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The
Virginia Information Technologies Agency, the new
agency in charge of rationalizing $1 billion in
state IT spending, has proposed investing $24
million to consolidate the disparate e-mail accounts
of dozens of state agencies. By creating a unified
system and reducing widespread redundancy, VITA
believes it can save “up to” $64 million over
five years.
E-mail
consolidation is probably a good idea –
intuitively, it makes a lot of sense. But it’s
hard to know for sure. The fact is, VITA lacks hard
numbers on how much the state is spending on e-mail,
so it’s hard to calculate a return on investment.
The same can be said of hundreds of other IT and
capital-
improvement projects the state undertakes
every year.
When
it comes to improving efficiency, Virginia’s senior
governmental executives work with severe handicaps.
Because state budgets are compiled from the agency
up, each agency accounts for expenditures, like
e-mail, differently. The Commonwealth
of Virginia,
like other governmental entities, simply does not
possess the analytical tools required to identify
the massive duplication of effort that runs through
the labyrinth
of secretariats, agencies and departments.
Lawmakers,
captive to the same agency-centric framework of
viewing the budget, insist that the state has pared
spending to the bone. But if they
focused on processes that cut across all agencies -– information technology, facilities management,
human resources, procurement -– they might come to
very different conclusions.
By
implementing the same kinds of financial and process
reforms commonly practiced by “smart”
organizations, Virginia could cut costs by literally hundreds of millions of
dollars per year. Achieving benchmark standards of
efficiency in information technology alone should
yield save $300 million or more.
The
importance of the kind of long-term structural
reforms that can be unlocked with the right
management methodology cannot be underestimated. In
a Sunday op-ed piece
in the Richmond
Times-Dispatch, Scott & Stringfellow Vice
Chairman John Sherman suggested that the fate of
Virginia's coveted AAA bond rating, which is under
credit watch by bond-rating agency Moody's, depends
on more than just raising taxes.
"My
guess," Sherman wrote, "is Moody's is not
watching just the debate on additional revenue, but
also the debate on ways to increase efficiency, ways
to cut additional costs, and ways hopefully to make
sure this does not happen again."
The
Commonwealth
of Virginia
has an opportunity to lead the nation in efficient
and cost-effective state government. The Warner
administration, building in some instances on
initiatives started during the previous
administration, has undertaken a number of
far-reaching reforms.
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The
Commonwealth is consolidating scattered and
fragmented IT programs in different state
agencies, accounting for roughly $1 billion in
annual spending, under the authority of a
central agency, VITA.
As
important as they are, these initiatives only
scratch the surface of potential savings. The
problem is deeply embedded in the structure of state
government. Virginia’s
agencies and departments are highly independent and
autonomous. Each has developed its own system for
accounting for its expenditures.
That
creates a problem for the governor and his cabinet
secretaries. Agency heads tend to believe their
entities are unique and require their own processes
and resources to meet and fulfill their missions.
They have an
infinite supply of reasons for failing to deliver the
information requested of them, secure in the
knowledge that they can outlast the reform impulses
of any single-term governor. As a consequence, members
of the governor's executive team -- his cabinet
secretaries -- find it exceedingly difficult to access
information that will help them change processes
that cut across state agencies.
Fiscally
stressed governments
across the United States
frequently resort to a "share the pain"
approach of slashing agency budgets by a certain
amount across the board. Because agency heads exert control over
only those items in their own budgets, they cannot
save significant sums through process reforms. As a
rule, they focus on variable
costs like travel, entertainment, conferences and purchases of
outside goods and services, which are easily
restored at a later date. Administrators may freeze hiring but
they are loath to eliminate positions, for it’s
harder to get permission to create them again.
The gains from share-the-pain cuts often tend to be
transitory because costs creep back into the budget
once the sense of crisis is over.
Smart
organizations strive for permanent,
structural savings
that result from rationalizing functions like IT,
HR, facilities management, etc., that occur in every
department. But until the Commonwealth of Virginia
creates the analytical tools and methods it takes to
drill through layers of bureaucracy, reform-minded
public officials will continue to be frustrated and
hamstrung by change-adverse colleagues and
insufficient information.
Secretary
of Technology
Newstrom has opened a number of his speeches by
recounting a conversation that he had with Gov. Mark R. Warner
in the early days of the administration. The governor asked how big the
state’s IT budget was. Newstrom said he didn’t
know -- the numbers didn't exist. Go find out, the
governor ordered. After months of
effort, Newstrom finally got a handle on the number,
which he estimated to be around $1 billion.
The
Warner administration is taking a crucial step
toward rationalizing this immense category of state
spending by integrating and standardizing IT
programs under the banner of VITA. As the proposed e-mail
project demonstrates, the potential exists to
prune multi-millions of dollars in redundant
hardware, software and manpower.
We
believe that our firm,
Adaptive Inc., can leverage the excellent work done
to date into additional savings. Our unique offering
provides a methodology to properly plan and execute
statewide reforms. No one builds a house without a
blueprint -- and that's exactly what the
Commonwealth needs as it embarks upon the renovation
of its sprawling governmental edifice. An
Adaptive "blueprint" would help VITA
undertake complex analysis to determine redundancies
and would ensure that proper systems are in place to
effectively monitor and measure change initiatives.
That's
what we do at Adaptive,
an emerging IT product firm with operations in Richmond, Virginia. The
Adaptive technology,
a
combination software suite and business methodology,
builds models of how organizations
work, describes
how people and other key resources are deployed, and
maps how strategies are implemented to achieve
objectives.
These
models, which present information both graphically
and quantitatively, can aid state governmental
executives in spotting opportunities to improve
performance, reduce operating and capital costs, and
transform the way organizations do business.
At
the center of the Adaptive solution is a new type of
management tool referred to as an Enterprise
Knowledge Repository, which establishes a common
classification system for budgetary items that cut
across departmental and agency boundaries. A
knowledge repository implemented at the VITA board
level would provide the kind of detailed cost
information that decision makers have so far lacked.
With
Adaptive,
VITA
could answer
questions like:
Information
technology
isn’t the only business function crying out for
process reforms. The Warner administration also is
overhauling the way the state manages its real
estate assets. In a parallel challenge, the
secretary of administration is sorting
through current and projected space needs, real
estate assets owned and leased by the state, the
terms and length of lease commitments, space-sharing
opportunities and surplus property that can be
disposed of.
There’s
more to facilities management than just tracking
square footage. Agencies also have to fix leaky
roofs, cut grass, empty the trash and clean the
bathrooms. Additionally, they need to control
utility costs such as heating, cooling and
electricity. Magnifying the complexity of the job,
energy-
conservation investments are made by the
Department of Mines, Minerals and Energy reporting
not to the secretary of administration but to the
secretary of commerce and trade. Finally, a new priority in the post-9/11 era is
maintaining the physical security of government
offices.
It’s
taken a superhuman effort just to develop an
inventory of real estate assets and leases. The
secretary of administration’s challenge now
is to develop the total cost of owning and managing
state facilities. Only then can she ascertain an ROI for the hundreds of
millions of dollars of capital investment the state
makes each year.
We
believe the potential savings from more efficient
facilities management could equal those from IT
reform. The management of multi-hundred million
dollar transportation projects, which have
experienced horrendous cost overruns in the past, is
another area ripe for improvement. Other processes
that could benefit from Adaptive technology include
human resources, procurement, outsourcing and the
management of inventory and receivables – all
areas that lean, competitive companies in the
private sector pay attention to.
To
identify additional cost savings, we would recommend
a broad approach like this:
With
the right tools and a sustained focus by top
management, the
Commonwealth
of
Virginia
can identify immediate savings and secure the future
for the state’s core priorities. Building on the
reforms already instituted by the Warner
administration, Virginia
can become a model of good government for the world.
--
March
1, 2004
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