Optimising application development and maintenance can cut costs by more than 50 per cent

"ADM accounts for 34 per cent of IT budgets," said Claudio Da Rold, vice president and distinguished analyst at Gartner. "Most organisations tend to assume that the cost of ADM can only grow over time due to rising labour costs and the increasing complexity and number of applications. The ADM unit cost can be significantly optimised over time, provided that best practices across the application and sourcing life cycle — strategy, selection, negotiation and management — are followed."

Few organisations use a comprehensive, methodical approach to their sourcing strategies for application services, and only 11 per cent of organisations master sourcing. Most organisations source application work tactically, asking a few known service providers to size the work and compete for it on price and daily rates. Few organisations master sourcing, and most still use staff augmentation for ADM work inefficiently.

Gartner has identified several key recommendations to help CIOs cut costs by optimising 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. Organisations 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 the Right Metrics to Size Application Portfolio and Development Efforts, and Determine the Right ADM Team Size
One of the main challenges that organisations 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, organisations first need to ensure the requirements that reflect business demand are complete, testable, cohesive, correct, current, essential, feasible and relevant.

"When sizing the total development effort, organisations need to determine which activities of the life cycle are embedded in the estimation, because different phases in the life cycle can be sourced with different service providers — whether they are internal or external," said Gilbert van der Heiden, research vice president at Gartner. "For sizing of the maintenance effort, additional models may apply. Whatever model an organisation 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 organisation applies to the model, the better it can benchmark the results."

Many organisations evaluate the effort required to develop a new functionality or to maintain existing functionalities as an afterthought, essentially measuring how much effort was already used, or leave the evaluation to the providers, which misses the essential rules of vendor management (separation of duties and measurement). 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 Optimisation of ADM Activities Through 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 optimisation 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 organised approach to sourcing management.