Costs & Benefits, Methods & Tools
TBM - Showing cost and value of applications
by Jeremy Smith

The application portfolio is somewhat of a black box - necessary, opaque and expensive. With the TBM framework, application managers can strengthen their position by demonstrating the potential of digital tools. But what is TBM and what are its benefits?
Applications have been an integral part of business operations for decades - not just because they account for more than 50 per cent of total IT costs on average. But also because they drive digitalisation, create greater efficiencies and enable companies to differentiate themselves from their competitors. Yet applications are often seen as a necessary evil whose (opaque) costs must be kept to a minimum.
50% application costs - 100% lack of transparency?
This is where the Technology Business Management (TBM) model comes in, providing an effective and economical methodology for evaluating and optimising the application portfolio. It addresses questions such as
- What value do applications add to the business?
- Which applications support which business processes?
- And where and why are application costs incurred?
TBM connects Finance, IT and Business
The TBM model provides a more sophisticated approach to holistic, value-based cost allocation. It links the financial IT perspective (cost pools) through a technology layer (IT towers) to actual business activities (business units or capabilities). This not only provides deeper insights into complex cost structures of applications, but also links them to their business value. The results: Improved cost control, transparency regarding the resource consumption of an application in relation to its business value contribution and identification of optimisation potential.
Prioritise (de)investments with TBM
For example, TBM can be used to identify high operating costs of a legacy ERP system in the application environment. As a result, IT managers could analyse and calculate modernisation options. Conversely, TBM can demonstrate high value contribution of a supply chain management (SCM) system, leading to dedicated investment in its stability and longevity. In short, TBM not only accurately captures the cost of deployment, but also makes its impact on business success measurable, traceable and controllable. This enables clear prioritisation and helps to target (de-)investment where it will bring the greatest benefit.

Business-oriented IT allocation
However, implementing business-oriented IT accounting based on TBM is not a sure-fire success. It requires clear data structures, end-to-end data integration and a willingness to change traditional IT and business mindsets. Key success factors include
- Standardised data and metrics: For accurate cost allocation, it is critical that all IT and financial data is captured and categorised in a consistent way.
- Collaboration between IT and business: Business and IT need to work closely together to ensure that business processes and requirements are accurately reflected.
- Transparent reporting and analysis tools: The potential of the TBM model cannot be realised without full transparency and easy analysis of data.
Another critical element is executive support. Without clear leadership and commitment from senior management, the implementation of TBM is unlikely to be successful. It is important that everyone involved - from IT to controlling to management - understands and supports both value and goals of TBM. The framework should not be seen simply as a cost allocation method, but as a strategic tool for improving efficiency, transparency and value of business applications in an organisation.
Implementing TBM is not an easy step, but it is a necessary one in order to move applications from being a cost factor to a value-creating core component of business success. TBM provides the tools to make the transformation of applications from cost drivers to value partners transparent to all stakeholders.