How CIOs Can Cut Costs By Optimizing ADM
Optimizing application development and maintenance (ADM) can cut costs by more than 50 percent, according to research by Gartner. Sourcing managers can develop and implement sourcing strategies, metrics and processes to help CIOs cut costs in half by eliminating legacy applications, complex architectures and outdated approaches to staffing.
“ADM accounts for 34 percent of IT budgets,” says Claudio Da Rold, VP and distinguished analyst at Gartner. “Most organizations tend to assume that the cost of ADM can only grow over time due to rising labor costs and the increasing complexity and number of applications. The ADM unit cost can be significantly optimized over time, provided that best practices across the application and sourcing life cycle - strategy, selection, negotiation and management - are followed.”
Gartner has identified several key recommendations to help CIOs cut costs by optimizing ADM:
Perform an application portfolio and life cycle activity analysis to consolidate ADM suppliers
Two variables influence the sourcing strategy segmentation in practice - the IT life cycle phases and business domains. A business-domain-oriented sourcing strategy implements a multi-sourcing model in which internal and external resources are managed by selecting best-in-class options for each scope of service and for each major business process area. Moreover, allocating applications to business domains requires a proper application portfolio analysis (APA), where results can be used to identify the most suitable sourcing model per domain. They can also be used to aggregate domains into larger portfolios of application service work packages that are coherently outsourced. Organizations executing an IT services provider consolidation with the business-domain-driven approach are more likely to achieve increased supplier consolidation (and therefore simplification), higher cost savings and an improvement in effectiveness.
Use right metrics to size application portfolio and development efforts, and determine right ADM team size
One of the main challenges that organizations typically face for ADM services is their inability to properly size the associated effort. Without performing an application portfolio and life cycle analyses, it is difficult to connect the effort to the application complexity. To be able to identify how demand has an impact on the application architecture, organizations first need to ensure the requirements that reflect business demand are complete, testable, cohesive, correct, current, essential, feasible and relevant.
Gilbert van der Heiden, research VP at Gartner says: “For sizing of the maintenance effort, additional models may apply. Whatever model an organization uses, it should be applied consistently and as objectively as possible, with a focus on measuring and improving productivity and quality. The more comparable the data that an organization applies to the model, the better it can benchmark the results.”
The critical success factor for achieving end-to-end control on application management and providers is having practical and meaningful approaches to estimate and plan activities, objectively measure and control productivity, and to benchmark provider performances versus peers.
Drive continuous optimization of ADM activities via focused benchmarked metrics and contractual key performance indicators/SLAs
By getting ADM sourcing under control from the strategy, life cycle and application architecture perspective, defining who does what through the blueprint, and introducing contractually and practically effective metrics to measure efforts and productivity, sourcing managers can activate a continuous optimization process that leverages both continuous improvement (to remove inefficiencies) and relevant benchmarking (to set up the pace and the scope of the improvement).
Best practice contracts, business key performance indicators, SLAs, productivity and simplification targets, as well as a formal evaluation process for vendors, enable a much more disciplined and organized approach to sourcing management.
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