Information Technology Investment:

Agencies Can Improve Performance, Reduce Costs, and Minimize Risks

AIMD-96-64: Published: Sep 30, 1996. Publicly Released: Sep 30, 1996.

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Pursuant to a congressional request, GAO reviewed the: (1) information technology (IT) investment practices of several federal agencies and compared them to those used by leading private- and public-sector organizations; and (2) Office of Management and Budget (OMB) as it responds to the investment requirements of the Information Technology Management Reform Act (ITMRA).

GAO found that: (1) leading private- and public-sector organizations manage their IT projects as investments and rank projects based on maximizing returns and minimizing risks; (2) the five federal agencies reviewed have some elements of an IT investment process in place, but they lack a complete, institutionalized approach that would fulfill the requirements of ITMRA or the Paper Reduction Act; (3) the agencies reviewed need to manage their IT projects as an investment portfolio, viewing each project as a competing investment and make decisions based on the project's overall contribution to the agency's goals; (4) the agencies do not conduct postimplementation reviews (PIR) to determine actual costs, returns, and risks; (5) agency IT decisions are based on inconsistent or inaccurate data; (6) with the exception of the Coast Guard, none of the agencies reviewed have a set of explicit criteria for making IT decisions; and (7) OMB has taken a proactive role in developing IT investment policy to assist federal agencies in implementing ITMRA requirements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: As of Summer 2000, OMB has revised its IT budget reporting exhibits so as to better track a broader range of IT funding in the agencies. Circular A-11, Exhibit 53 now requires agencies to array their IT funding by steady state (O&M), development and enhancement, large infrastructure (major systems), and architecture and planning--all arrayed by primary mission support area. Financial systems, which in the past were covered by a separate budget exhibit, have been rolled into the Exhibit 53 as well. Additional changes have been made to Exhibit 300 under A-11, Part 3 to account for consistencies with reporting on major IT capital assets.

    Recommendation: In designing governmentwide guidance for capital planning processes, the Director, OMB, should periodically analyze their entire portfolios of IT investments--at a minimum projects, as well as projects in development and operations and maintenance expenditures--to determine which projects to approve, cancel or delay. With development and maintenance efforts competing directly with one another for funding, agencies will be better able to gauge the best proportion of investment in each category of spending to move away from their legacy bases with excessive maintenance costs.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: OMB's feedback to agencies on IT investment management and control processes remains informal and is conducted through the budget formulation process. GAO is unable to verify the nature or content of this feedback since these discussions or agreements are not communicated in writing and are conducted under "budget deliberation" steps.

    Recommendation: In designing governmentwide guidance for capital planning processes, the Director, OMB, should require agencies to design control and evaluation processes that include cost, schedule, and quantitative performance assessments of projected versus actual improvement in mission outcomes. As a result, they should increase their capacity to both assess actual project results and learn from their experience which operational areas produce the highest returns and how well they estimate projects and deliver final results.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Not Implemented

    Comments: Although OMB has issued guidance in Circular A-11, Part 3 that requires cost, schedule, and performance data on IT projects, data quality standards have not been established, including Clinger-Cohen Act provisions requiring that such data be independently verified and validated.

    Recommendation: In designing governmentwide guidance for capital planning processes, the Director, OMB, should advise agencies in setting minimum quality standards for data used to assess (qualitatively and quantitatively) cost, benefit, and risks decisions on IT investments. Agencies should demonstrate that all IT funding proposals include only data meeting these quality requirements and that projected versus actual results are assessed at critical project milestones. The audited data required by Chief Financial Officer Act implementation should help produce this accurate, reliable cost information. Better quality information should result in better and more consistent decisions on complex information systems investments.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: Starting with fiscal year 2005 Exhibit 300s, OMB is requiring agencies to establish an earned value management system to integrate the project scope of work with schedule and cost elements for optimum project planning and control. As part of this new reporting requirement, agencies must establish milestones and associated cost and schedule goals. In subsequent years the agency must report against these milestones and goals. In addition, agencies must establish performance goals and measures, and then report on the achievement of these goals in subsequent years. These requirements apply to all major projects, regardless of where in the agency they originate. It does not apply to non-major projects. This reporting is on a project-by-project basis, there is no evidence that it will lead to reporting at an agency level.

    Recommendation: In carrying out its responsibilities under Section 5113 of the Information Technology Management Reform Act, the Director, OMB, should evaluate information system project cost, benefit, and risk data when analyzing results of agency IT investments. Such analyses should produce agency track records that clearly and definitively show what improvements in mission performance have been achieved for the IT dollars expended.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  5. Status: Closed - Implemented

    Comments: In July 2000, OMB requested information from agencies on their capital planning and investment management processes. OMB says it intends to follow up with agencies on the adequacy of these processes during the next round of budget deliberations.

    Recommendation: In carrying out its responsibilities under Section 5113 of the Information Technology Management Reform Act, the Director, OMB, should ensure that the agency investment control process is in compliance with OMB governmentwide guidance, and if not, assess strengths and weaknesses and recommend actions and timetables for improvements. When results are questionable or difficult to determine, monitoring agency investment processes will help OMB diagnose problem causes by determining the degree of agency control and the quality of decisions being made.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  6. Status: Closed - Implemented

    Comments: Much more detailed information is now provided via the A-11, Exhibit 53 and the A-11, Part 3 300B exhibits.

    Recommendation: In carrying out its responsibilities under Section 5113 of the Information Technology Management Reform Act, the Director, OMB, should use OMB evaluation of each agency's IT investment control processes and IT performance results as a basis for recommended budget decisions to the President. This direct linkage should give agencies a strong, much needed incentive to maximize the returns and minimize the risks of their scarce IT investments.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  7. Status: Closed - Implemented

    Comments: Under the auspices of the Chief Information Officer (CIO) Council, a "best practices" effort is being conducted jointly with the Industry Advisory Council to find examples of success stories and application of IT investment management best practices throughout the federal government. OMB has supported these activities and the resulting dissemination of information to federal agencies. In addition, the CIO Subcommittee on Capital Planning and Investment is conducting survey research on different organizations' experiences with measuring return on investment for capital assets, including information technology.

    Recommendation: To effectively implement improved investment management processes and make the appropriate linkages between agency track records and budget recommendations, the Director, OMB, should organize an interagency group comprised of budget, program, financial, and IT professionals to develop, refine and transfer guidance and knowledge on best practices in IT investment management. Such a core group can serve as an ongoing source of practical knowledge and experience on the state of the practice for the federal government.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  8. Status: Closed - Implemented

    Comments: OMB representatives have been active in the federal CIO Council's IT capital planning and investment committee. During committee meetings and discussions, public and private officials have explained their approaches to IT investment decision-making. OMB has also used the CIO Council to engage in consultations about IT architecture ideas, workforce issues, and information security concerns.

    Recommendation: To effectively implement improved investment management processes and make the appropriate linkages between agency track records and budget recommendations, the Director, OMB, should obtain expertise on an advisory basis to assist these professionals in implementing complete and effective investment management systems. Agency senior information resource management (IRM) could benefit greatly from a high quality, easily accessible means to solicit advice from capital planning and investment experts outside the federal government.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  9. Status: Closed - Not Implemented

    Comments: As of October 2000, OMB (in specific OIRA) says that it is examining its staffing needs; a few additional staff have been hired and detailees are being used from other agencies to assist in IT policy construction and oversight. GAO is not aware that any systematic review of staffing needs or new organizational structure has been conducted to date, and GAO is not aware of any planned effort.

    Recommendation: To effectively implement improved investment management processes and make the appropriate linkages between agency track records and budget recommendations, the Director, OMB, should identify the type and amount of skills required for OMB to execute IT portfolio analyses, determine the degree to which these needs are currently satisfied, specify the gap and both design and implement a plan, with timeframes and goals, to close the gap. Given existing workloads and the resilience of the OMB culture, without determined effort to build the necessary skills, OMB will have little impact on the quality of IT investment decisionmaking. If necessary to augment its own staff resources, OMB should consider the option of obtaining outside support to help perform such assessments.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  10. Status: Closed - Implemented

    Comments: In 1997, OMB issued Policy Memorandum M-97-02, that established the criteria under which OMB would recommend new or continued funding for major information systems. In addition, OMB issued a 1997 "Capital Programming Guide" that provides agencies guidance on decision criteria for investment selection, and recommends a portfolio decision-making approach for all capital investments.

    Recommendation: In designing governmentwide guidance for capital planning processes, the Director, OMB, should require agencies to implement IT investment decisionmaking processes that use explicitly defined, complete, and consistent criteria applied to all projects, regardless of whether project decisions are made at the departmental, bureau, or program level. With criteria that reflect cost, benefit, and risk considerations applied consistently, agencies should be able to make more reasonable and better informed trade-offs between competing projects in order to achieve the maximum economic impact for their scarce investment dollars.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  11. Status: Closed - Not Implemented

    Comments: According to OMB, it would establish measurable goals as part of OMB's Government Performance and Results Act strategic planning process. However, while OMB's Strategic Plan does address performance measures in general, it does not address this specific recommendation. As of February 2002, OMB's plans still have not incorporated measurable goals. In addition, OMB does not systematically collect that would enable it to ascertain whether its actions have led to increased returns or lower risk for IT systems.

    Recommendation: As part of its internal implementation strategy, the Director, OMB, should consider developing an approach to assessing OMB performance in executing oversight responsibilities under the Information Technology Management Reform Act capital planning investment provisions. Such a process could focus on whether OMB reviews of agencies processes and results have an impact on reducing risk or increasing the returns on IT investments--both within and across federal agencies.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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