Transcript Federal IT Spend: Discretionary vs. Non Discretionary

Achieving IT Efficiency via Spend Visibility
FOSE 2014
Dr. Daniel Hae-Dong Lee
Key drivers for high performing IT
Maximize the business value from the discretionary spend
• Balancing non-discretionary vs. discretionary investments
• Executive-visibility into IT spend for business priorities
• Integrating business processes, information and IT systems
Remove complexity from the IT portfolio
• Buying more and building less
• Enabling the organization to be much more agile
Use IT to produce top-line growth
• New ways to profit from how data is used
• Interacting with customers in new ways and empower them
• Delivering new products and services to customers
Note: n= 226; interviews / surveys with CIOs in the public and private sector organizations (2011)
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Key drivers for high performing IT
Maximize the business value from the discretionary spend
• Balancing non-discretionary vs. discretionary investments
• Executive-visibility into IT spend for business priorities
• Integrating business processes, information and IT systems
Remove complexity from the IT portfolio
• Buying more and building less
• Enabling the organization to be much more agile
Use IT to produce top-line growth
• New ways to profit from how data is used
• Interacting with customers in new ways and empower them
• Delivering new products and services to customers
Note: n= 226; interviews / surveys with CIOs in the public and private sector organizations (2011)
Page 2
IT spend visibility challenge #1
Total IT Spending
Costs Reported by Cost Type:
•
•
•
•
•
•
•
•
Permanent Staff
Contractors
Premises
Hardware / Software
Communication Equipment
Communication Carriers
12 %
External
Services
5%
Communications
Carriers
1%
Communications
Equipment
28%
Permanent
Staff
25%
Hardware /
Software
19%
Premises
10%
Contractors
External Services
…
While this information is interesting, its usefulness in supporting
management analysis and action is limited.
3
IT spend visibility challenge #2
FY13 Major Investments
Distribution
Central
Processing
System
National
Database
System
$160M
$63M
$14M
Vendor #1
Vendor #2
Vendor #3
Financial
Management
System
e-Based
System
$12M
$9M
$2M
Vendor #4
Vendor #5
Vendor #6
Integrated
Partner
Management
Virtual Data Center (VDC) - $68M
Enterprise Information Technology Architecture - $8M
Enterprise Identity Management System - $6M
System Security Authorizations (SSA) - $4M
Enterprise Business Collaboration - $2M
Aid Data Mart - $2M
While well-organized, it is hard to compare “apples to apples” to take
decisive management actions.
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Definitions: discretionary vs. non-discretionary
Two Primary Types of IT Spending
Discretionary
(Spending on Wants)
Non-discretionary
(Spending on Necessities)
Spending to deliver new and enhanced
functionalities and capabilities
Spending to maintain current capabilities
and to deliver IT operational services
Examples:
- Build a new claims application
- Upgrade network bandwidth / speed
- Migrate to a new platform
Examples:
- Fix bugs in policy administration
system
- Install latest release of operating
system software
- Run data center
Typical Management Goal:
ROI - Maximize returns on IT
investments and focus investments on
areas of greatest strategic advantage to
the business
Typical Management Goal:
Efficiency - Spend prudently to maintain
IT infrastructure and deliver IT
operational services
5
IT spend visibility – for balancing
In our study, we found
high performing IT
organizations spend
between ~35% to ~45% on
discretionary IT
27%
41%
Discretionary
11%
5%
3%
10%
8%
59%
32%
NonDiscretionary
4%
Management IT
Infrastructure Application Mandatory
Projects
Maint.
& Admin.
Operations Maint.
BusinessInfrastructure Application
Development Enhancements driven
Projects
Total IT Spend
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Investments aligned to mission objectives
Mission Objectives /
Business Imperatives
Leaner, Faster, Smarter
Improving the Customer
Experience
Competing for the Package
Business
Strengthening the
Business-to-Consumer
Channel
IT Enabling Projects /
Initiatives
 Develop IT execution capabilities
 Optimize IT resources / infrastructure
for performance
 Enhance customer interaction
capabilities (e.g., CRM)
 Leverage data to provide business
intelligence support
 Bolster enterprise architecture to
enhance service introductions and
enable multiple channels
 Bolster enterprise architecture to
enhance service introductions and
enable multiple channels
$M
(% of IT budget)
$48M (16%)
$33M (11%)
$16M (5%)
$22M (7%)
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Federal discretionary vs. non-discretionary
FEDERAL IT SPEND FY12-FY14
$75.7B
$75.9B
$76.5B
DME
$19.6B
(26%)
$18.7B
(25%)
$17.9B
(23%)
O&M
$56.1B
(74%)
$57.2B
(75%)
$58.6B
(77%)
2012
2013
2014
35%
discretionary
IT
Note 1: Based on FY12 – 14 federal IT spend data analyses (Exhibit 53s).
Note 2: Discretionary spending includes capital investments that build new/enhanced capabilities; non-discretionary
spend focuses on operational and “keeping the lights on” activities. In our analysis, we used Development,
Modernization and Enhancement (DME) as a “proxy” for discretionary investment whereas Operations and Maintenance
(O&M) for non-discretionary spending.
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Federal agency IT efficiency challenges
“Fragmented IT solutions
with limited oversight.”
“Rapidly changing citizen and agency
requirements.”
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Action steps for federal agencies
1. Start small – pick a few areas in which it is fairly evident that there are
significant efficiencies to be gained
2. Begin in areas of IT infrastructure, in which there tends to be less
control issues than in working to consolidate and eliminate end-user
applications
3. Seek involvement from mission owners so it does not appear it is only
an IT-led analysis
4. Conduct benchmarking based on independent data (helps dampen
arguments about the validity of the analysis). Ensure “apple to apple”
comparisons
5. Based on the cost analysis and benchmarking, launch a few projects
that will drive significant efficiencies and cost savings
6. Once implemented, ensure the changes have resulted in significant
efficiency gains for the agency, provided at least equivalent, if not
upgraded, capabilities to the mission owners
7. Use successes to drive more areas for deep IT cost analyses and
benchmarking
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