The Definitive Framework for

Application Rationalization
6 steps to remove redundant business
services and capabilities

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 Application rationalization is part of cost optimization

Scrutinize Economize Rationalize Commercialize

to tie up loose ends to eliminate waste to avoid duplication to curb demand
Accurately apply Use what you need Remove redundant Apply market forces to
ITFM principles. —and no more. business capabilities. influence consumption.

Establishing the value of apps

In its original form, an IT portfolio is at its most efficient. Over
time, well-intentioned adoption of new and better applications
leads to improvements in the way IT delivers critical business
capabilities. However, too often, these expansions are not
accompanied by an evaluation of other applications supporting
the same business capabilities, yielding duplicate or overly-
embellished apps delivering the same capability.
No one means for this to happen, but eventually, the IT budget
groans under the weight of supporting this excess capability that
hogs funding and starves the CIO’s innovation agenda.
To address this, CIOs need an application rationalization (App
Rat) initiative. This book provides guidance on how to rationalize
apps and services in your IT portfolio and arms CIOs and IT
finance leaders with practical ways to identify and eliminate
duplication so they can use the cost savings to fund additional
investment.
. Replace guesswork with facts.
. Stop counting licenses and start defining business value.
. Reject one-and-done initiatives that aren’t repeatable.

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 Why is App Rationalization needed?
Despite company’s best efforts to control spending and secure the network, IT organizations are fighting
an uphill battle.
. Shadow IT and siloed purchasing habits lead to rogue and
redundant applications that exist outside the scrutiny and
control of the IT organization.
. M&A activity introduces the applications and services of a
newly acquired business, many of which may overlap or parallel
those already in place.
. Sheer complexity and sprawl can also limit visibility, making
it difficult to see where duplication is happening across a vast
application portfolio.
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. Pain from past attempts to rationalize apps and cut costs could
leave people hesitant to embrace further optimization programs.
. Complicated total cost of ownership (TCO) calculations can
make it tough to get buy-in and lead to uncertainty about the
cost implications of retiring an app or retaining it.
. Zombie apps mean there could be applications running simply
because retirement plans were never fully executed or completed
successfully.
The Definitive Framework for Application Rationalization | 3
 $20M
saved in two years by
rationalizing apps, licenses
and labor.

Is it dead or is it alive?
All too often, applications are cursed to live on in the ether of a company’s network. At one point, IT was dutifully focused on
retiring an app, but the process was never completed. Now said app is cursed to a lonely existence as a Zombie app that’s neglected
by users, should have been retired, but lives on in the IT portfolio. It’s only lot in life is to haunt the IT organization, and the budget,
with excessive infrastructure, application and vendor costs, while supporting the enterprise with little or no value. The only way to
eliminate the costs and inconvenience is to finish the retirement process. Running an App Rat initiative can help to hunt down the
Zombie apps and vanquish them for good.

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 Five reasons why App Rat initiatives fail

Application rationalization initiatives are notorious for not being completed or for falling short of their potential to optimize costs. If you’re
aware of what stops teams from seeing success, you can ensure you avoid these pitfalls in your own approach.

. Lack of Engagement . Lack of Credibility

Executives and stakeholders drag their feet.
. Lack of Urgency
Build or fix activities often take precedence.
. Lack of Scalability
TCO spreadsheets are brittle and error-prone.
Over-simplified cost and value analysis undermines trust.
. Lack of Timeliness
Point-in-time cost analysis is quickly outdated.

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Apptio.com |
The Definitive Framework for Application Rationalization Apptio.com
5
 $4M
identified in cost savings from
a strategic app rationalization
initiative.

The six steps to success with App Rat initiatives

1 2 3 4 5 6
Frame Catalog Cost Score Execute Sustain

By taking a phased approach, organizations can increase their chances of securing business partner buy-in and successfully executing.

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1 Framing an initiative to maximize success
Before starting, identify the business objectives or motivations that will help establish goals and make decisions about the initiative.

1. Focus on one type of optimization

What is the business context driving the need . Initial: Eliminate apps from the environment (rationalize)
for app rationalization? . Later: Reduce infra/labor/vendor expenses in top 20 apps
. Improve financial agility? (economize)
. Optimize investments?
2. Balance quick wins vs most bang for the buck
. Transform the operating model?
. . Retired apps still in operation . Multiple dev/test environments
Other?
. Apps with multiple versions
The scope of the initiative is also critical. Rather than boiling the
ocean, limit the initiative to ensure greater success. 3. Rationalize by application family
. First: IT Apps . Third: Front office apps
. Second: Back office apps
Don’t forget to define KPIs for success
It’s also important to know what success looks like and to back it up 4. Start with app families with largest spending
with some measurable KPIs. Consider setting a goal for the number of . Largest dev and support staff . Don’t worry about infra TCO yet
apps to retire, the percentage and dollars of cost savings from those
retirements, and the cost or percent of app delivery shifted to cloud. . Big software subscriptions

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2 Creating an application catalog

Once an App Rat initiative is framed, it’s time to catalog the targeted applications based on the following questions:

How should apps be categorized?

Categorizing every application is essential to identifying duplicates within any given category.

How should application attributes be characterized?

Understanding the qualities of each application is important for navigating the nuances of trade-off decisions. For example,
This application is complex and this one is simple with less functionality. What’s our priority? Simplicity or functionality?

How is an application used in our environment and how does usage compare across the business?
This question helps quantify metrics around the application’s usage, operation, and maintenance.

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 .
Categorizing applications

In addition to creating a list of business capabilities

supported by an App Rat initiative, stakeholders
across the company must agree on a list of application
categories. One example is to classify them as business
services, shared services, end user services, and
technology services.

Source: TBM Taxonomy, part of the Apptio TBM Unified Model® (ATUM )

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 Rationalized service
catalog from 4000 to

2000
services
The next step is describing each app based on these
six attributes: Size & complexity
Functionality & backlog
Business partners are most familiar with the nature of User experience & satisfaction
these apps, so getting their input is critical – but not at App
the risk of overthinking it. Business & criticality Security & compliance
Revenue & efficiency impact Value Risk Business continuity
The goal is to get directional input about an application’s Competitive differentiation Architecture & skills
organizational fit, so in most cases a simple survey should Fit
suffice. For example, ask stakeholders to rank each of the
Dev & support labor Consistency
dimensions with a high, medium, and low.
Infrastructure Cost Data Integrity
Vendor Geography
However, when it comes to assessing an application’s
total cost, most stakeholders won’t know how to respond. Vendor
Financial health
Therefore, this data point must be calculated in a more
Competition
granular fashion. Roadmap

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 Sizing Applications for Business Fit
Number of User Accounts or Licenses Ticket & Change Request Count
. Quantifies how widely deployed an application is . Quantifies ongoing operational activities
. For SaaS, check bill details, SSO authorizations, etc . High incident volume indicates higher cost to support and maintain
. For on-premises, check license management or software asset . Very low incident volume may indicate low usage, especially if
management systems, etc there was a prior history of higher volumes

User Logins & Usage Technical Debt & Resourcing

. Indicates volume of users who have recently used the application . Quantifies relative investments in run and grow
. For SaaS, check bill details, activity logs . Larger than typical portion of team (for your organization) devoted to
. For on-premises, check server activity logs support (instead of dev) indicates quality issues

. Consider survey to gain qualitative perspective

. Very large and growing technical debt may indicate a lost cause

Transaction Volumes
. Indicates relative value to the business
. Automation platforms may have low user activity but high business
transaction value
. Check with app owners to understand volumes and transaction
criticality

Up to this point, an application might seem like a critical element in the portfolio, but data around run, usage, and operational metrics could contain insights that tell a different story.

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3 Allocating costs
Establishing the cost of an IT or business application service is one of the most complicated
aspects of an App Rat initiative. Accurately allocating the cost of each ingredient up the supply
chain would be problematic at best, involving calculated mathematical calculations and likely some
level of ballpark estimation. The same could be said for using a spreadsheet to allocate the IT costs
of a large enterprise.

For example:
To allocate these expenses the general ledger might include an entry for wages, broken down
by employee. Aligning wages to the consuming application and business unit might first require
appropriating them to the internal labor cost pool, using a simple chart of accounts.
These costs could then be allocated from the internal labor pool up to the delivery tower using
active directory. By consulting a list of people on the delivery team, the appropriate percentage
of labor costs could be attributed directly to that team.
If the delivery team supports multiple applications (like SAP, Adobe, and Salesforce), then
determining which portion of the team should be attributed to Salesforce might require data such
as ticket count or the change request volume. User logins or activity level could also help identify
which business units are consuming Salesforce.

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 Making sense of the data
It takes a lot of data to determine how much of the total costs should be attributed to each application and to identify cost drivers in the underlying towers
and cost pools. But you can get started with less than you think!
You can get started with the data you have – in its current
form – and evolve over time using a good, better, best
approach:
. Good: Use existing data to get a directionally correct
view of your app total cost of ownership (TCO) with
costs routed based on assumptions.
. Better: Get more accurate views of your app TCO
taking into account infrastructure costs with costs
weighted by an attribute of an item.
. Best: Use more nuanced data to do strategic
portfolio alignment with costs allocated by measured
consumption.
Get the poster at apptio.com/ATUM
https://www.apptio.com/resources/posters/atum-poster/
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The benefits of a standards-based cost allocation model
As the quality of data improves, organizations can generate App Rat initiatives with
more detailed assessment of application costs and trade-offs, but it’s not always clear
how they should allocate those costs. Depending on the quality of their data, they
could allocate costs based on:
. Assumptions (e.g., the percentage of labor costs for a particular OS)
. Attributes (e.g., how many makes and models of desktops and laptops are on the
network)
. Consumption (e.g., the actual number of business transactions or the usage level per
month by users within an application)
The Apptio TBM Unified Model® (ATUM®) provides out-of-the-box guidance for
gathering the right data, pre-defined cost allocation methods, and a standardized
taxonomy of IT functions based on TBM (technology business management), a best
practice discipline for managing the business of IT and communicating the cost, quality,
and value of IT investments to business partners.
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4 Calculating the score
Once an App Rat initiative has been framed, applications catalogued, and costs allocated, it’s time to score the
results and establish each app’s technical fit and business fit.

Size & complexity

Functionality & backlog
User experience & satisfaction
Technical Fit Technical Fit
App
Application-specific factors such
Business & criticality Security & compliance
Revenue & efficiency impact as the risk an app brings and the
Value Risk Business continuity
Competitive differentiation Architecture & skills data it interacts with.

Business Fit
Dev & support labor Consistency The value an app delivers balanced
Infrastructure Cost Data Integrity against the cost. The greater the
Vendor Geography
cost, the lower the score.
Vendor
Business Fit
Financial health
Competition
Roadmap

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5 Executing a plan of action
An application’s combined score should give organizations a clear sense of next steps and the most likely scenarios.
Tolerate
. Plan projects to maintain steady tech debt,
value delivery, and business continuity
. Cancel innovation projects
. Adopt neutral service pricing
Technical Fit
Eliminate
. Schedule for retirement, including financials
. Over-price service to encourage
abandonment
. Cancel non-mission-critical projects
Business Fit
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Invest
. Prioritize projects that accelerate
innovation, reduce tech debt, and facilitate
retirement of duplicate capabilities
. Under-price service to subsidize adoption
Migrate
. “Lift and shift” to less expensive hosting
and other commodity underpinnings
. Cancel innovation projects
. Adopt neutral service pricing
The Definitive Framework for Application Rationalization
Tips for getting started
. Quick wins: Build momentum
with visible wins ASAP. Don’t
worry about the size of the
savings. That will come in time.
. Friendlies: Focus on one
application family where you
have high buy-in. (e.g., friendly
owners, more control, internal
to IT, etc.)
. Do no harm: If you have M&A
pressures, focus on business
essential apps instead of
business critical to minimize risk.
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6 Sustaining momentum Decommissioned

120
applications and targeted
170 more apps for
Application rationalization is one part of application portfolio management (APM). Done correctly, APM is a continuous
migration, resulting in
process for maintaining, governing and curating an application portfolio year-over-year. Because APM is ongoing,
millions of dollars in avoided
organizations should take a slightly different approach:
costs from unused app
. Don’t boil the ocean, but iteratively expand the scope. After each round of assessing and optimizing the portfolio,
licenses.
take a broader approach with the next round.
. Improve the detail of the assessment, especially TCO calculations. After the low-hanging fruit has been picked,
take a more thorough and nuanced approach to identifying waste.
. Get better at planning for the future. Take care in setting budgets, prioritizing and justifying apps, determining how
and when to onboard new apps, and establishing governance.

Finally, a successful APM program – and App Rat Initiative – requires continued investment; clear objectives that the
organization can drive toward; regular checkpoints to maintain a quarterly or semi-annual cadence; and automation
to generate consistent, fast, and scalable TCO calculations.

Don’t struggle to articulate the true cost and associated business value of your application and service portfolio
in manual spreadsheets. You need a purpose-built, automated IT cost analytics solution in order to continuously
optimize.

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 Adopt a continuous process

Application Portfolio Management (APM)

The ongoing practice of optimizing the application portfolio year-over-year

Scope Fidelity Planning Policy

Iteratively expand your
App Rat coverage – there’s
plenty of waste among the
long tail of smaller apps.
Iteratively improve
operational data and TCO
calculations to surface
more nuanced sources of
waste.
Prioritize and justify Document the appropriate
applications for size and budget of the apps
technical debt reduction, portfolio that supports
modernization, or business process.
replacement.

Critical success factors

Make it a priority – with resources, automation, regular checkpoints, and stated objectives.

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 Pursue other avenues of cost optimization

Scrutinize Economize Rationalize Commercialize

to tie up loose ends to eliminate waste to avoid duplication to curb demand
Accurately apply Use what you need Remove redundant Apply market forces to
ITFM principles. —and no more. business capabilities. influence consumption.

IT Showback & Chargeback

Optimize Technology Costs by If you are interested in the next step to achieving cost optimization after
you’ve successfully launched an application rationalization program, check
Shaping Demand
https://www.apptio.com/resources/ebooks/showback-chargeback/ out our next ebook on how to use showback and chargeback to optimize
tech costs and shape demand.

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 Get Started

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