Considering how much money is spent on Application Management – about a third of an enterprise’s total IT budget – it’s surprising how little information there seems to be about how they are broken down. So I’m sharing my experience in this field in the hope that it will help you gain a better understanding of your own costs.
“A third of an enterprise’s total IT budget” is a combination of two factors. First, it’s generally accepted that about 20% of the lifecycle costs related to an application are spent of building the application (‘Application Development’) – and therefore 80% on whatever happens after that (‘Application Management’). By the way, most people say between 70% and 90% and it depends for instance on how dynamic the supported business processes are and how long the application is of service. This varies a fair bit. Somebody once responded to the question with “between 3 months and 30 years” and this is probably true, but an average of 12 years is a decent enough approximation. The other factor that determines the third is the proportion between applications and infrastructure. I’ve asked hundreds of managers and practitioners this question and while they’re pretty quick with a response to the build versus run question, they need more time to think about this one. And the answers are more varied. Between 30:70 and 70:30. I’d say on average 40% applications versus 60% infrastructure. Gartner says 35% and that’s close enough to my ‘straw poll’ research results (80% x 40% = 32%), which I’ve conducted at conferences and workshops over the past ten years or so.
So a about third of IT costs are related to Application Management, but how are those costs broken down? There’s a fair bit of research on Application Maintenance, but less on the other major components of Application Management: Operations and Support. Based on experience, I’d say that between 25% and 35% of Application Management costs are spent on keeping applications up and running and supporting the users when something technical goes amiss. This is in addition to similar activities related to infrastructure components such as servers and networks. So 65-75% is spent on maintenance. Don’t be misled by ‘maintenance’: this also encompasses major renovation projects. Some call this Application Development but I’m inclined to reserve the term ‘development’ for the initial phase because I can’t think of anything other than very arbitrary budgetary considerations (“20 days or less is a maintenance change; more than that is a development project”) to distinguish between ‘maintenance’ and ‘development’.
Now the final breakdown: maintenance. Maintenance is often subdivided into corrective, preventive, adaptive, perfective and additive (often with varying definitions, particularly what constitutes adaptive maintenance) but I believe that the available figures don’t justify such a detailed breakdown of costs. Instead I’m dividing maintenance into (1) the costs associated with changing the functionality of the application in order to keep up with changing business requirements, and (2) the cost of ensuring that the current functionality is provided. The latter encompasses fixing bugs and preventing further problems, including updates related to new technical platforms, database management systems etc. As with the previous proportions, there’s a bandwidth and my rule of thumb is that 35-45% of maintenance costs are spent on technical changes that ensure the current functionality, and 55-65% on business-related changes and projects.
So summing up, this is my breakdown:
I do help that you find this useful and I welcome any comments and rules of thumb that have served you well. I’ll be speaking about this and other application-related topics at the UNICOM Seminar ‘Application of ALM for Today’s Business Requirements’ on Thursday, 27 February 2014 in London and would be delighted to continue the conversation there!
ASL BiSL Foundation- www.aslbislfoundation.org
APMG-International – www.apmg-international.com
“Mark Smalley will be speaking at our Application LifeCycle Management conference 2014 on the 27 February. Also click here for the webinar Mark will be presenting on the 4 February, ‘Using Application Portfolio Management to optimize a third of your IT budget‘.”