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What is the TCO of your Applications Portfolio?

By Ram Ponnapalli

Reducing total cost of ownership (TCO) of applications is one of the top-of-mind topics for many IT senior executives and financial decision makers. TCO is a vital stat that can be used to monitor the health of your applications portfolio and unless it is measured, it cannot be improved.


In a recent session at HP Discover, we presented the methods HP uses in Applications Rationalization engagements to determine the TCO of an application portfolio. We shared our experiences and discussed some of the barriers our clients face in this area while computing their application TCO. If you missed this HP Discover session or if you did attend but just need a refresher, here’s a summary of the key points:


  • Financial Analyses: Depending on the end goal of our clients, we perform different types of financial analyses during our applications rationalization engagements. Some of them are:


  1. TCO Computation of a single application from cradle to grave taking into account the cost components in the evaluation, design and development, deployment, ongoing operation and retirement / decommissioning life cycle stages of the application.
  2. TCO Computation for the entire portfolio of applications grouped by major application ecosystems, business functions or technology platforms.
  3. Business cases development taking into account the current state and recommended future state TCO of your application portfolio and the transition costs to go from current to future state.
  4. Implementation costs calculation for all recommended Roadmap initiatives to transition from current to future state and their impact on the current client budget.
  5. IT spend benchmarking (pre and post implementation of HP recommended initiatives) with the peer group within the industry.


  • Direct and Indirect Costs: We take into account all the relevant direct and indirect costs and use appropriate methodologies to allocate them to the applications including:


  1. People costs - IT management, admin, strategy, architecture, design, development, support, purchase and legal and other.
  2. Process costs - Business and IT process related costs that directly impact applications.
  3. Software costs - License fees for OS, programming languages, DB, middleware, application packages, development and support tools.
  4. Hardware costs - One time purchase costs and recurring fees, maintenance and other costs associated with servers, storage and networks.
  5. Facilities costs - Costs associated with the lease, rental and maintenance of data center.


  • Apps Management Tools: We use HP’s Application Portfolio Management (APM) tool to collect and maintain all the cost components to manage the applications portfolio. This tool provides:


  1. A centralized repository of applications, business processes, business objectives, organizations, owners and infrastructure components.
  2. An application survey distribution and processing engine for gathering application attributes including all costs.
  3. A powerful analysis and visualization experience.
  4. Enhanced ability to make strategic choices and manage the portfolio. 


  • TCO Computing Barriers: Our clients come across many barriers for computing the TCO of their applications portfolio including: 


  1. Imperfect information.
  2. Complex licensing contracts.
  3. Inadequate accounting structures.
  4. Lack of understanding of direct and indirect cost elements that make up application TCO.
  5. Lack of IT asset relationships – apps to servers, apps to storage, etc.
  6. Lack of standard tools and templates to record and track application cost data.

We assist them in overcoming these barriers using HP’s proven frameworks, methodologies, software and toolsets.


Can you confidently answer “yes” to all of the questions below?:


  • Do you know how much your applications cost you annually?
  • Do you know where your applications budget is being spent?Money.jpg
  • Do you know how much you can save by retiring any application?
  • Can you do “more with less” when mandated by your senior management?
  • Do you know how to redirect spend to growth initiatives?
  • Do you have the account structures set up to effectively track your costs?


If not, HP’s application rationalization engagement can help you map out the TCO details for your application portfolio, in addition to providing an analysis of your portfolio across other dimensions and prepare you for your applications transformation journey.


What actions have you taken to determine the TCO of your applications? I’d like to hear about what’s working for you and what isn’t. 

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