Outsourcing /

GAO: Detailed recordkeeping critical to outsourcing

By Todd R. Weiss
Computerworld, 05/03/02

Be sure you know what your IT operations cost you today before jumping head-first into outsourcing. That's the key lesson for businesses in a 67-page government report released this week on the experiences of recent IT outsourcing projects at six federal agencies.

The report, "Desktop Outsourcing: Positive Results Reported, but Analyses Could Be Strengthened," issued by the U.S. General Accounting Office (GAO), concludes that while the agencies believe outsourcing moves brought positive changes, few of them had an adequate grip on their IT costs to know whether they are now saving money and gaining other benefits.

"That has always been a problem," said Chip Mather, a partner at government best-practices consultancy Acquisition Solutions in Chantilly, Va. "In many cases, the government has no idea what it costs for its IT infrastructure."

The problem, he said, is that government IT operations aren't organized like traditional businesses. Instead of all the costs for personnel, hardware, software and support services being under one roof, government costs are often paid by different agencies or departments, making the final cost a blur to bean counters.

"Until you do outsourcing, you never see those costs together," he said.

The result is often "sticker shock" when post-outsourcing costs are figured on a per-seat basis, Mather said.

In its report, the GAO said that such pre-outsourcing baseline costs are needed to adequately determine later whether the programs are increasing efficiencies and reducing spending. Instead, "these agencies performed limited, or in some cases, no analyses of expected costs and benefits before implementing seat management and did not routinely monitor all actual costs or benefits," the report said.

The document looked at the outsourcing experiences since 1998 at the federal Bureau of Alcohol, Tobacco and Firearms; the Defense Logistics Agency; the Kennedy Space Center; the Centers for Medicare and Medicaid Services; the Peace Corps; and the departmental offices of the U.S. Treasury Department.

Linda Lambert, assistant director for IT at the GAO, said that in going to outsourcing, the main goal for government is not necessarily saving money, as it might be for private businesses. Instead, she said, federal agencies made the move to keep their infrastructure more up to date, to free up employees for work directly related to the agencies and to improve their IT support and management of software and hardware.

But in shifting to outsourcing, the true results of those efforts have been hidden because baseline cost figures are often missing, she said. In response to the GAO report, several of the agencies have "acknowledged there are some things they'll do differently," Lambert said. The Defense Logistics Agency, for example, is planning a post-implementation total-cost-of-ownership (TCO) study to gauge its results, while the Treasury Department is also conducting a TCO study that's due to be completed next month. The Defense Logistics Agency outsourcing deal covered 2,102 desktop machines and 251 laptop seats, as well as network administration and other items, while the Treasury contract included 1,642 desktop seats, 700 laptop seats and other equipment.

Mather said the agencies could certainly move ahead now with TCO studies, but such efforts would be costly. Instead, he said, they could simply do baseline estimates since they began outsourcing and track future costs to build a performance history.

One key, he said, is that IT outsourcing should no longer be viewed as a product, but instead should be seen as a tool that can enable an organization's IT to work better. In government, detailed technical specifications of the machines being sought are required to bid a contract, but those specs don't necessarily fill an agency's true needs, he said. "It's a significant mind-set change," Mather said. "Are you buying results, or are you buying compliance?"

Bill Martorelli, an analyst at Hurwitz Group in Framingham, Mass., said the GAO report provides good advice for commercial businesses as well as government agencies. "It's advisable for any enterprise to have an accurate accounting of their IT expenses, particularly when considering outsourcing," he said.

And while the GAO report chided the federal agencies for not knowing their previous IT costs, Martorelli said it's not unusual for such information to be missing among businesses as well.

David Tapper, an analyst at IDC in Framingham, Mass., said that while the GAO's recommendations are laudable, predicting and tracking actual cost savings when moving to outsourcing can be very difficult for companies. "Customers are saying, 'Cut my costs,'" Tapper said. "In terms of measuring that, I have to tell you, it's really hard to do."

Download the report here (PDF).