Squeezing the Most Value from Federal IT Budgets

By Jonah Hatfield, LMI Consultant | Wednesday, February 03, 2016 | Information Technology   

The United States government spends more than $80 billion on information technology products and services per year. How can federal agencies optimize their IT budgets? What best practices or incentives need to become standard, across all agencies from the Department of Energy to the General Services Administration?

That conundrum is the basis for FITARA, or the Federal Information Technology Acquisition Reform Act. The goal is to incentivize government agencies to make technology operations more efficient.

This process is new, and there is a steep learning curve. In fall 2015, the Government Accountability Office (GAO) presented FITARA report cards to the top 24 federal agencies, and most did not score well. There are many best practices yet to be invented and implemented.

It’s about Management, Processes, and Technology

FITARA has already incentivized government agencies to improve IT acquisition and planning by enabling agencies to develop their own methodology of implementation.

Many agencies streamlined the management of technology services. For example, larger agencies had more than one CIO or Chief Information Officer. The collapsed leadership structure and clearly-defined CIO role that FITARA provides greatly reduces the silos of information and decision-making.

To give those CIOs the best possible information, agencies put into place better systems for tracking how they optimize spending. This information feeds into quarterly reports to the OMB or Office of Management and Budget, showing how they save money on their technology investments.

Cost Savings vs. Cost Avoidance

One of the most challenging areas has been the difference between cost savings and cost avoidance.

Cost savings is clear-cut. One can show current costs, and then, how costs will be reduced based on a certain action.

Cost avoidance means an action taken now will decrease costs in the future. For example, if an agency implemented a new technology that reduces downtime of an important system, it could calculate how much downtime would cost to illustrate why that spend is a good idea—a good example of cost avoidance.

But some interpret cost avoidance to mean choosing lower-cost options when making a technology investment. By choosing a lower-cost option, one could report a “cost avoidance” by showing one did not purchase the more expensive option. Let’s put that in terms of car purchases. I could say I saved $200,000 today by purchasing a Toyota Corolla instead of a Ferrari. But that doesn’t get to the positive intent of cost avoidance.

Agencies have been learning some of the pitfalls of calculating cost savings and avoidance. LMI helps many of our clients avoid these pitfalls by teaching best practices to IT investment leads. These lessons rapidly evolve with every quarterly statement.

Leveraging FITARA for Agency Best Practices

IT investment leads are doing themselves a disservice by not properly calculating the cost savings and avoidance of their investments. Given the size of these budgets, it is challenging to gather every piece of data on cost savings and avoidance.

The good news is that there is another process already in place where IT investment leads report similar information. It’s called the CPIC submission. CPIC is the Capital Planning and Investment Control submission, which provides budgetary and investment plans of an agency to OMB. Agencies can get two-for-one efficiency by leveraging this existing submission to calculate cost savings and avoidance at the investment level. Now agencies can reveal a true picture of all cost savings and avoidance.

Other Tips for the Best Results with FITARA Reporting

  1. Predict conservative cost savings and avoidance—With FITARA, agencies are asked to forecast the amount they plan to save or avoid for three future years. An agency’s FITARA score will be higher depending on the accuracy of its prediction by the end of the year. Projecting conservative estimates for cost savings and avoidance allows an agency to have more achievable predictions, and if the agency saves more, it is not penalized.
  2. Prepare very thorough documentation—The OMB reporting standards are still being formed. There is a good chance that numbers may need to be recalculated if the standards change, especially in the case of data center consolidation cost savings and avoidance. The more easily accessible documentation the agency keeps, the easier it will be to recalculate results based on new models. 

LMI takes pride in helping government agencies develop the best models for prediction and calculation. Every quarter, it becomes a more refined process. It’s very satisfying to be part of that mission.

Jonah Hatfield is a consultant in LMI’s Information Management group. Mr. Hatfield provides federal clients with enterprise architecture expertise. He received his BBA from Washington & Jefferson College, and an MS in management information systems and MBA from the University of Pittsburgh. 

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