for overall business process improvement due to the increased emphasis on process documentation and requirements elicitation, cost impact is negligible. We’re an Agile shop, so everything is being prioritized and backlogged. - Craig McLellan, CTO Info-Tech Insight • What does this mean for IT? • Go Agile because it’s a better way to serve the needs of the business and to meet the mandate of the applications group. However, it won’t do much for cost-cutting effectiveness.

41. Make the transition to Agile slow but sure Agile development methods improve responsiveness in software delivery to meet customer demands, but consider the following before pursuing them: Avoid letting this happen… Focus attention on doing this… Make the first Agile project a small one so people can learn the process without the pressure that a large project produces. Allow the Agile mentality to immediately take over the organization. Ensure the team isn’t overwhelmed by expectations. The team might feel that this is the new method and that they have to make it work. Put Agile methods in practice across the board on all projects. Start small or chaos will ensue. • For more on preparing IT for a more Agile environment, refer to Info-Tech’s Understand the Impact of Going Agileand Make IT More Responsive and Agile. Expect the results and benefits to show themselves right away. Agile takes time and training. Don’t expect the first few projects to run without transitional hiccups. Turn the first project into a pilot project, eliminating additional pressures that come with implementing a new developing methodology. Provide the Agile team with the knowledge that you are going to take this process slow and you hope to see some positive aspects, not a solution to all existing issues. Don’t burden the development team with the expectation that this is the new method that will solve all of the organization’s issues.

42. Case Study: Ensure IT has the right developers to succeed in an Agile environment Agile development helps, if properly implemented, because it brings the teams closer together, but some developers really struggle with that type of structure. Financial Large Enterprise Information Technology Manager Industry: Segment: Source: Mistake Results Situation • The enterprise failed to recognize that their culture was in no way a collaborative one. • Failure to recognize this has created a development team made up of individuals that can’t handle being autonomous and self-directed. • Infighting within the development team arose. • The collaborative culture that must be in place for Agile to work is missing and daily meetings have become daily airing of grievances. • The result was low developer morale and low levels of productivity due to the inability to successfully check each others work. • The enterprise succumbed to external and internal pressure to go Agile. • It brought in an Agile consultant to “train” the development team on the important principles of Agile. • Moving to an Agile environment does not happen overnight. Ensure IT’s current set-up and its employees are prepared for the changes to have a successful take off. Do not expect huge savings.

43. Exploit alternative delivery models (e.g. SaaS, Cloud, etc.) Lower up-front costs is not the same as lower TCO. Explore alternative delivery models only as part of platform standardization. The Common Scenario • Applications Managers need to replace an application. • They don’t want the hassle and concern of deploying the application to their own infrastructure and they are concerned about high up-front licensing costs. • SaaS seems like a good option. SaaS and Cloud have little impact on overall cost-cutting success for several reasons: • It can take several years to transition legacy applications (too long for tactical cost-cutting). • SaaS is rarely cheaper than on-premise deployments in the long run. Info-Tech data reveals TCO parity between SaaS and on-premise deployments at about the five year point. • SaaS enables enterprises to avoid high up-front licensing costs, but does not impact the cost of support staff, such as developers and business analysts. If you’re a small enterprise still on Exchange 2003, you should really look into the Cloud. TCO models are there to pluck. - Consultant, Professional Services Info-Tech Insight SaaS and other alternate deliver models give Applications Managers deployment flexibility, but they don’t generally save costs. Develop a platform standardization strategy first. • What does this mean for IT? • Explore alternative delivery models to gain flexibility, and as a part of a platform standardization initiative. Don’t expect this tactic to result in significant cost-reduction success.

44. With careful deployment decisions, the Cloud can provide significant cost savings, better IT services, and high reliability Selecting a private or public Cloud will depend on your applications, your required performance, security, and compliance requirements. Top application related Cloud benefits include… • Lower Costs Cloud Computing optimizes the total use of computing resources required by your applications by pooling those resources across the entire shared infrastructure. • Capital Expense Free Computing Regardless of whether you decide to go with a public or private outsourced Cloud option, all capital expenses associated with your infrastructure are eliminated. • Faster Deployment Servers can be brought up or down in minutes, dropping your application deployment time dramatically. All necessary new hardware can simply be requested through a control console. • As Required Scalability As your application needs grow you can add additional storage, RAM, and CPU capacity as needed. This means that you only need to pay for what you need, when you need it. • Low Maintenance Costs Lower maintenance costs are driven by two specific conditions. First, you have no hardware costs, and secondly you utilize shared IT staff, which reduces the need for you to maintain staff.

45. Case Study: Reaction time can be so quick in the Cloud, your users will never know something went wrong The IT team of this web-based company wanted to provide a more resilient and agile environment for development, and for hosting of the company’s customer-facing website. Industry: Segment: Web-based Midsize Action Situation Result Amazon EC2 gave them the flexibility to provision servers quickly and for only pennies. The development team can test changes and go live quickly and easily without the need to go through infrastructure managers. The biggest bonus from IT’s perspective was less regulation, while for the business it was the lower cost. IT was trying to keep down the upfront costs of more servers. This was a concern both in terms of acquisition and deployment, as well as in finding the space to host them. Disaster recovery and business continuity were not top-of-mind when IT put the web servers on the Cloud, but they turned out to be a pleasant side effect. The building suffered a major power outage due to local construction that brought on-premises infrastructure to a standstill for 24 hours. Websites were not affected, and customers never knew there was a problem. • Alternative methods, like the Cloud, reduces hardware costs and restrictions while maintaining performance. However, because of its minor impact on cost savings, it still should not be a first option for Applications Managers .

46. Triage development initiatives based on effort Focusing development effort provides benefits that are distinct from those of any other initiative. But the effect is minimal. We look at which project has the biggest impact and we basically cut from there. Everything has to meet our business needs. - Information Manager, Healthcare The Common Scenario • Applications Managers need to minimize the number of resources within the department. • To minimize the resources, they must reduce activity. The managers focuses on development requests and begin to prioritize them based on the required amount of effort. • Initiatives that require more effort need a higher order of approval. The overall contribution to cost-cutting effectiveness is minimal. However, the tactic is relatively easy to accomplish since it addresses processes that are largely internal to the applications organization. The benefits of triaging development are also unique. They are unrelated to other efforts of Cost Control. Info-Tech Insight Application development and support account for over 40% of IT effort. Reducing the workload is key to managing cost. Triaging development based on effort provides unique – but minimal – value in overall cost-reduction success. • What does this mean for IT? • Do it: triage development based on effort. It provides cost-reduction benefits that are unrelated to any other tactic. It also addresses cost issues that are most relevant to Applications Managers.

47. Applications support and maintenance account for between 10% and 20% of overall IT effort The actual amount of effort spent on different tasks varies depending on the size of the enterprise. Regardless, it’s big enough to draw senior management attention. Applications dominate in terms of required effort. The amount of effort is increased when other responsibilities are included, such as help desk support, training, and project management. Applications Managers need to acknowledge that applications are a big part of overall IT spend. Related Tasks • Applications Managers need to manage and train staff to establish which tasks come first, and which are backlogged based on the following: • Effort • Time • Cost • Applicability to business need Applications Tasks N = 1519 # FTEs in the Enterprise

48. Case Study: When time is an issue, rank projects based on what you can do now, for less We look at which project gives us the biggest bang for our buck. Healthcare Non-profit Information Manager Industry: Segment: Source: Situation Action Results Non-profit organization needs to triage development projects on a consistent basis because they only receive a lump sum of funding that lasts five years. Projects need to be prioritized so they do not exceed their budget. The organization engages in a yearly strategic-planning process where they examine their resources, their funding, and their project goals for the year. In addition to the aforementioned criteria, the organization must ensure any projects chosen align with their vision of safe health care for all Canadians. The organization is able to determine the right project to pursue that meets business and budget needs. They choose the one that offers the biggest impact to the business, and reduce the amount of projects based on that decision. • Triaging development initiatives is an ongoing practice. Applications Managers need to be on top of what needs to be done, what should be done, and prioritize according to cost, business need and effort, relating it to the business situation.

49. Outsource development Outsourcing development is a secondary tactic. It enables Applications Managers to address threats caused by other tactics (e.g. headcount reduction). However, it is not particularly effective for Cost Control. It has negligible impact on overall cost, but it can improve both response times and controllable cost. The Common Scenario • Applications Managers look to outsourcing to identify and secure external skills and resources. • They may have the perception that certain skills are cheaper in emerging countries or from contractors. Outsourcing development has almost no impact on cost-cutting success. In many cases, enterprises are unprepared for the process complexity required to manage outsourced arrangements. Internal business analysis and quality control, for example, become increasingly important to avoid cost and schedule over-runs. Outsourcing is valuable in that it provides flexibility in covering potential skills shortages with the group. It can also provide extra manpower to deliver functionality required by the business. However, it is not particularly effective for cost reduction. Apps outsourcing is a viable option. Particularly with network as less and less of an obstacle. - Consultant, Professional Services Info-Tech Insight • What does this mean for IT? • Do not expect outsourcing to reduce costs. Its value is making up for shortcomings resulting from other tactics.

50. Match an outsourcer to a project and business needs It is important to understand the possible pitfalls of outsourcing. For instance, projects frequently go over budget. To identify and mitigate problems, refer to Info-Tech’s Discover the Hidden Costs of Outsourcing. Prepare for outsourcing arrangements by referring to Info-Tech’s solution set, Get Ready for Application Development Outsourcing. Understand proper negotiations with outsourcers, as well as the internal changes that need to take place. Choose a third-party organization based on its ability to invest an extra effort for your business. When evaluating outsourcers, ensure they score highly in the following: Info-Tech Insight Require the vendor to take the extra step to understand the needs of your business and not just the needs of the project. Expect them to come back to you with recommendations for even stronger deliverables than the ones you originally requested. Understands business needs Choose a partner with an experienced and knowledgeable team, as well as a financially strong business to ensure that they can survive in economically uncertain times. Viability Ask for client references demonstrating that the vendor has implemented mature and effective processes for managing all components of the application development cycle. Demonstrates company expertise