FTS2001:

Improving the Revenue Estimation Process

AIMD-00-147R: Published: May 8, 2000. Publicly Released: May 8, 2000.

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Pursuant to a congressional request, GAO reviewed the General Services Administration's (GSA) revenue estimation process for its Federal Technology Service (FTS) 2001 long-distance telecommunications services program.

GAO noted that: (1) GSA's process produced a reasonable estimate of program revenues; (2) however, GAO found weaknesses in the GSA process that, although not significantly affecting the estimate developed, could undermine the consistency and accuracy of future estimates; (3) in particular, GSA did not fully use current traffic and forecasting data; (4) instead of using actual October 1998 traffic data in its analysis, GSA used October 1995 traffic data adjusted to reflect 1998 actual traffic; (5) similarly, GSA used growth factors developed in 1996 to reflect future increases in most traffic volumes rather than more current growth factors developed in 1999; (6) in view of time constraints, they used older data because those data had already been analyzed to support GSA's acquisition process and were therefore available in the required format; (7) GAO contracted with Technology Futures, Inc., experts in telecommunications forecasting, to prepare an independent high-level estimate of potential FTS 2001 program revenues that was based on the most current traffic and forecasting data available; (8) that revenue estimate was essentially the same as GSA's revenue estimate; (9) although GSA's use of older traffic data did not materially affect its recent estimates, the use of current traffic and forecasting data in future estimates would improve confidence in those estimates; (10) in addition, GSA's Mitretek Systems took steps to ensure the quality of traffic information used as the basis for revenue estimates, it did not have adequate quality control procedures in place to ensure the quality and accuracy of the revenue estimation process itself; (11) $260 million in additional billable features and fixed costs--reflecting such things as one-time system customization charges and expedited service--were omitted from GSA's initial revenue estimates; (12) also, $50 million of GSA's own overhead costs were erroneously included as revenue; (13) GSA did not consistently document the reasons for changes it made to the FTS 2001 forecasts submitted by agencies; (14) according to Mitretek Systems staff, such changes were made either following consultation with the agencies or after review of more recently available traffic usage data; and (15) because the rationale for such changes was not always documented, it was difficult to account for differences between traffic projections obtained from agencies and those shown in the final forecasts.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: GSA obtains FTS2001 forecasting and revenue estimating services from Mitretek Systems. GSA issued a task order to Mitretek Systems to implement the recommendations contained in GAO's report. Mitretek developed a Web-based tool that allows GSA and other agencies to forecast traffic and costs of telecommunications on FTS contracts. The tool can use the most current traffic and forecast data. It incorporates quality control procedures by reducing possibilities for human errors and includes an audit trail for all changes. This trail will allow GSA to determine reasons for changes in forecast data. The tool was delivered to GSA in the beginning of 2002.

    Recommendation: The Administrator, GSA, should formalize and strengthen the revenue estimating process to improve consistency and reduce errors by: (1) using the most current traffic and forecast data in future revenue estimates; (2) establishing quality control procedures to ensure the accuracy of revenue estimate derivations; and (3) clearly documenting the reasons for changes in forecast data.

    Agency Affected: General Services Administration

 

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