Using metrics to explore APM business value advantages

A number of metrics may be needed in addition to a baseline metric like ROI to make a meaningful comparison between applications in the portfolio.

Application portfolio management (APM) helps measure and compare the business value of various applications in a portfolio. But what is business value? And how can you compare applications that serve a variety of objectives in a company? An application may score low on return on investment (ROI), but its competitive advantage may more than make up for that score. A number of metrics may be needed in addition to a baseline metric like...

ROI to make a meaningful comparison. Here are some metrics that can compare and manage a portfolio of applications.

Application portfolio management metrics

Return on investment. ROI calculations are widely used in APM as a baseline comparison between different applications. This is calculated as a ratio of benefits to the costs of an application. The benefits are quantifiable and verifiable. The initial development costs need to be amortized over a longer period along with maintenance and upgrade costs. An application with a low ROI value but high strategic value may compare well in a portfolio with an application that has a high ROI value and a lower strategic value. ROI is the most popular metric.

Economic value added. EVA analysis measures an organization’s profit that exceeds money spent on an application and its maintenance costs. EVA sorts the applications in descending order by the profits they generate. The advantage to this way of managing a portfolio is that money is allocated and spent only on applications that produce the highest profits. The disadvantage is that new and innovative applications that may generate profit down the road, but not today, may be killed in preference to those that are generating profits. This may strangle future competitive advantage.

Val IT framework. Val IT provides a business value governance framework that balances tangible monetary metrics with intangible metrics. This is so “apples” can be compared with “oranges” in an application portfolio. This framework ensures that all involved are surveyed for an accurate picture of business value; the entire lifecycle of the application is considered over a multi-year period, and value is continually monitored, evaluated and improved.

Risk management and compliance value. Some applications may be needed for risk management and compliance needs. They may not be scoring high in terms of monetary benefits. But measurement may involve the consequences of not monitoring and managing a risk. What are the potential losses if the risk in using this application is not managed? What could a company accrue in fines if the application does not comply with certain regulations? Privacy regulations ensured by the U.S. Health Insurance Portability and Accountability Act and fines for breaches are great examples.

Time-to-market value. Applications that help products or services reach a market sooner may produce accelerated revenues and profits. Time-to-market value may need to be quantified for such applications and compared while managing a portfolio.

Customer satisfaction index. The customer satisfaction index is a key metric for certain applications—a well-designed e-commerce website, say, or a mobile commerce application. Companies producing innovative applications that help increase customer satisfaction may need to take into account the somewhat intangible benefit of repeat business or the value of creating a customer for life.

Goodwill building. Some applications may help build public goodwill. During the 2010 Haiti earthquake, organizations like the American Red Cross let people donate money by texting, and phone service providers like AT&T included contributions in customers’ monthly phone bills.

Operation cost reduction value. Some applications may help indirectly reduce operations costs. Applications that eliminate manual steps and automatically communicate electronically with other systems fall into this category. For use as a metric, a careful and thorough analysis of business process improvement is needed. The money these improvements save must be taken into account as a benefit.

The goal of APM is to make sure that money is spent on applications that increase business value for the company. But in addition to tangible metrics that can measure business value in monetary terms, a number of intangible benefits need to be included. Luckily, many APM tools provide support for these kinds of analyses.

This was first published in July 2012

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