Risks of Legacy Applications

There is no better idiom that “If it ain't broke, don't fix it” to illustrate the main barrier to IT migration. The attitude “if a system or method works there is no reason to change it” is the enemy of innovation! Why? Do business executives know what that really means for a company? In this article we will go through the main impacts of legacy applications by highlighting the connection between business and IT and seeing the potential savings and benefits companies get from moving far away from old systems.

Inefficient IT Infrastructures

Console Vs Web GUI

Legacy applications provide companies with systems that, even if they work well, are no longer able to adapt to a changing business environment. See for example the problems financial institutions are facing whose core banking system relies on COBOL programs that were built more than 30 years ago. At that time priority was given to security and reliability and although these criteria are still relevant, today systems need to be more flexible agile and innovative. IT inefficiency would consist of the following points:

• Lack of integration:
  Systems integration is the process of linking together different computing systems and software applications physically or functionally to act as a coordinated whole. It is challenging to link together several applications that use different languages and or architectures. If we go back to the banking example, their core system was developed in COBOL, if additionally they have SAP and if they acquire a new CMS in Java all three items must work together. It is possible to do so but it demands complicated workarounds.
  Advantage of Migration:  A Service Orientated Architecture based on software components that can be re-used for different purposes. 
• Lack of scalability:
  The scalability is the ability of a system to handle an increasing amount of work in a capable manner or its ability to be enlarged to accommodate that growth. The problem with legacy systems is that once it reaches its physical limits it’s impossible to it make it faster. This means that if a company has high potential for economic growth is planning to expand its activities; its legacy system is likely to be overwhelmed by new workload. 
• Lack of accessibility:
  Most of legacy applications still use complicated command line interfaces that limit the ways to use a program, as opposed to graphical interfaces that are more intuitive, and easier to use.  Moreover migration with cross platform technology facilitates the development of mobility applications.

In the long run, inefficient IT infrastructures, lower firm’s competitiveness which directly affect its revenue and market share.

Business Continuity 

Will the company have the resources to fix hardware or software problems? As newer technologies emerge, the pool of skills qualified to work on legacy applications shrinks: employees retire from work, old programming languages are no longer taught in universities, or employees would rather work on projects that keep their set of skills updated.

According to a Computerworld survey of around 350 IT professionals, for 50% of them, the average age of their COBOL programmers is 45 or older, 46% of them already noticed a shortage in COBOL programmers. Next to the skills management issue, the lack of qualified employees brings the problem of respecting Service Level Agreements. For instance, in the financial industry SLAs are made over a 10 year time frame or longer. Given the fact that’s it is already difficult to find staff today we can only be pessimistic about the situation 10 years from now.

Unexpected Costs

A common misconception about modernization is that it's often considered as “spending” rather than “saving”. Although migration costs can be significant, firms could think of it as a way to potential savings and potential business opportunities. Leaving the systems in their current state involve direct and indirect costs, often not fully understood.

Cost comparison of a migrated and an old application

• Labor costs:
• Before Migration:
  Workforces play a major role in determining how decisive it is for a company to modernize its IT infrastructure. Companies have an increasingly tough time in replacing people with critical skills – for example maintaining the old applications – retiring from work. If the company uses an old COBOL, RPG or PL/I application, today’s new generation of developers trained in C++, Java or .Net would need an additional coaching to work with COBOL, RPG or PL/I . Hence, as the pool of resources qualified to work on old systems diminishes, the staff training cost increases.
• After Migration:
  In contrast, new applications simplify system management, which means that less staff is required for ongoing support and maintenance. Even implementing new features is cheaper because it is more efficient with modern programming languages. This does not necessarily result in the reduction of operational staff but rather in the reassignment of personal to responsibilities or projects of higher strategic value. 

• Software Costs:
• Before Migration:
  Companies have to pay thousands of dollars in monthly license fees to run HOST applications while cheaper alternatives exist.
  Operation system: zOS for IBM mainframes
  Database management system: DB2 for IBM or other utility programs proprietary for HOST systems
• After Migration:
  Firms reported up to 83% savings by moving from an Oracle/IBM solution to SQL server which is a Microsoft product with license fees. With the open source MySQL it would even be entirely free.
  Operation System: Unix or WindowsDatabase management system: MySQL or often free systems for modern platforms

• Hardware costs:
  Moving from an expensive IBM mainframe to simple personal computers or rack servers is another source of savings. For instance, an IBM AS/400, which is the mainframe/HOST of small companies, costs around $20 000 for four years. Five rack servers with an equal amount of computing power would cost around $5.000.

• Indirect costs:
  Old systems decrease overall productivity and limit firms’ competitiveness. The advantages of modern graphical interfaces (GUI) compared to terminal applications are one example. This leads to indirect costs that take the form of client’s discontents and therefore business loss.

Migrating legacy applications obviously involves costs. Whether the project is handled in house or outsourced, resources must be affected to the different stages of the process: analysis of the old application, selection of the new platform / technology, definition of the migration strategy and the code and testing of the new application.

“If it ain't broke, fix it!”

It is probably better to try to avoid the problems related to aging platforms in the first place, rather than trying to fix them once they arise.

To compare the relative costs and benefits of either keeping an old application or migrating it, organizations must review their expectations considering the various advantages and disadvantages each solution brings.

A case study by Alinean analyzes the cost reduction of migration projects conducted at two companies from two different sectors: one in financial services and one in manufacturing. The analysis compares the total cost for application migration over four years to what it would have cost to keep the old version (evaluating initial costs, annual support for new equipment and software, and labor expenses).

In both cases, the cost of implementing a new system was much cheaper than the cost of keeping and still maintaining the old one. The financial services company was able to reduce hardware costs by 72.6%, software cost by 78.8%, labor costs by 21.10%, and facility costs by 39.70%. With a total initial investment of $9,363,552 (migration project, hardware and software costs) the company reduced annualized operating costs by 46.4%. For the manufacturing company, the results are even more outstanding. The company reduced hardware costs by 22.9%, software costs by 92.1%, labor costs by 47.6%, and facility costs by 45.9%. With a total initial investment of $6,136,000 the company reduced annualized operating cost by 70.9%. (See the complete case study here).

If the IT department can be isolated from business concerns, application migration emphasis the role of IT projects in the overall business effort of a company. From a financial point of view, IT migration allows great potential savings (that can also pay back the initial investment). From an organizational point of view IT migrations improves processes and hence better support organizational objectives.