Few organizations master sourcing, and most still use staff augmentation for application development and maintenance work inefficiently, Gartner said.
Optimizing application development and maintenance (ADM) can cut costs by more than 50 percent, according to a report by IT research firm Gartner.
The Gartner report identified several key recommendations to help chief information officers (CIOs) cut costs by optimizing ADM, including performing an application portfolio and life cycle activity analysis to consolidate ADM suppliers.
Currently few organizations use a comprehensive, methodical approach to their sourcing strategies for application services, and only 11 percent of organizations master sourcing.
The report indicated most organizations source application work tactically, asking a few known service providers to size the work and compete for it on price and daily rates.
In addition, few organizations master sourcing, and most still use staff augmentation for ADM work inefficiently.
"ADM accounts for 34 percent of IT budgets," Claudio Da Rold, vice president and distinguished analyst at Gartner, said in a statement. "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."
The report found 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, the report said.
"When sizing the total development effort, organizations 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," Gilbert van der Heiden, research vice president at Gartner, said in a statement. "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."
Overall, best practice contracts, business key performance indicators, service level agreements (SLAs), productivity and simplification targets, as well as a formal evaluation process for vendors, work to enable a much more disciplined and organized approach to sourcing management, the report concluded.