oversight

Streamlining Government: Questions to Consider When Evaluating Proposals to Consolidate Physical Infrastructure and Management Functions

Published by the Government Accountability Office on 2012-05-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




May 2012
             STREAMLINING
             GOVERNMENT
             Questions to Consider
             When Evaluating
             Proposals to
             Consolidate Physical
             Infrastructure and
             Management
             Functions




GAO-12-542
                                                May 2012

                                                STREAMLINING GOVERNMENT
                                                Questions to Consider When Evaluating Proposals to
                                                Consolidate Physical Infrastructure and
                                                Management Functions
Highlights of GAO-12-542, a report to
congressional requesters




Why GAO Did This Study                          What GAO Found
GAO has previously reported on many             The following fundamental questions should be answered while considering a
areas that appear to be duplicative,            physical infrastructure or management function consolidation initiative.
overlapping, or fragmented and has
suggested that agencies could                   Key Questions to Consider When Evaluating Consolidation Proposals
increase their efficiency and                    What are the goals of the consolidation? What opportunities will be addressed through the
effectiveness by consolidating their             consolidation and what problems will be solved? What problems, if any, will be created?
physical infrastructure, such as                 What will be the likely costs and benefits of the consolidation? Are sufficiently reliable data available
research facilities, or consolidating            to support a business-case analysis or cost-benefit analysis?
their management functions, such as              How can the up-front costs associated with the consolidation be funded?
information technology. Such                     Who are the consolidation stakeholders, and how will they be affected? How have the stakeholders
consolidation, however, involves                 been involved in the decision, and how have their views been considered? On balance, do
                                                 stakeholders understand the rationale for consolidation?
weighing costs as well as benefits and           To what extent do plans show that change management practices will be used to implement the
can be complex and challenging to                consolidation?
implement.                                      Source: GAO.

Given the potential benefits and costs          •    The key to any consolidation initiative is the identification of and agreement
of consolidation, it is imperative that              on specific goals, with the consolidation goals being evaluated against a
Congress and the executive branch                    realistic expectation of how they can be achieved. Consolidation goals, for
have the information needed to help                  example, can be compromised and new problems introduced when an
effectively evaluate consolidation                   initiative is delayed or halted, with agencies running the risk of increased
proposals. In this report, GAO                       costs.
identifies key questions that agencies
                                                •    The initiative needs to be based on a clearly presented business-case or
should consider when evaluating
whether to consolidate physical                      cost-benefit analysis and grounded in accurate and reliable data, both of
infrastructure and management                        which can show stakeholders why a particular initiative is being considered
functions and illustrates the questions              and the range of alternatives considered.
with agency consolidation examples.             •    Physical infrastructure and management function consolidations often have
GAO reviewed the consolidation                       up-front costs, such as paying for equipment and furniture moves and
literature; selected seven consolidation             funding employee transfers, and agencies find it challenging to pay for these
initiatives at the federal level in various          upfront costs.
stages of completion and one                    •    Since stakeholders often view consolidation as working against their own
recommended consolidation; reviewed                  interests, it is critical that agencies identify who the relevant stakeholders are
documentation and interviewed agency                 and develop a two-way communication strategy that both addresses their
officials with responsibility for the                concerns and conveys the rationale for and overarching benefits associated
initiatives; and interviewed public-                 with the consolidation.
management and government-reform                •    Finally, implementing a large-scale organizational transformation, such as a
experts with consolidation experience.
                                                     consolidation, requires the concentrated efforts of both leadership and
GAO provided the draft for review and
                                                     employees to accomplish new organizational goals. Agencies should have
comment to the five agencies with
consolidation initiatives that were not
                                                     an implementation plan for the consolidation that includes essential change
covered by prior GAO work and made                   management practices such as active, engaged leadership of executives at
technical changes as appropriate.                    the highest possible levels; a dedicated implementation team that can be
GAO does not make recommendations                    held accountable for change; and a strategy for capturing best practices,
in this report.                                      measuring progress toward the established goals of the consolidation,
                                                     retaining key talent, and assessing and mitigating risk, among others.


View GAO-12-542. For more information,
contact J. Christopher Mihm at (202) 512-6806
or mihmj@gao.gov.

                                                                                                    United States Government Accountability Office
Contents


Letter                                                                                     1
               Background                                                                  5
               Key Questions to Consider When Evaluating Physical
                 Infrastructure and Management Function Consolidation
                 Proposals                                                                7
               Agency Comments                                                           39

Appendix I     Scope and Methodology                                                     41



Appendix II    Additional Questions Related to Physical Infrastructure and
               Management Function Consolidation Initiatives                             44



Appendix III   Key Change Management Practices                                           48



Appendix IV    GAO Contact and Staff Acknowledgments                                     50



Tables
               Table 1: Descriptions of a Recommended Federal Agency
                        Consolidation and Other Consolidation Initiatives in
                        Various Stages of Implementation                                   4
               Table 2: Key Questions to Consider When Evaluating Consolidation
                        Proposals                                                          7
               Table 3: The Census Bureau’s Eight Consolidation Goals                      9
               Table 4: Federal Agency Consolidation Examples in Various Stages
                        of Implementation                                                43


Figures
               Figure 1: Timeline for Census Bureau Consolidation Plan
                        Announcement                                                     25
               Figure 2: Identification Form Census Managers Use to Monitor
                        Risks                                                            38




               Page i                                      GAO-12-542 Consolidation Proposals
Abbreviations

BRAC              Base Realignment and Closure
COBRA             Cost of Base Realignment Actions
DOD               Department of Defense
EPA               Environmental Protection Agency
FDCCI             Federal Data Center Consolidation Initiative
FHCC              Federal Health Care Center
HUD               Department of Housing and Urban Development
ICASS             International Cooperative Administrative Support Services
IRS               Internal Revenue Service
OMB               Office of Management and Budget
OPM               Office of Personnel Management
State             Department of State
TIGTA             Treasury Inspector General for Tax Administration
USAID             U.S. Agency for International Development
VA                Department of Veterans Affairs



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Page ii                                               GAO-12-542 Consolidation Proposals
United States Government Accountability Office
Washington, DC 20548




                                   May 23, 2012

                                   The Honorable Daniel K. Akaka
                                   Chairman
                                   Subcommittee on Oversight of Government Management, the Federal
                                    Workforce, and the District of Columbia
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   The Honorable Thomas R. Carper
                                   Chairman
                                   Subcommittee on Federal Financial Management, Government
                                    Information, Federal Services, and International Security
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   The Honorable Mark R. Warner
                                   Chairman
                                   Task Force on Government Performance
                                   Committee on the Budget
                                   United States Senate

                                   The current fiscal crisis offers a window of opportunity for the federal
                                   government to examine how consolidating its operations can contribute to
                                   cost savings or effectiveness gains. With our nation facing serious, long-
                                   term fiscal challenges, a reevaluation of federal agencies’ operations has
                                   never been more important than it is today, and over the past 2 years, we
                                   have reported on many areas that appear to be duplicative, overlapping,
                                   or fragmented. The first report, issued in March 2011, presented 81
                                   opportunities to reduce potential government duplication, achieve cost
                                   savings, or enhance revenues, and the 2012 report presented 51 areas
                                   where programs may be able to achieve greater efficiencies or become
                                   more effective in providing government services. For example, the Army
                                   and Navy are planning to spend approximately $1.6 billion to acquire
                                   separate unmanned aircraft systems that are likely to have similar
                                   capabilities. In addition, landholding agencies have over 45,000
                                   underused buildings, and individual agencies have hundreds of
                                   incompatible information-technology networks and systems that were built
                                   over time and hinder governmentwide information sharing. This




                                   Page 1                                      GAO-12-542 Consolidation Proposals
duplication of effort and the maintenance of these buildings and legacy
systems are costly propositions for the federal government. 1

In our past reports, we have suggested that federal agencies could
increase their efficiency and effectiveness by consolidating their physical
infrastructure, such as closing offices or other facilities like military bases,
storage depots, and research facilities, or consolidating their
management functions, such as information-technology or administrative-
support services. 2 At your request, in this report we are examining key
questions to consider when evaluating physical infrastructure and
management function consolidation initiatives, with physical infrastructure
consolidation defined as the combining of systems, equipment, and
people into fewer buildings or facilities than they previously occupied and
management function consolidation as the combining of formerly distinct
systems, processes, and people in areas such as information technology,
financial management, human resources management, and procurement.
Both types of consolidation are intended to support improved customer
service, increased efficiency and effectiveness, or cost avoidances and
cost savings, or a mix of those goals.

Consolidation is beneficial in some situations and not in others, and so a
case-by-case analysis is necessary, evaluating the goals of the
consolidation against the realistic possibility of the extent to which those
goals would be achieved. Consolidation initiatives can be immensely
complex, politically charged, and costly and are not quick, easy, or
automatic ways of producing desired change. Decision makers need to
balance the benefits of consolidation against the physical, up-front
financial, bureaucratic, and political costs, while considering alternatives
such as increased cooperation or collaboration that may provide other



1
 GAO, 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and
Fragmentation, Achieve Savings, and Enhance Revenue, GAO-12-342SP (Washington,
D.C.: Feb. 28, 2012) and Opportunities to Reduce Potential Duplication in Government
Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.:
Mar. 1, 2011).
2
 See, for example, GAO, Opportunities for Oversight and Improved Use of Taxpayer
Funds, GAO-03-1006 (Washington, D.C.: Aug. 1, 2003); Best Practices: Elements Critical
to Successfully Reducing Unneeded RDT&E Infrastructure, GAO/NSIAD/RCED-98-23
(Washington, D.C.: Jan. 8, 1998); and Embassy Management: Actions Are Needed to
Increase Efficiency and Improve Delivery of Administrative Support Services, GAO-04-511
(Washington, D.C.: Sept. 7, 2004).




Page 2                                              GAO-12-542 Consolidation Proposals
paths to efficiency. 3 In addition, consolidation initiatives may, but do not
inevitably, save money and often require significant up-front costs to yield
long-term benefits. There are, however, situations with clear potential for
cost savings and operational efficiencies through physical infrastructure
and management function consolidations.

Given the potential benefits and challenges of consolidation, it is
imperative that Congress and the executive branch have the tools and
information needed to help effectively evaluate consolidation proposals
and activities. In response to your request, the specific objective of this
report was to identify key questions that federal agencies should consider
when evaluating whether to consolidate physical infrastructure or
management functions and illustrate the questions with agency
consolidation examples. To address this objective, we identified and
reviewed our reports on specific consolidation initiatives that have been
undertaken. 4 We used this to complement information gathered through a
review of the relevant literature on public-sector consolidations produced
by academic institutions, professional associations, think tanks, news
outlets, and various other organizations. In addition, as illustrative
examples, we reviewed selected consolidation initiatives at the federal
agency level. These examples provided insights into how agencies
addressed the key questions. The examples were selected from physical
infrastructure and management function consolidations from a range of
agencies in different stages of completion, including one that has been
recommended but not acted upon. The examples represented both inter-
and intra-agency activity. We obtained documentation on these initiatives
and interviewed agency officials with responsibility for implementing the
initiatives. We did not verify the estimated cost savings associated with
the consolidation initiatives. Table 1 provides a description of the
illustrative examples we included in the report. We also interviewed a


3
 See, for example, GAO, Results-Oriented Government: Practices That Can Help
Enhance and Sustain Collaboration among Federal Agencies, GAO-06-15 (Washington,
D.C.: Oct. 21, 2005). We are also in the process of assessing interagency collaboration
mechanisms with a report scheduled for release in fall 2012.
4
 See, for example, GAO, Data Center Consolidation: Agencies Need to Complete
Inventories and Plans to Achieve Expected Savings, GAO-11-565 (Washington, D.C.: July
19, 2011); Embassy Management: State Department and Other Agencies Should Further
Explore Opportunities to Save Administrative Costs Overseas, GAO-12-317 (Washington,
D.C.: Jan. 31, 2012); and Military Bases: Analysis of DOD’s 2005 Selection Process and
Recommendations for Base Closures and Realignments, GAO-05-785 (Washington, D.C.:
July 1, 2005).




Page 3                                               GAO-12-542 Consolidation Proposals
                                           number of individuals selected for their expertise in public management
                                           and government reform. We conducted some of these interviews
                                           individually and met with a panel of Fellows from the National Academy of
                                           Public Administration, where participants shared their thoughts on the
                                           basis of their consolidation experiences. 5

Table 1: Descriptions of a Recommended Federal Agency Consolidation and Other Consolidation Initiatives in Various Stages
of Implementation

Consolidation initiative     Type of consolidation          Description
Department of Commerce       Intra-agency / physical        The Census Bureau in 2011 announced plans to close 6 out of 12
Census Bureau Regional       infrastructure                 regional offices by 2013 to reduce the cost and improve the quality of
Offices                                                     the hundreds of surveys the Census Bureau conducts annually. The
                                                            Census Bureau estimates the initiative will save between $15 million
                                                            and $18 million annually beginning in fiscal year 2014.
Department of Defense        Intra-agency / physical        BRAC recommendations are intended to generate savings, reduce
(DOD) Base Realignment       infrastructure                 excess property, and realign DOD’s workload and workforce to
and Closure (BRAC)                                          achieve efficiencies through consolidating bases and military functions.
                                                            The BRAC 2005 round, the fifth such round undertaken by DOD since
                                                            1988, is the biggest, most complex, and costliest BRAC round to date.
                                                            DOD reported that as a result of prior BRAC rounds, billions of dollars
                                                            had been saved annually that could be applied to higher priority
                                                            defense needs.
Department of the Treasury   Intra-agency / physical        Beginning in 2000, IRS consolidated the total number of individual
Internal Revenue Service     infrastructure                 paper processing centers from eight to three sites to reduce overhead
(IRS) Processing Centers                                    and real-estate costs and improve efficiency in response to the
                                                            increase in electronic filing and subsequent decrease in paper filing.
                                                            IRS estimates the initiative has saved $175 million through 2011.
Environmental Protection     Recommended intra-agency /     Multiple independent evaluations over the past 20 years have
Agency (EPA) Laboratories    physical infrastructure        recommended that EPA address planning, coordination, and
                                                            leadership issues associated with EPA’s science activities. EPA has
                                                            also not fully addressed recommendations from a 1994 independent
                                                            evaluation to consolidate and realign its laboratory facilities and
                                                            workforce—even though this evaluation found that the geographic
                                                            separation of laboratories hampered their efficiency and technical
                                                            operations and that consolidation and realignment could improve
                                                            planning and coordination issues that have disadvantaged its science
                                                            and technical community for decades.




                                           5
                                            Established in 1967 and chartered by Congress, the National Academy of Public
                                           Administration is a non-profit, independent coalition of public management and
                                           organizational leaders. For more information, go to www.napawash.org.




                                           Page 4                                               GAO-12-542 Consolidation Proposals
Consolidation initiative      Type of consolidation            Description
Office of Management and  Intra-agency / physical              The FDCCI is intended to improve the efficiency, performance, and
Budget (OMB) Federal Data infrastructure and management        environmental footprint of federal data center activities through the
Center Consolidation      function                             consolidation of centers that support data transmissions. The initiative
Initiative (FDCCI)                                             was announced in 2010 and is planned to continue through 2015.
                                                               OMB estimated that the federal government will save approximately $3
                                                               billion between 2011 and 2015.
Office of Personnel      Interagency / management              The payroll consolidation initiative consolidated 26 payroll systems to
Management (OPM) Payroll function                              four shared-service centers, standardized payroll policies and
Systems                                                        procedures, and simplified and better integrated payroll, human
                                                               resources, and finance functions between its announcement in 2001
                                                               and its completion in 2009. OPM estimated the initiative would save
                                                               the federal government $1.1 billion over 10 years.
Department of State (State)   Interagency / management         ICASS is an interagency system established in 1997 for distributing the
International Cooperative     function                         costs of administrative services at overseas posts and is intended to
Administrative Support                                         ensure that each agency bears the cost of its overseas presence.
Services (ICASS) system                                        State has the primary responsibility for operating the system, and over
                                                               40 agencies share the costs of ICASS services, which totaled over $2
                                                               billion in fiscal year 2011. State estimated that the U.S. government
                                                               saved millions of dollars per year by reducing staff and eliminating
                                                               warehouses. However, there has been no quantitative study on cost
                                                               savings because the necessary data are not available.
Department of Veterans        Interagency / physical        The FHCC is an ongoing 5-year demonstration project running from
Affairs (VA) and DOD          infrastructure and management 2010 to 2015 to integrate VA and DOD medical care into a first-of-its-
Federal Health Care Center    function                      kind joint facility that will provide health care services to approximately
(FHCC)                                                      118,000 VA and DOD patients per year. VA and DOD officials
                                                            estimated that the first two phases of the initiative saved $11.2 million.
                                            Source: GAO.



                                            We conducted our work from June 2011 to May 2012 in accordance with
                                            all sections of GAO’s Quality Assurance Framework that are relevant to
                                            our objective. The framework requires that we plan and perform the
                                            engagement to obtain sufficient and appropriate evidence to meet our
                                            stated objectives and to discuss any limitations in our work. We believe
                                            that the information and data obtained, and the analysis conducted,
                                            provide a reasonable basis for any findings and conclusions in this report.
                                            More detailed information on our scope and methodology appears in
                                            appendix I.


                                            Physical infrastructure and management function consolidations can be
Background                                  strategies to help improve the efficiency of federal agencies, an area with
                                            increased focus given our current fiscal challenges. In the 2013 budget,
                                            for example, the administration reported that it is proposing cuts,




                                            Page 5                                                  GAO-12-542 Consolidation Proposals
consolidations, and savings across the government totaling more than
$24 billion in the upcoming fiscal year and $520 billion through 2022. 6
The White House also posted an interactive map of excess federal
properties on its website, noting that the map illustrates a sampling of
over 7,000 buildings and structures designated as excess. To help
address this problem, an executive order, signed by the President in
February 2004, promotes efficient and economical use of the federal
government’s real property assets by requiring each agency to determine
what it owns, what it needs, and what it costs to manage its real
properties. The agencies then are required to develop and implement
asset-management plans, develop and monitor real-property performance
measures, and dispose of properties that are not needed. 7 Another major
approach that agencies can take to improve their cost effectiveness is to
consolidate management or operational processes and functions to make
them more efficient. This approach often involves examining
administrative or operational processes to make them faster or to use
fewer resources. While agency efficiency efforts will not resolve the long-
term fiscal imbalance because of the size of that imbalance, they remain
important to the federal government’s ability to operate with fewer
resources while maintaining or improving the critical services and
functions that it provides.

A recent effort underway to address the need for reexamining
government is the consideration of the Reforming and Consolidating
Government Act of 2012 (S. 2129), first proposed by the President and
introduced in the Senate by Senators Lieberman and Warner. 8 Under S.
2129, the President would be permitted to propose the creation of a new
department (or renaming of an existing department), the abolishment or
transfer of an executive department, or the consolidation of two or more




6
  Executive Office of the President of the United States, Building a 21st Century
Government by Cutting Duplication, Fragmentation, and Waste (Washington, D.C.: Feb.
28, 2012).
7
 Exec. Order No. 13,327, Federal Real Property Asset Management, 69 Fed. Reg. 5897
(Feb. 4, 2004).
8
 S. 2129 112th Cong. (2012). On April 19, 2012, a companion bill was introduced in the
House of Representatives, H.R. 4409 112th Cong. (2012).




Page 6                                               GAO-12-542 Consolidation Proposals
                      departments. 9 However, it should be noted that none of the consolidation
                      initiatives discussed in this report required this type of broad
                      reorganization authority to be implemented, although some had
                      specifically related legislation.


                      The key questions we identified that federal agencies should consider
Key Questions to      when evaluating a physical infrastructure or management function
Consider When         consolidation initiative are presented in table 2.
Evaluating Physical
                      Table 2: Key Questions to Consider When Evaluating Consolidation Proposals
Infrastructure and
Management Function       What are the goals of the consolidation? What opportunities will be addressed through
                          the consolidation and what problems will be solved? What problems, if any, will be
Consolidation             created?
                          What will be the likely costs and benefits of the consolidation? Are sufficiently reliable
Proposals                 data available to support a business-case analysis or cost-benefit analysis?
                          How can the up-front costs associated with the consolidation be funded?
                          Who are the consolidation stakeholders, and how will they be affected? How have the
                          stakeholders been involved in the decision, and how have their views been considered?
                          On balance, do stakeholders understand the rationale for consolidation?
                          To what extent do plans show that change management practices will be used to
                          implement the consolidation?a
                      Source: GAO analysis.
                      a
                       For these practices, we drew from our prior reports: Highlights of a GAO Forum, Mergers and
                      Transformation: Lessons Learned for a Department of Homeland Security and Other Federal
                      Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002) and Results-Oriented Cultures:
                      Implementation Steps to Assist Mergers and Organizational Transformations, GAO-03-669,
                      (Washington, D.C.: July 23, 2003).


                      Appendix II has additional questions grouped by these five fundamental
                      questions that are related to the ideas, strategies, and leading practices
                      that may help facilitate physical infrastructure and management function
                      consolidations.




                      9
                       For our testimony on the legislation before the Senate Committee on Homeland Security
                      and Governmental Affairs, see GAO, Government Efficiency and Effectiveness:
                      Opportunities for Improvement and Considerations for Restructuring, GAO-12-454T
                      (Washington, D.C.: Mar. 21, 2010).




                      Page 7                                                      GAO-12-542 Consolidation Proposals
What Are the Goals of the   We have previously reported and several experts we interviewed
Consolidation? What         suggested that the key to any consolidation initiative is the identification of
Opportunities Will Be       and agreement on specific goals, with the goals of the consolidation being
                            evaluated against a realistic assessment of how the consolidation can
Addressed through the       achieve them. The process of defining goals can help decision makers
Consolidation and What      reach a shared understanding of what problems genuinely need to be
Problems Will Be Solved?    fixed, how to balance differing objectives, and what steps need to be
What Problems, If Any,      taken to create not just short-term advantages but long-term gains. 10
Will Be Created?
                            •    For example, in 2000, Congress and IRS realized that some IRS
                                 paper processing site consolidation would be necessary to ensure
                                 efficient operations, while avoiding the expense of excess capacity.
                                 On the basis of the prior decreases in individual paper filings and the
                                 projected decreases that would become more dramatic in the future,
                                 IRS determined that it could process individual returns and satisfy
                                 customer needs at three sites, leading to the decision to close five
                                 other sites. 11

                            •    In fiscal year 2011, the Census Bureau decided to consolidate a field
                                 structure that had remained substantially unchanged for 50 years by
                                 closing 6 of 12 regional offices. The Census Bureau’s overall goal for
                                 its regional office consolidation was creating a structure that would
                                 yield the highest quality data at the lowest possible cost. Census
                                 officials concluded that its current structure did not reflect advances in
                                 survey methodology and technology made in recent decades, such as
                                 the ability for home-based workers to have access to confidential data
                                 in full compliance with information technology security and legal
                                 restrictions. As a consequence, the bureau’s method for conducting
                                 surveys was too costly, and survey sponsors, primarily other federal
                                 agencies, were demanding improved efficiency and increased
                                 responsiveness. Census established eight consolidation goals, shown
                                 in Table 3, each weighted by relative importance, and evaluated
                                 potential regional structures against these goals. According to Census
                                 officials, its consolidation will enable the bureau to save $15 million to



                            10
                             GAO, Executive Reorganization Authority: Balancing Executive and Congressional
                            Roles in Shaping the Federal Government’s Structure, GAO-03-624T (Washington, D.C.:
                            Apr. 3, 2003).
                            11
                              Congress passed the Internal Revenue Service Restructuring and Reform Act of 1998,
                            which established a performance goal of having 80 percent of individual tax returns e-filed
                            by 2007, among other requirements. Pub. L. No. 105-206, 112 Stat. 685 (1998).




                            Page 8                                                GAO-12-542 Consolidation Proposals
      $18 million starting in fiscal year 2014 and improve the agency’s
      ability to conduct surveys. The new design will also use improved
      management information systems and tools to maintain high-quality
      data collection.

Table 3: The Census Bureau’s Eight Consolidation Goals

Goals
1.     Minimize cost of survey operations
2.     Improve data quality
3.     Create a real-time information-rich management environment to enhance
       employee performance and management efficiencies
4.     Create a more flexible management environment capable of adapting to
       changing conditions
5.     Support multiple response modes more flexibly, involving the use of mailed
       paper questionnaires, Internet collection, computer-assisted telephone
       interviewing, and computer-assisted personal interviewing
6.     Leverage local knowledge and facilitate outreach
7.     Build a tested and reliable infrastructure upon which to scale up for the 2020
       decennial census
8.     Minimize vulnerability to natural disasters and unplanned events
Source: Census Bureau.



•     In the late 1980s, changes in the national security environment
      resulted in a defense infrastructure with more bases than DOD
      needed. To address the problem of excess capacity and to realize
      cost savings, the Base Closure and Realignment Commission made a
      series of recommendations to close or consolidate DOD bases and
      military functions. 12 DOD has undergone five BRAC rounds beginning
      in 1988. Generally, the goals of the first four BRAC rounds were to
      generate savings to apply to other priorities, reduce property deemed
      excess to needs, and realign DOD’s workload and workforce to
      achieve efficiencies in property management. As a result of prior
      BRAC rounds in 1988, 1991, 1993, and 1995, DOD reported that it


12
  The BRAC Commission for the 2005 round was a nine-member bipartisan commission,
appointed by the President, which made recommendations on the basis of a review and
analysis of recommendations from the Secretary of Defense, on base closures and
realignments. The President and Congress had to accept or reject the commission’s
report in its entirety. National Defense Authorization Act for Fiscal Year 1990, Pub. L No.
101-510, title XXIX, Defense Base Closure and Realignment Act of 1990, 104 Stat. 1485,
as amended by the National Defense Authorization Act for Fiscal Year 2002, Pub. L. No.
107-107, title XXX, 115 Stat. 1012, 1342-1353 (2001).




Page 9                                                    GAO-12-542 Consolidation Proposals
     had reduced its domestic infrastructure, transferred hundreds of
     thousands of acres of unneeded property to other federal and
     nonfederal entities, and saved billions of dollars annually that could be
     applied to other higher priority defense needs. 13 For the BRAC 2005
     round, the goals included transforming the military, fostering joint
     actions, and reducing excess infrastructure to produce savings. An
     example would be the BRAC recommendation to consolidate the
     supply, storage, and distribution function within the Defense Logistics
     Agency. As such, many of the BRAC 2005 recommendations involve
     complex realignments. Both DOD and the BRAC Commission
     reported that their primary consideration in making recommendations
     for the BRAC 2005 round was military value, which includes
     considerations such as an installation’s current and future mission
     capabilities. 14

•    A central goal of the federal payroll consolidation initiative was
     achieving cost effectiveness through economies of scale and the
     elimination of duplicative systems. Other consolidation goals included
     standardizing payroll policies and procedures and simplifying and
     better integrating payroll, human resources, and finance functions.
     Cross-servicing and administrative consolidation initiatives began in
     the 1980s as part of the Reagan administration, and payroll was an
     early target of opportunity. In 2000, the Bush administration mandated
     e-government initiatives where common information technology
     solutions were identified. These were areas in which agencies
     historically had made significant individual investments to address
     needs that were common and duplicative. For example, OPM officials
     noted that many of the payroll systems were homegrown and on
     average about 20 years old, and many of the payroll service providers
     were considering capital investments in payroll-systems infrastructure.
     To avoid having individual agencies investing in new payroll systems,
     the administration selected 4 agency providers to serve as payroll
     providers in 2003; by 2009 these providers consolidated the payroll
     operations of the non-continuing agencies, absorbing their processing
     into existing systems. According to OPM officials, payroll
     consolidation was something that had been discussed for 30 years,



13
 GAO, Federal Real Property: Progress Made on Planning and Data, but Unneeded
Owned and Leased Facilities Remain, GAO-11-520T (Washington, D.C.: Apr. 6, 2011).
14
  GAO, Streamlining Government: Opportunities Exist to Strengthen OMB’s Approach to
Improving Efficiency, GAO-10-394 (Washington, D.C.: May 7, 2010).




Page 10                                           GAO-12-542 Consolidation Proposals
       but the e-government mandate from the Bush administration finally
       gave OPM the power to make the consolidation happen.
Consolidation goals can be compromised and new problems introduced
when an initiative is delayed, halted, or does not attract enough users to
produce the economies of scale needed to generate cost savings. Under
these fairly common conditions, participating agencies run the risk of
seeing their costs increase.

•      For example, State developed the ICASS system to streamline the
       provision of administrative services and cut costs for agencies located
       at overseas posts. However, we recently reported that many agencies
       continue to obtain services independently rather than through the
       ICASS system, which limits ICASS’s ability to achieve greater
       economies of scale and deliver services efficiently. 15 To the extent
       that agencies do not participate in ICASS, and provide these services
       themselves, they are creating potentially duplicative administrative
       systems that may not be cost effective for the U.S. government as a
       whole. For example, we reported that several agencies procured their
       own appliances and shipped their own furniture rather than participate
       in the ICASS-managed collective pools. At one post, ICASS service
       providers had to remove and reinstall furniture at embassy-managed
       residences 67 times over a 6-month period as a result of agency
       officials being replaced in a home by officials from a different agency.
       Such additional work would not have been necessary if all agencies
       participated in the furniture and appliance pool.




15
     GAO-12-317.




Page 11                                         GAO-12-542 Consolidation Proposals
What Will Be the Likely      A business-case analysis or cost-benefit analysis can help agencies
Costs and Benefits of the    ensure they are using public funds most effectively and preparing to meet
Consolidation? Are           future performance goals. 16 The National Research Council, in a 2004
                             report on federal facilities investments, maintained that a business-case
Sufficiently Reliable Data
                             analysis of investments can make clear underlying assumptions,
Available to Support a       alternatives considered, the full range of costs and benefits, and the
Business-Case Analysis or    potential consequences for an organization and its missions. 17
Cost-Benefit Analysis?       Additionally, we have noted in prior work that a cost-benefit analysis can
                             be a useful tool to inform decision making. It can provide an analytic
                             framework that decision makers can use to consider factors in a
                             systematic manner and clarify what is and is not known about effects. 18
                             OMB, similarly, has issued guidelines for agencies to consider when
                             conducting a cost-benefit analysis of federal programs. 19 These
                             guidelines are intended to promote efficient resource allocation through
                             well-informed decision making, and in them OMB recommends that
                             agencies conduct a sound cost-benefit analysis before initiating any long-
                             term project that extends 3 or more years into the future. According to
                             OMB’s guidance, such analysis should include a policy rationale, explicit
                             assumptions, an evaluation of the alternatives, and a plan to verify
                             program results.

                             Consolidation initiatives based on a clearly presented business-case or
                             cost-benefit analysis, grounded in accurate and reliable data, can provide
                             a data-driven rationale for why an agency is undertaking a particular
                             initiative and show stakeholders that a range of alternatives has been
                             considered. However, agencies may find it difficult to obtain sufficiently
                             accurate data necessary to calculate the full potential costs and benefits
                             associated with a consolidation initiative. We have previously reported, for
                             instance, that agencies across the federal government have faced



                             16
                               A business-case analysis or cost-benefit analysis is a comparative analysis that
                             presents facts and supporting details among competing alternatives. See GAO, Cost
                             Estimating and Assessment Guide: Best Practices for Developing and Managing Capital
                             Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).
                             17
                              National Research Council, Investments in Federal Facilities: Asset Management
                             Strategies for the 21st Century (Washington, D.C., National Academies Press, 2004).
                             18
                               GAO, Highlights of an Expert Panel: The Benefits and Costs of Highway and Transit
                             Investments, GAO-05-423SP (Washington, D.C.: May 6, 2005).
                             19
                              OMB, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs,
                             OMB Circular A-94 (Washington, D.C.: Oct. 29, 1992).




                             Page 12                                             GAO-12-542 Consolidation Proposals
challenges employing systematic cost-accounting practices in their
operations. 20 A lack of these practices within agencies makes it more
difficult for them to collect the data necessary to calculate precisely the
costs and benefits of a consolidation. This limitation can increase a
consolidation’s risk and an agency’s vulnerability to unintended
consequences, such as increased costs or heightened stakeholder
skepticism.

A lack of accurate data should not, however, necessarily preclude
agencies from considering the costs and benefits of consolidation.
Agencies can work to analyze the information they have at hand on likely
costs and benefits, as an analysis of this information can reasonably
indicate the likelihood that a consolidation will offer more benefits than
costs. Agencies can also use sensitivity analysis to determine whether
costs and benefits within certain error ranges will result in net benefits.
Sensitivity analysis examines the effect of changing assumptions and
ground rules on estimated costs and benefits and helps decision makers
choose between alternatives. On the other hand, if agencies cannot
definitely conclude that benefits will outweigh costs, or an analysis of the
sensitivity to error of key data used to calculate costs and benefits
suggests that a consolidation initiative faces considerable risks, they may
need to consider alternatives other than consolidation.

•      For example, we have previously reported that DOD established a
       structured process for obtaining and analyzing data during the BRAC
       2005 round. DOD used its Cost of Base Realignment Actions
       (COBRA) model to provide consistency in potential cost, savings, and
       return-on-investment estimates for closure and realignment options. 21
       COBRA provides for several key outputs that may influence the
       decision-making process, including (1) estimated costs for such
       factors as personnel severance, moving costs, or military construction
       over the implementation period; (2) estimated savings for personnel
       position eliminations, or reduced operations and maintenance costs
       over that same period; (3) the “payback” time required for estimated


20
  For example, see GAO, Human Capital: DOD Needs Better Internal Controls and
Visibility over Costs for Implementing Its National Security Personnel System,
GAO-07-851 (Washington, D.C.: July 16, 2007) and Financial Management: NOAA Needs
to Better Document Its Policies and Procedures for Providing Management and
Administration Services, GAO-11-226 (Washington, D.C.: Jan. 31, 2011).
21
     GAO-11-520T.




Page 13                                         GAO-12-542 Consolidation Proposals
     cumulative savings to outweigh cumulative costs for the actions; (4)
     net annual recurring savings; and (5) the net present value of BRAC
     actions, calculated over a 20-year time frame. We examined the
     model as part of our review of the 2005 and prior BRAC rounds and
     found it to be a generally reasonable estimator for comparing potential
     costs and savings among alternatives. The model provides important
     input into the selection process as decision makers weigh the financial
     implications of decisions regarding the suitability of various closure
     and realignment options. However, COBRA does not represent
     budget-quality estimates that are developed once BRAC decisions are
     made and detailed implementation plans are developed. On the basis
     of our assessment of the BRAC 2005 round, actual costs and savings
     were different from the BRAC Commission’s initial estimates. As we
     testified in March 2012, BRAC onetime implementation costs rose to
     about $35.1 billion using DOD’s fiscal year 2011 budget data
     compared with the Commission’s initial estimate of $21 billion in fiscal
     year 2005. Also, we testified in 2012 that DOD expects to realize
     annual net recurring savings of $3.8 billion, a decrease of 9.5 percent
     compared to the Commission’s estimate in 2005. We further testified
     that our analysis shows that the 20-year net present value is about
     $9.9 billion, a decrease of 73 percent, compared to the Commission’s
     estimate of $36 billion in 2005. 22

•    VA and DOD officials told us that the departments’ decision to
     consolidate their two health care facilities in North Chicago, Illinois,
     was based on a variety of factors, ranging from the facilities’ proximity
     to each other to the opportunity created by the VA’s having upgraded
     hospital infrastructure and identified clinical space with excess




22
  GAO, Military Base Realignments and Closures: Key Factors Contributing to BRAC
2005 Results, GAO-12-513T (Washington, D.C.: Mar. 8, 2012). As we have previously
reported, we and the BRAC Commission believe that DOD’s net annual recurring savings
estimates are overstated because they include savings from eliminating military personnel
positions without corresponding decreases in end-strength. DOD disagrees with our
position. See also, GAO, Military Base Realignments and Closures: Estimated Costs Have
Increased While Savings Estimates Have Decreased Since Fiscal Year 2009,
GAO-10-98R (Washington, D.C.: Nov. 13, 2009).




Page 14                                              GAO-12-542 Consolidation Proposals
    capacity, and the Navy’s need to replace its aging facility. 23 The two
    departments had earlier noted in a February 2009 analysis that the
    decision to consolidate the two facilities into the Captain James A.
    Lovell Federal Health Care Center (FHCC) in North Chicago was
    based on a sequential decision making process whereby each
    decision and cost-benefit analysis led to the next set of questions and
    options. In the analysis, they also laid out the consolidation’s three
    sequential phases. In the first phase, the two departments developed
    a sharing relationship that included the consolidation of select medical
    services and the establishment of common administrative functions
    such as reimbursement methodology. In the second phase, they
    forged a network relationship that included VA’s construction of new
    facilities, the consolidation of more medical services, and the
    development of additional reimbursement methodology. VA and DOD
    officials determined that the reduction of operating costs and full-time
    equivalents in the first two phases saved a total of $11.2 million, while
    allowing the two hospitals to maintain a high quality of care based on
    established metrics. VA and DOD also estimated that phase three,
    which includes the Navy’s construction of new facilities and the
    opening of the fully-integrated FHCC, will lead to onetime construction
    avoidance savings of $67 million and annual recurring savings of
    $19.7 million.

•   Census officials told us that as the bureau was weighing alternatives
    for consolidating its field office structure, it developed costs and
    benefits for each alternative. Census officials told us that they had
    some difficulty identifying the consolidation’s costs, but ultimately
    compiled a list of costs for the selected alternative. Costs ranged from
    relocation expenses for employees who would remain with the
    agency, to separation incentives and severance pay for those who
    could not or would not remain with the agency, to training costs for



23
  DOD and VA integrated the Naval Health Clinic Great Lakes and the North Chicago VA
Medical Center and are operating a system of healthcare known as the DOD/VA Medical
Facility Demonstration Project, Federal Health Care Center (FHCC) from 2010 to 2015
pursuant to statutory authority. 10 U.S.C. § 1104; 38 U.S.C. § 8111; Duncan Hunter
National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417, § 706, 122
Stat. 4356, 4500 (2008); National Defense Authorization Act for Fiscal Year 2010, Pub. L.
No. 111-84, §§ 1701-1706, 123 Stat 2190, 2567–2574 (2009). These provisions authorize
the FHCC to provide health care services to VA and DOD beneficiaries, consistent with
applicable policies of both departments. To accomplish the missions of both departments
in this VA/DOD integration, the FHCC will support both VA/DOD Healthcare and DOD
Operational readiness missions.




Page 15                                              GAO-12-542 Consolidation Proposals
     new positions. These costs totaled approximately $30 million over 3
     fiscal years. Census also identified $15 million to $18 million in
     potentially recurring savings, which it attributed to the closure of six
     offices and the net reduction of 186 full-time equivalent positions
     across the field structure. A Census official said that such data helped
     to persuade stakeholders of the consolidation’s value.

•    Sufficiently reliable data, however, are hindering OMB’s efforts to
     create an inventory of data centers and estimate cost savings as
     agencies consolidate their data centers and move from housing data
     on site to cloud-computing solutions. 24 Such a move to cloud
     computing can allow agencies to obtain computing services while
     freeing themselves from the burdens and costs of maintaining
     computing infrastructure. To help agencies improve their use of data
     centers, OMB is leading an effort to create a shared-services
     marketplace as part of a data center consolidation initiative. According
     to OMB, this initiative could lead to $3 billion in savings by 2015 as
     well as improve the efficiency, performance, and environmental
     footprint of federal data center activities. 25 To help agencies plan for
     their data center consolidations, OMB directed them to first complete
     a data center inventory and a consolidation plan. Specifically, the
     inventories were to include descriptions of the assets present within
     individual data centers, as well as information about the physical data
     center. The consolidation plans were to address key elements,
     including goals, approaches, schedules, cost-benefit calculations, and
     risk management plans. However, we found that the majority of the
     agencies did not complete their inventories or consolidation plans,
     due in part to a lack of available data. For example, 19 of the 24
     agencies we reviewed reported that it was challenging to obtain
     power-usage data. Certain agency facilities do not have power-
     metering capabilities, making estimations of power use necessary.
     We concluded that moving forward to consolidate obviously redundant
     or underused centers is nonetheless warranted and should result in


24
  Cloud computing is location-independent computing, whereby shared servers provide
resources, software, and data to computers and other devices on demand, as with the
electricity grid. In May 2010, GAO issued a report on federal cloud computing efforts. See
Information Security: Federal Guidance Needed to Address Control Issues with
Implementing Cloud Computing, GAO-10-513 (Washington, D.C.: May 27, 2010).
25
   In GAO-11-565, we reported that 14 agencies initially reported savings between 2011
and 2015 from the data center consolidation initiative of $700 million, but actual savings
may be even higher because 12 of those agencies’ estimates were incomplete.




Page 16                                                GAO-12-542 Consolidation Proposals
       immediate cost savings and increased efficiency. However, these
       data gaps place agencies at an increased risk of being ill prepared to
       manage such a significant transformation. We raised concerns that
       OMB cannot be assured that agencies are providing a sound baseline
       for estimating consolidation savings or accurately measuring their
       progress until those inventories and plans are complete and there is a
       better understanding of the validity of the agencies’ data, and we
       recommended that OMB require agencies to complete the missing
       elements in their respective consolidation plans. 26 OMB generally
       agreed with our report but did not comment on the recommendation.
       In July 2011, OMB directed agencies to complete all missing elements
       in their respective consolidation plans by the end of fiscal year 2011.
       In March 2012, OMB further established an annual requirement for
       agencies to complete missing elements from their plans and to submit
       an updated plan by the end of every fiscal year.

•      A past independent evaluation by the MITRE Corporation
       recommended that EPA consolidate its laboratories as a means to
       improve the efficiency and effectiveness of its operations, and in
       2006, EPA’s Chief Financial Officer requested that EPA develop a
       plan for reducing laboratory costs through their consolidation. 27 In
       prior work, we reported that EPA lacks sufficiently complete and
       reliable data on which to base decisions about the management of its
       laboratories. For example, we reported that EPA does not use public
       and commercial benchmarks to calculate usage rates for its
       laboratories. Instead, EPA measures laboratory usage on the basis of
       subjective interviews with local laboratory officials. 28 We
       recommended that EPA improve the completeness and reliability of
       operating-cost and other data needed to manage its real property, and
       if it determined that another independent study of its laboratories’
       management and operation was needed, include alternative options



26
     GAO-11-565.
27
  EPA tasked the MITRE Corporation to perform an independent evaluation of its
laboratories to be used by the agency as one of the inputs in developing a report to
Congress. The MITRE Corporation is a not-for-profit organization chartered to work in the
public interest with expertise in systems engineering, information technology, operational
concepts, and enterprise modernization.
28
  GAO, Environmental Protection Agency: To Better Fulfill Its Mission, EPA Needs a More
Coordinated Approach to Managing Its Laboratories, GAO-11-347 (Washington, D.C.: July
25, 2011).




Page 17                                               GAO-12-542 Consolidation Proposals
       for organizing its laboratories’ infrastructure, including consolidation.
       EPA said that it will work internally to upgrade and validate internal
       operating costs and other metrics, and that it is preparing a work
       assignment for the National Academy of Sciences to study EPA’s
       laboratories. EPA stated that the study will consider alternate
       approaches for organizing the laboratories’ infrastructure.

•      We have reported that as more agencies join ICASS, State has
       realized savings through economies of scale. However, we have also
       reported that ICASS and its customer agencies generally have
       insufficient data to perform a meaningful cost analysis to quantify the
       potential cost savings to individual agencies or the government as a
       whole from consolidating services. Responses to a survey we
       conducted for our 2012 report showed that agencies that have opted
       out of ICASS services have frequently cited lower costs as a reason
       for their decision, but many indicated that they had no basis to judge
       the relative costs of ICASS and non-ICASS services or did not
       respond to a question on this issue. Furthermore, State’s ICASS cost
       data and other agencies’ non-ICASS cost data are generally not
       comparable, which renders the cost implications for an agency’s
       joining ICASS unclear. Without data that can help it quantify potential
       cost savings, ICASS management is poorly positioned to demonstrate
       to other agencies that greater participation in ICASS services is in
       their own interest or that of the U.S. government overall. 29 We
       suggested that Congress may wish to consider requiring agencies to
       participate in ICASS services unless they provide a business case to
       show that they can obtain these services outside of ICASS without
       increasing overall costs to the U.S. government or they show that their
       mission cannot be achieved within ICASS. We also recommended
       that, where agencies are able to demonstrate, through a compelling
       business case, that they can provide a service more efficiently than
       the existing State ICASS provider without adverse effects on the
       overall government budget, the Secretary of State and the
       Administrator of the U.S. Agency for International Development
       (USAID) allow the creation of new ICASS service providers, in lieu of
       State, to provide administrative services to the other agencies at
       individual posts. State and USAID generally concurred with these
       recommendations.




29
     GAO-12-317.




Page 18                                           GAO-12-542 Consolidation Proposals
How Can the Up-Front        Physical infrastructure and management function consolidation initiatives
Costs Associated with the   often have up-front costs, and agencies must pay them before they can
Consolidation Be Funded?    realize any intended gains or savings. For example, agencies may need
                            to pay for equipment and furniture moves or fund employee transfers and
                            buyouts, and agencies often find it challenging to obtain the funds
                            necessary to pay for these up-front costs. A lack of up-front funding can
                            prevent a potentially beneficial initiative from getting off the ground or
                            derail an initiative already underway. In fact, our prior work on real
                            property management has shown that a lack of funding for up-front costs
                            is one of the most important reasons why many initiatives are never
                            implemented. 30

                            •    In previous work on the BRAC process, we noted that the costs
                                 associated with closing bases can be significant. Congress has
                                 provided DOD with a dedicated mechanism to help meet the
                                 challenges of paying for BRAC’s significant up-front costs: the
                                 Department of Defense Base Closure Account was established to
                                 fund base closures in the 1988 round; the Department of Defense
                                 Closure Account 1990 was established to fund base closures in the
                                 1991, 1993, and 1995 rounds; and the Department of Defense Base
                                 Closure Account 2005 was established to fund base closures in the
                                 2005 round. Congress, recognizing the complexities of realigning and
                                 closing bases, allowed DOD the flexibility to allocate funds by military
                                 service, budget function, and installation. Additionally, other revenues,
                                 including revenues generated from land sales, were required to be
                                 deposited into these accounts to offset closure and realignment costs.

                            •    As previously mentioned, Census collected data on costs and benefits
                                 as it weighed alternatives for consolidating its field office structure.
                                 The bureau’s Chief Financial Officer noted that the bureau is finding it
                                 challenging to pay for the up-front costs, as it plans to absorb them
                                 and not pass them on to customers by charging higher fees for survey
                                 administration. He said that Census is planning to pay for the
                                 consolidation’s up-front costs with money from Census’s working




                            30
                              See, for example, GAO, Federal Real Property: Overreliance on Leasing Contributed to
                            High-Risk Designation, GAO-11-879T (Washington, D.C.: Aug. 4, 2011).




                            Page 19                                             GAO-12-542 Consolidation Proposals
       capital fund. 31 Census said that, as there will be no additional charges
       to customers, Census will use balances from its working capital fund
       collections while simultaneously conserving resources and finding
       efficiencies within the fund to pay for the consolidation’s up-front
       costs. Another Census official noted that Census expects to realize
       cost savings from liquidating regional office space and reducing the
       number of employees in the consolidated regional office structure.
       However, Census will not fully realize these savings until fiscal year
       2014.

•      We have reported that 11 of the agencies involved in the data center
       consolidation initiative have found it challenging to fund their
       consolidation efforts. 32 For example, one agency noted that having to
       fund efforts long before any savings would be realized was difficult.
       There is no standard method by which agencies are paying for these
       up-front data center consolidation costs. Some agencies are using
       working capital funds while others use funds appropriated through the
       annual budget process; other agencies are using a combination of the
       two. The Department of Commerce, in its 2011 data center
       consolidation plan, noted that it has worked to overcome up-front cost
       challenges and more effectively obtain funds to meet its data center
       consolidation requirements by streamlining information technology
       operations and by having its data center consolidation project team
       demonstrate the cost benefit of the initiative to the department’s
       executive management.
A former OMB official said that centrally administered incentive funds
could be effective in helping agencies initiate a consolidation, particularly
cross-government consolidations, such as those that were pursued under




31
  A working capital fund is a type of intragovernmental revolving fund that generally
finances the centralized provision of common services within an agency, such as building
security or human capital management. Receipts come primarily from other government
agencies, programs, or activities. See GAO, Principles of Federal Appropriations Law,
GAO-08-978SP (Washington, D.C.: September 2008). Census’s working capital fund
contains money that the bureau collects for providing management and administrative
services to its internal divisions and survey support services for other federal and
nonfederal entities. See GAO, Intragovernmental Revolving Funds: Commerce
Departmental and Census Working Capital Funds Should Better Reflect Key Operating
Principles, GAO-12-56 (Washington, D.C.: Nov. 18, 2011).
32
     GAO-11-565.




Page 20                                              GAO-12-542 Consolidation Proposals
the Lines of Business initiative. 33 As we have previously reported, the
administration is undertaking one such effort by having OMB manage the
Partnership Fund for Program Integrity Innovation, a fund that provides
federal agencies money to pilot projects and evaluations that test ideas
for improving the delivery of federal assistance programs administered
through state and local governments. 34 The fund is intended to help
agencies, among other goals, improve administrative efficiency and is
expected to help agencies achieve total cost savings that are equal to or
greater than the fund’s $32.5 million appropriation. Additionally, we have
reported that the Department of Housing and Urban Development (HUD)
has developed a centrally administered fund to support its Transformation
Initiative, a multifaceted and multiyear effort intended to reexamine how
HUD does business by focusing on improving performance, replacing
outdated information technology systems, evaluating programs, and
streamlining processes. 35 In fiscal year 2010, HUD received authorization
from Congress to transfer up to 1 percent of the budgets from selected
program offices to a Transformation Initiative fund that is intended to
support projects that improve the overall performance of the agency,
including a few project areas that are specifically expected to improve
efficiency. 36 Furthermore, in September 2011, we recommended that the
Director of OMB work with Congress and federal agencies to develop
proposals for funding mechanisms that assist federal agencies with the
up-front costs associated with longer-term efficiency improvement
projects. 37 We requested an update on the status of this recommendation
in April 2012. However, OMB has not yet indicated how it will address the
recommendation.



33
  The Bush administration’s Lines of Business initiative was designed to improve the
federal government’s use of information technology and better business practices. In the
spring of 2004, OMB announced the formation of Lines of Business task forces. The task
forces analyzed data to identify ways where services could integrate common information
technology and electronic government-related practices across agencies into a single
unified standard. OMB planned to form “centers of excellence” or “shared service vendors”
for each line of business to manage common functions and tasks across agencies.
34
 GAO, Streamlining Government: Key Practices from Select Efficiency Initiatives Should
Be Shared Governmentwide, GAO-11-908 (Washington, D.C.: Sept. 30, 2011).
35
     GAO-11-908.
36
  Consolidated Appropriations Act, 2010, Pub. L. No. 111-117, 123 Stat. 3034, 3093
(2010).
37
     GAO-11-908.




Page 21                                              GAO-12-542 Consolidation Proposals
                            The need for agencies to consolidate incompatible information technology
                            systems can be one of the most challenging aspects of a consolidation,
                            particularly if the initiative crosses departmental lines. We have previously
                            reported that individual agencies have hundreds of incompatible networks
                            and systems and that the maintenance of these legacy systems is costly.
                            We have found that even now the architectures agencies are developing
                            are duplicative, poorly integrated, unnecessarily costly to maintain and
                            interface, and unable to respond quickly to shifting environmental
                            factors. 38

                            •      In the early 2000s, when the payroll systems consolidation initiative
                                   was announced, many of the agencies’ payroll systems were nearing
                                   the end of their estimated life cycles. OMB capitalized on the situation
                                   by not authorizing agencies, other than the four chosen payroll service
                                   providers, to spend money on modernizing their payroll systems,
                                   thereby leveraging the shift to the selected payroll providers.
                                   However, OPM officials also said that funding for systems
                                   modernization for the four remaining payroll service providers, which
                                   was promised at the outset of the payroll consolidation initiative, has
                                   not materialized. They noted that this lack of funding for systems
                                   modernization is a major problem and puts the long-term viability of
                                   the consolidated federal payroll services system at risk.

Who Are the Consolidation   Consolidation success depends on a wide range of factors, including
Stakeholders, and How       getting incentives right for those affected by the consolidation.
Will They Be Affected?      Stakeholders often view a consolidation as working against their own
                            interests. For example, agency clients and customers may have concerns
                            about potential reduction in service or access to agency officials.
                            Contractors providing services or systems to multiple agencies may be
                            concerned that consolidation will result in fewer agency customers and
                            create a situation where they are competing with agencies to provide
                            management or administrative services. Congress, which authorizes and
                            funds federal agency operations, may be sensitive to these concerns,
                            especially when Congressional members’ constituencies are adversely
                            affected. Moreover, stakeholders frequently raise valid concerns on the
                            basis of their familiarity with an agency’s operations, and the concerns
                            need to be addressed openly and objectively. Failure to effectively
                            engage with stakeholders and understand and address their views can


                            38
                                 GAO-11-318SP.




                            Page 22                                         GAO-12-542 Consolidation Proposals
                        undermine or derail the initiative. To that end, it is critical that agencies
                        identify who the relevant stakeholders are and develop a two-way
                        communication strategy that both addresses their concerns and conveys
                        the rationale for and overarching benefits associated with a consolidation
                        initiative. We have previously reported that communication is not just
                        “pushing the message out,” but should facilitate a two-way, honest
                        exchange with and allow for feedback from employees, customers, and
                        other stakeholders. 39 Full agreement among stakeholders is relatively
                        uncommon because stakeholders’ interests can differ significantly; a
                        comprehensive two-way communication strategy is central to forming the
                        effective external and internal partnerships that are vital to the success of
                        any organization.

External Stakeholders   Closing regional offices or facilities, which may be necessary to generate
                        cost savings or efficiency gains, may engender strong opposition from
                        local residents and the population served by the office. We have
                        previously described how independent commissions, which by design are
                        to be less subject to parochial or political pressures, can more easily
                        effect change, ensure that data collection and analysis are efficient and
                        objective, and implement recommendations quickly. 40

                        •    For example, DOD and BRAC Commission officials cite the
                             establishment of an independent commission and nomination of
                             commissioners by the President, in consultation with congressional
                             leadership, as one of the key elements that contributed to DOD’s
                             ability to eliminate excess capacity by closing or realigning military
                             bases. In addition, the President and Congress have to accept or
                             reject the commission’s report in its entirety. More recently, we
                             reported that an independent commission or governmentwide task




                        39
                         GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers and
                        Organizational Transformations, GAO-03-669 (Washington, D.C. July 2, 2003).
                        40
                          GAO/NSIAD/RCED-98-23. Also, in February 2012, the House passed as amended H.R.
                        1734, the Civilian Property Realignment Act. The legislation would establish an
                        independent Civilian Property Realignment Commission to identify opportunities for the
                        federal government to reduce its inventory of civilian real property and reduce costs. The
                        legislation would require each federal agency to submit current data to the General
                        Services Administration and OMB regarding the agency’s federal civilian real property and
                        to recommend sales or other dispositions of federal property, reductions in civilian
                        property inventory, and operational efficiencies.




                        Page 23                                               GAO-12-542 Consolidation Proposals
       force might be necessary to help overcome stakeholder influences in
       deciding how to dispose of unneeded real property. 41
An effective and ongoing communication strategy tailored to address
different stakeholder groups and their concerns is also essential.

•      For example, IRS and Census officials pursued a data-driven
       communication strategy that started well in advance of their regional
       office closures. Census officials said they used data to demonstrate to
       local elected officials how streamlining operations would allow Census
       to save money and conduct surveys more efficiently. In addition,
       Census developed scripts and timelines to roll out the announcement
       so key officials could deliver the same information and message
       throughout the country at the same time (see fig. 1). Census officials
       said their communication strategy allowed them to present a unified
       front and consistent information.




41
     GAO-11-520T.




Page 24                                         GAO-12-542 Consolidation Proposals
Figure 1: Timeline for Census Bureau Consolidation Plan Announcement




                                       •   To address congressional concerns about processing centers closing
                                           in their districts, IRS officials reported they developed a
                                           communication strategy based on data showing that they could close


                                       Page 25                                   GAO-12-542 Consolidation Proposals
                            one site every other year without adversely affecting operations, due
                            in large part to the steady increase in electronic filing and concurrent
                            decline in paper filing of tax returns. Also, once the decision had been
                            made to close processing centers, IRS took steps to communicate
                            with taxpayers about changes in filing locations through a variety of
                            media including websites, informational packages sent to taxpayers,
                            and tax practitioner forums.
Internal Stakeholders   Agency officials reported that a comprehensive communication strategy
                        that involves employees is a key component of any consolidation effort.
                        Consolidations of physical infrastructure or management support
                        functions often generate uncertainty for agency employees through job
                        loss, relocation, or considerable changes in the way jobs are done.
                        Regular and early communication facilitates a two-way exchange, which
                        allows for feedback and tailored information to meet employees’ specific
                        needs. The communication can help to build trust and an understanding
                        of the planned change, potentially defusing the opposition while
                        strengthening commitment to the effort.

                        •   Once IRS determined it was closing processing sites, agency officials
                            and representatives from the National Treasury Employees Union
                            said they negotiated how shutting down individual sites would occur
                            and what mitigation measures would be available to employees. A
                            variety of communication channels including websites, town hall
                            meetings, and newsletters helped employees keep abreast of dates
                            and the consolidation’s progress. IRS also posted information on its
                            internal websites regarding the range of services available to
                            employees losing their jobs, such as separation packages,
                            reassignment opportunities, retraining and placement assistance, and
                            counseling. In addition, IRS began hiring limited term or temporary
                            employees at sites slated for closure, allowing the agency to
                            communicate realistic expectations about job duration.

                        •   Census officials also reported developing a comprehensive employee
                            communication strategy. The strategy’s intent was to address morale
                            issues among employees keeping their jobs but with new or different
                            responsibilities, as well as employees relocating or losing their jobs.
                            The week following the consolidation’s announcement, the Census
                            Bureau Director visited the six closing regional offices to answer
                            employees’ questions and listen to concerns. Human resource
                            representatives followed up quickly with regional office employees to
                            discuss these concerns. Three months later, the representatives held
                            video conferences with individual employees to explain the early
                            retirement and buyout process. Census also created a consolidation



                        Page 26                                       GAO-12-542 Consolidation Proposals
     intranet site accessible to all Census employees that contains a
     variety of information, including internal job postings. In addition,
     Census electronically distributes a monthly consolidation newsletter
     and has established an “800” telephone number employees can call
     with consolidation questions. Census has dedicated itself to
     answering all questions submitted through the 800 number and
     posting all questions and answers to the intranet site.
Concerns about ceding control in a new consolidated environment of
shared services can also be a major challenge. A report we issued in
1980 looking at barriers to closing regional offices cited management
resistance on the basis of concerns that participating in shared service
arrangements would diminish their control and lead to a decrease in
service. 42 For example, we reported that many agencies were reluctant to
adopt automatic airline ticket payment plans and teleticketing procedures
even though these techniques had been shown to be cost effective and
subsequently have become the norm. Agencies had developed their own
travel systems to support important aspects of their operations, and many
managers did not believe that a common support arrangement would
satisfy their unique needs. Thirty years later, the same general issue
resonates.

•    A former OPM official involved with the payroll consolidation initiative
     said that even though the payroll effort was an intellectually simple
     concept, it still required “brute force” to execute. She said that
     agencies resisted the effort because they claimed they had a type of
     payment necessitating a unique payroll system. To address these
     concerns and devise solutions, OPM established a Payroll Advisory
     Council that included representatives from the provider agencies and
     client agencies. The council met quarterly to develop migration and
     business processes. OPM officials said the council was a valuable
     vehicle for bringing together key stakeholders and encouraging them
     to feel they were part of the process. They said it helped get people
     on the same page and motivated them to move the project forward.
Employee resistance to cultural change is a particularly thorny issue
when consolidation involves more than one agency. Constructing a new
organizational culture that respects the core values of the involved
organizations and is welcoming to all employees is critical to the success


42
 GAO, Streamlining the Federal Field Structure: Potential Opportunities, Barriers, and
Actions That Can Be Taken, FPCD-80-4 (Washington, D.C.: Aug. 5, 1980).




Page 27                                               GAO-12-542 Consolidation Proposals
                            of a multiagency consolidation effort. Our prior work has shown that many
                            transformations fail because the cultures of the components were not fully
                            understood or considered. 43 Thus, managers need to understand the
                            different cultures that are coming together, and the steps that can be
                            taken to establish a common culture. 44

                            •      Federal Health Care Center (FHCC) officials reported that the center
                                   has sought to address the challenges of cultural integration through a
                                   wide variety of actions and approaches, such as involving all staff in
                                   establishing the mission, vision, and goal statements; creating its first
                                   strategic plan; and blending previously unique organizational
                                   celebrations and recognition events. According to the officials,
                                   ongoing assessments of progress with cultural integration have been
                                   maintained through staff satisfaction and climate surveys, as well as
                                   frequent communication opportunities with leadership through all-
                                   hands town hall meetings and other communication venues. From
                                   fiscal years 2011 through 2012, FHCC improved in 12 of 13 measured
                                   categories including work group effectiveness and leadership
                                   cohesion; however, its score dropped slightly in the work group
                                   cohesion category. In addition, VA and DOD, through FHCC staff, use
                                   a staff satisfaction benchmark as one measure to assess the center’s
                                   integration, a benchmark that has been met. Officials noted that
                                   establishing a common culture from two distinct and firmly established
                                   entities like the VA and the United States Navy has been challenging.
                                   However, with a focus from leadership and the actions mentioned
                                   above, officials said the center has seen progress in establishing its
                                   own common culture.

To What Extent Do Plans     Implementing large-scale organizational mergers, acquisitions, and
Show That Change            transformation initiatives, such as consolidations, are not simple
Management Practices Will   endeavors and require the concentrated efforts of both leadership and
                            employees to accomplish new organizational goals. As we have
Be Used to Implement the    previously reported, productivity and effectiveness may actually decline in
Consolidation?              the period immediately following a private sector merger and
                            acquisition. 45 This happens for a number of reasons including that


                            43
                                 GAO-03-669.
                            44
                               Peter Frumkin, Making Public Sector Mergers Work: Lessons Learned (Arlington, Va.:
                            IBM Center for The Business of Government, August 2003).
                            45
                                 GAO-03-293SP.




                            Page 28                                             GAO-12-542 Consolidation Proposals
                         attention is concentrated on critical and immediate integration issues and
                         diverted from longer-term mission issues. In addition, employees and
                         managers inevitably worry about their place in the changed organization.

                         As part of our body of work on organizational mergers, acquisitions, and
                         other transformations, we recommended that to minimize the duration
                         and the significance of any reduced productivity and effectiveness,
                         agencies should have an implementation plan that includes essential
                         change management practices such as active, engaged leadership of
                         executives at the highest possible levels; a dedicated implementation
                         team that can be held accountable for change; and a strategy for
                         capturing best practices, measuring progress toward the established
                         goals of the consolidation, retaining key talent, and assessing and
                         mitigating risk, among others. 46 Appendix III has a list of key change
                         management practices.

Will Top Leadership Be   Whether consolidations originate from within an agency in response to
Engaged in Driving the   changing conditions or outside pressures, or from the most senior levels
Consolidation?           of government, it is essential that top government and agency leaders are
                         committed to the consolidation and play a lead role in executing it. As we
                         have previously reported, leadership must set the direction, pace, and
                         tone and provide a clear, consistent rationale to agency staff to increase
                         the likelihood of a successful consolidation. 47

                         •      According to OPM officials who managed the implementation of the
                                payroll consolidation initiative, the initiative required sustained White
                                House and OMB involvement as well as the creation of the advisory
                                council discussed above that brought together the key players from
                                each of the agencies.

                         •      The plan to consolidate Census Bureau regional offices originated
                                among senior-level Census officials. Specifically, the director, deputy
                                director, and Field Division’s senior management developed various
                                options on the basis of different configurations and multiple plans.
                                According to Census officials, they maintained absolute secrecy
                                during this planning stage, which they said allowed them to consider a
                                range of options that may otherwise have encountered immediate



                         46
                              GAO-03-293SP.
                         47
                              GAO-03-239SP.




                         Page 29                                           GAO-12-542 Consolidation Proposals
                                      resistance. Once the Director of the Census Bureau decided on the
                                      new structure, the agency developed a communication strategy and
                                      informed key stakeholders, including relevant congressional members
                                      and staff, state and local elected officials, affected regional office staff,
                                      and then all other regional Census Bureau employees. Census
                                      leaders noted that they are now involved with every implementation
                                      step of their internally-driven effort.

                               •      We recently observed that in light of current efforts to reduce the
                                      federal budget deficit, which include significant proposed cuts in the
                                      budgets of most departments and agencies, including EPA, the
                                      agency will need to more effectively use its scientific and laboratory
                                      resources across the agency to ensure the agency is best positioned
                                      to fulfill the critical scientific work for its core mission. 48 Although
                                      independent evaluations have identified problems with EPA’s
                                      laboratories’ operations and management and called for improved
                                      planning, coordination, and leadership, as well as consolidation of
                                      laboratories, EPA has not appointed a top science official with
                                      responsibility and authority over all of the agency’s research, science,
                                      and technical activities. Instead, these activities remain fragmented
                                      and largely uncoordinated, reflecting the independent organizational
                                      and management structures of the 15 senior officials charged with
                                      managing the scientific work performed at each laboratory. To
                                      improve cohesion in the management and operation of EPA’s
                                      laboratories, we recommended that EPA establish a top-level science
                                      official with the authority and responsibility to coordinate, oversee, and
                                      make management decisions regarding major scientific activities
                                      throughout the agency, including the work of all program and regional
                                      laboratories. In response to our recommendation, EPA proposed to
                                      increase the responsibilities of its science advisor. However, it is not
                                      clear that this will fully address the issue and it may ultimately
                                      introduce additional challenges for EPA.
Will a Dedicated               We have previously reported that successful major merger and
Implementation Team Lead the   transformation efforts dedicate a strong and stable consolidation
Consolidation?                 implementation team to lead the day-to-day management of a
                               transformation initiative.

                               •      For example, IRS determined that the oversight, planning, and
                                      implementation of its consolidation should be centralized. The agency


                               48
                                    GAO-11-347.




                               Page 30                                            GAO-12-542 Consolidation Proposals
    assigned responsibility for the implementation of its processing site
    consolidation plan to two offices within the Wage & Investment
    Division—the Customer Account Services Project Management Office
    and the Submission Processing Project Management Office. IRS
    officials said that it was important to have the same people involved
    throughout the process, and they noted that it was also helpful to
    establish time lines. They also used action plans to detail needed
    tasks and issues encountered during the consolidation process. The
    plans contained specific action items, dates, and responsible parties
    to help ensure accountability. IRS executives and managers reported
    that they met frequently during the consolidation process to discuss
    the action plans and progress made. The IRS also developed website
    resources to help the implementation team communicate changes to
    the rest of the agency.
    A 2007 audit conducted by the Treasury Inspector General for Tax
    Administration (TIGTA) found that the IRS implementation team
    helped to ensure a smooth transition during the consolidation. 49
    Specifically, TIGTA noted that the implementation team developed
    detailed plans that contained specific action items, dates, and
    responsible parties to help ensure accountability. The implementation
    team also met frequently with IRS executives and managers to
    discuss issues and progress made and communicated often with
    employees. TIGTA also found that the reduction in the number of
    processing sites did not adversely affect the processing of individual
    tax returns, and the IRS continued to have successful filing seasons
    during the consolidation process. They reported that IRS efforts to
    maintain high productivity and minimize the effect on taxpayers during
    the transition were generally successful.
•   OPM officials credited the sustained involvement of top leadership at
    the White House and OMB and a small, but dedicated,
    implementation team as driving factors in the payroll consolidation
    initiative. To oversee the payroll initiative, OPM created a Program
    Management Office, which consisted of the payroll initiative director,
    five full-time staff, and three contractors. The project director reported
    directly to the director of OPM. One OPM official emphasized that
    these were dedicated staff that spent all of their time on the project,
    rather than as an additional duty.


49
   Treasury Inspector General for Tax Administration, Consolidation of Tax Return
Processing Sites is Progressing Effectively, but Improved Project Management is Needed,
2007-40-165 (Washington, D.C.: Aug. 31, 2007).




Page 31                                             GAO-12-542 Consolidation Proposals
Will the Implementation Plan   We have previously reported that federal agencies engaging in large
Include Metrics to Measure     projects need to plan to monitor and evaluate their efforts to identify areas
Progress toward the            for improvement. 50 Reporting on these activities can help key decision
Consolidation’s Goals?         makers within the agencies, as well as stakeholders, obtain feedback for
                               improving both policy and operational effectiveness. Establishing
                               implementation goals and milestone dates, and tracking progress toward
                               those goals helps agency officials pinpoint performance shortfalls and
                               suggest midcourse corrections, including any needed adjustments to the
                               organization’s future goals and milestones. Moreover, transparent
                               reporting tools can help agencies manage stakeholder expectations about
                               how much is being spent, when savings will start to accrue, and whether
                               the agency is meeting performance goals during the transition. Imprecise
                               information can produce an unrealistic expectation of cost savings and
                               undermine the public’s trust.

                               Agencies consolidating physical infrastructure or management functions
                               should plan to have metrics of success. These measures should show an
                               organization’s progress toward achieving an intended level of
                               performance or results. Meaningful performance measures should also
                               be limited to the vital few and cover multiple government priorities such as
                               quality, timeliness, cost of service, customer service, and outcomes.
                               Performance measurement systems need to include incentives for
                               managers to strike the difficult balance among competing interests. One
                               or two priorities, such as timeliness and cost, should not be
                               overemphasized at the expense of others such as quality. Finally,
                               measures need to provide managers and other stakeholders with timely,
                               action-oriented information in a format that helps them make decisions
                               that improve program performance. 51

                               •      For example, we reported that the performance plan VA and DOD
                                      developed to assess the provision of care and operations at the
                                      FHCC lacked transparency and may not provide a meaningful and
                                      accurate measure of success. 52 DOD and VA developed 15
                                      integration benchmarks and their corresponding performance
                                      measures to help them monitor their performance in three main areas:


                               50
                                    GAO-03-669.
                               51
                                GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season
                               Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002).
                               52
                                    GAO-11-570.




                               Page 32                                            GAO-12-542 Consolidation Proposals
      patient and staff satisfaction; clinical and administrative functions; and
      external evaluation. FHCC staff developed a scorecard that calculates
      a single monthly summary score for the performance measures,
      which they planned to present at their regular Advisory Board
      meetings. We reported that although the scorecard has the potential
      to be useful in tracking performance results over time, it does not
      account for data collection variation; there are no designated target
      scores to indicate successful performance; and the scorecard initially
      contained a calculation error, all of which raised concerns about its
      ability to provide transparent, meaningful, and accurate information.
      To address these concerns, we recommended that the Secretaries of
      Veterans Affairs and Defense direct FHCC leadership to conduct
      further evaluation of the scorecard reporting tool and its methodology
      and make revisions that will better ensure the transparency and
      accuracy of the information reported. In response to our
      recommendations, the VA stated that it changed the calculation
      process for the scorecard’s monthly score. Specifically, FHCC staff
      will populate the scorecard with a score for each measure every
      month using either data acquired that month, or the most recent
      available data for those measures.

•     Census officials reported that they developed several financial and
      non-financial measures to assess their performance as they
      reorganize their regional structure. Officials also reported that they
      asked their survey clients to identify key concerns and risks, and then
      developed performance metrics to track those concerns. The
      measures they developed and plan to monitor include product quality,
      stakeholder satisfaction, productivity, transition costs, accrued
      savings, employee morale, and progress made toward meeting
      project milestones.

•     According to TIGTA, IRS did not adequately monitor the costs and
      benefits that accrued as the consolidation plan was implemented and
      reported imprecise savings data. 53 The IRS could not provide reliable
      financial information on technology or personnel costs. The IRS also
      included savings resulting from electronic filing—and the subsequent
      decreased paper workload—in the savings it attributed to
      consolidation. To address TIGTA’s concern, the agency developed a
      methodology for tracking costs and benefits related to site closures,



53
    Treasury Inspector General for Tax Administration, 2007-40-165.




Page 33                                               GAO-12-542 Consolidation Proposals
     which separated consolidation efforts from the effects of reduced
     paper workload due to electronic filing. Being able to accurately
     monitor costs and estimate when savings will begin to accrue is
     essential for providing sound information to congressional decision
     makers, maintaining public confidence in the agency’s ability to carry
     out large operations, and ensuring that long-term, multimillion dollar
     projects proceed in the most efficient manner.
To monitor the success of those consolidation initiatives that involve one
agency taking over a management function for another agency, agencies
may find it helpful to measure customer service. Customer service
measures can include customer access to services, wait times, accuracy,
and other factors. 54

•    As the managing partner of the Human Resources Line of Business,
     OPM regularly assesses the four payroll providers on their ability to
     deliver on different business practices that customer agencies
     consider important, including customer relationship management.
     Practices are defined as proven management ideas that include
     techniques, methods, processes, or activities that can help an agency
     deliver outcomes. For example, the customer relationship
     management category includes the following practices: (1) understand
     and proactively address provider’s customer needs; (2) proactively
     communicate and build relationships with provider’s customers; (3)
     effectively respond to customer inquiries and requests; and (4)
     employ formal change management techniques to help customers
     identify and manage change. For each of the practices, OPM
     developed a set of yes-no assessment questions—such as, Does
     your provider make findings from customer surveys, interviews, focus
     groups, etc. available to you?—to substantiate a provider’s ability to
     demonstrate the practice. Through this assessment, OPM can monitor
     and report on which customer relationship practices agency providers
     effectively employ and which need to be strengthened.

•    State developed uniform service standards to measure service
     delivery at overseas posts; however, we found that these standards
     did not always address common concerns of overseas customers. For
     example, some agencies have raised concerns that ICASS service
     providers cannot meet their unique requirements, priority is given to


54
 GAO, Managing for Results: Opportunities to Strengthen Customer Service Efforts,
GAO-11-44 (Washington, D.C.: Oct. 27, 2010).




Page 34                                            GAO-12-542 Consolidation Proposals
                                      some agencies over others, and their annual ICASS invoices contain
                                      billing errors, which require a significant amount of time to correct.
                                      State’s performance reporting does not disaggregate results by
                                      customer agency, and as such, does not reflect the extent to which
                                      service delivery is inequitable across agencies, nor do State’s metrics
                                      gauge progress on reducing the incidence of billing errors. To help
                                      ensure that State can more adroitly identify and address customer
                                      complaints, we recommended that it develop additional performance
                                      measures that gauge ICASS service providers’ progress in resolving
                                      major sources of customer dissatisfaction. 55 State officials said they
                                      plan to increase the number of services for which performance data—
                                      including customer satisfaction data—are collected as part of an effort
                                      to better identify and meet the needs of customer agencies.
Will the Implementation Plan   We have previously recommended that officials need a strategy to ensure
Include a Strategy for         that employees will have the appropriate skills to perform what may be
Attracting and Retaining Key   new roles following consolidation. As described earlier, agencies may
Talent?                        choose to consolidate infrastructure or functions because the old way of
                               operating has become obsolete.

                               •      For example, IRS consolidated processing sites to address the
                                      increase in electronic tax filing and subsequent decrease in paper
                                      filing. Officials from the National Treasury Employees Union said they
                                      worked with employees who were going to lose their jobs at the paper
                                      processing sites to apply to transfer and get the necessary training to
                                      work at IRS’s phone centers.

                               •      Census officials also reported that some employees will have different
                                      and additional responsibilities, such as a greater supervisory role,
                                      under the new management structure. They are developing training
                                      that they plan to implement in waves as the consolidation progresses.
                               We have previously reported that agencies may also expect to see higher
                               rates of turnover following a consolidation because individuals do not see
                               their place in the new organizations. As agency officials consider closing
                               offices to reduce costs and streamline operations, they run the risk of
                               losing their top performers located in affected offices. While some
                               turnover is to be expected and is appropriate, the new organization must
                               “re-recruit” its key talent to limit the loss of needed individuals. When re-
                               recruiting key talent, top leaders should identify which competencies are


                               55
                                    GAO-12-317.




                               Page 35                                         GAO-12-542 Consolidation Proposals
                                 vital to the success of the new organization and select individuals who
                                 demonstrate those competencies.

                                 •    To minimize the risk of losing a considerable pool of talent and
                                      expertise all at once, Census officials told us that employees in the
                                      closing regional offices are being provided the opportunity to express
                                      interest in, and be considered for, existing vacancies elsewhere with
                                      the Census Bureau and Department of Commerce before any other
                                      internal or external recruitment actions are pursued.
Will the Implementation Plan     As we have demonstrated throughout this report, consolidations are
Include a Strategy for           inherently risky endeavors. There are up-front costs that can quickly spiral
Assessing and Mitigating Risk?   upward. Moreover, significant delays in the project timeline could
                                 negatively impact an agency’s ability to carry out its core mission. To
                                 understand the various factors that could potentially derail a consolidation
                                 effort and make informed judgments concerning the actions needed to
                                 reduce those risks, we have previously described the importance and
                                 value of developing comprehensive plans for assessing and mitigating
                                 risks. 56 An effective implementation plan should identify all factors that will
                                 affect the program’s cost, schedule, or technical status, including political,
                                 organizational, or business issues. Budget and funding risks, as well as
                                 risks associated with start-up activities, staffing, and organizational
                                 issues, should also be considered.

                                 Identifying, analyzing, and developing ways to manage risks is a
                                 continuous process that leadership and managers should monitor on a
                                 regular and recurring basis throughout the consolidation.

                                 •    To help mitigate some of the major risks associated with consolidating
                                      the Human Resources Line of Business—such as selecting a provider
                                      agency that cannot adequately meet the needs of the client agency—
                                      OPM provided agencies with templates for conducting a risk analysis
                                      report and a fit gap analysis. The fit gap analysis template instructs
                                      customer agencies to perform a walk-through of each business
                                      process from beginning to end for each process scenario, show how
                                      the steps are supported by the provider agency, identify all
                                      shortcomings, and describe options for resolving those gaps. This
                                      resolution plan should provide an estimate of the implementation



                                 56
                                  GAO, Information Security Risk Assessment: Practices of Leading Organization,
                                 GAO/AIMD-00-33 (Washington, D.C.: November, 1999).




                                 Page 36                                            GAO-12-542 Consolidation Proposals
    effort including time and resources and be of sufficient detail to be
    used by other migration team members who are responsible for
    resolving the gap.

•   Census officials developed a risk management plan intended to
    minimize the effect of unplanned events. Census created a Risk
    Review Board that meets monthly to assess and evaluate the effect of
    different categories of risks and to control changes to their master
    schedule. Some of the areas they are monitoring include the impact of
    the restructuring on affected employees, comprehension of new roles
    and responsibilities in the new operating environment, and security
    given the change in information technology architecture. Each
    identified risk is assigned a risk owner who must develop an analysis
    that includes a description of the risk, root cause, and possible impact
    on three major categories of the project: performance, cost, and
    schedule. The risk owner and review board will also determine the
    likelihood of occurrence on the basis of five categories ranging from
    extremely unlikely to extremely likely. Figure 2 has an identification
    form Census managers use to monitor risks. In addition to these
    planning and management steps, Census also added a 5 percent
    contingency to its restructuring budget to help absorb unforeseen
    costs.




Page 37                                       GAO-12-542 Consolidation Proposals
Figure 2: Identification Form Census Managers Use to Monitor Risks




Is There a Strategy for Using           We have previously reported that managers of successful transformations
the Consolidation Experiences           seek to learn from best practices wherever they may be found. 57 Agency
of Other Organizations and              officials involved with consolidation efforts reported that they sought the
Lessons Learned?                        advice of public and private sector managers about their consolidation
                                        experiences.



                                        57
                                             GAO-03-239SP.




                                        Page 38                                      GAO-12-542 Consolidation Proposals
                  •   For example, Census officials consulted with officials from Statistics
                      Canada, Canada’s national statistical agency, which had recently
                      consolidated their operations. Specifically, Census officials were
                      looking for advice on how to communicate internally and externally
                      their decision to consolidate and what to expect in terms of employee
                      reaction and morale. They also consulted with other federal statistical
                      agencies as well as a variety of private, non-profit, and academic data
                      collection organizations to better understand how these organizations
                      manage field staff and provide them with secure access to sensitive
                      programmatic and cost data. According to one Census official, the key
                      lesson from these consultations was that consolidation is not only
                      possible, but can lead to demonstrable gains in efficiency, at the same
                      time that security can be maintained. He also reported that their
                      counterparts advised that it is imperative to maintain constant
                      communication at all levels and at every stage of the consolidation
                      process.

                  •   IRS and OPM officials reported that they implemented a lessons
                      learned process after each phase of their consolidation plan to identify
                      what worked well and what needed to be improved in future phases.
                      According to IRS officials, after each site closure, they created a
                      complete, searchable file of all documents related to the
                      consolidation, and gave the next sites scheduled to close access. One
                      official said that this repository of action plans, employee notifications,
                      and other communications provided a blueprint for future
                      consolidations and prevented unnecessary duplication of effort. OPM
                      officials reported that post-implementation, each payroll provider
                      agency met with representatives from the customer agencies to
                      assess different aspects of the initiative such as project management
                      and communication. OPM and the providers used that information to
                      better plan and manage future migrations. According to OPM officials,
                      the provider agencies were able to institute some changes on the
                      basis of this feedback, such as involving both senior level managers
                      and line personnel early in the planning stages and maintaining
                      frequent communication including weekly conference calls and
                      biweekly reviews of the project plan.

                  We provided the draft for review and comment to the five agencies with
Agency Comments   consolidation initiatives that were not covered by prior GAO work and
                  made technical changes as appropriate.




                  Page 39                                        GAO-12-542 Consolidation Proposals
We are sending copies of this report to the appropriate congressional
committees and other interested parties. The report is also available at no
charge on the GAO website at http://www.gao.gov. If you have any
questions concerning this report, please contact me at (202) 512-6806 or
mihmj@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
Key contributors to this report are listed in appendix IV.




J. Christopher Mihm
Managing Director, Strategic Issues




Page 40                                      GAO-12-542 Consolidation Proposals
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             To identify key questions that federal agencies should consider when
             evaluating whether to consolidate physical infrastructure or management
             functions, we identified and reviewed relevant literature on public sector
             consolidations produced by academic institutions, professional
             associations, think tanks, news outlets, and various other organizations.
             This information complemented our review of GAO’s extensive body of
             work on government reform. Specifically, we reviewed close to 50 reports
             produced from 1980 to 2011 that recommended or commented on
             consolidation of physical infrastructure or management functions at the
             federal level.

             We interviewed practitioners and academic experts in public management
             and government reform including Jitinder Kohli from the Center for
             American Progress; John Koskinen from Freddie Mac; Rosemary O’Leary
             from the Maxwell School of Syracuse University; and Paul Posner from
             the School of Public and International Affairs, George Mason University.
             We also interviewed former officials from the Office of Management and
             Budget; Karen Evans, Mark Forman, John Marshall, and Robert Shea,
             knowledgeable about management function consolidations and the Lines
             of Business initiative. We selected these practitioners and experts on the
             basis of our literature review and recommendations from other experts.
             We also met with a panel of Fellows from the National Academy of Public
             Administration, comprising former government executives. 1 Participants
             included Jonathan Breul; Doris Hausser; Dwight Ink; Susan Jacobs;
             Herbert Jasper; John Kamensky; Albert Kliman; F. Stevens Redburn; and
             Thomas Stanton. The participants described their consolidation
             experiences at federal agencies such as the Office of Management and
             Budget; the Office of Personnel Management; the U.S. Agency for
             International Development; the U.S. Department of Agriculture; the
             Department of Health and Human Services; and the Department of
             Housing and Urban Development.

             Using our literature review and interviews, we derived a set of questions
             to help decision makers evaluate whether consolidation of physical
             infrastructure or management functions will lead to greater efficiencies or
             effectiveness. We provided the questions to many of the individuals we



             1
              Established in 1967 and chartered by Congress, the National Academy of Public
             Administration is a non-profit, independent coalition of public management and
             organizational leaders. For more information, go to www.napawash.org.




             Page 41                                            GAO-12-542 Consolidation Proposals
Appendix I: Scope and Methodology




interviewed for their review and incorporated their comments where
appropriate.

To illustrate how agencies have attempted to address the questions about
consolidation, we selected eight consolidation examples at the federal
agency level. These examples include a mix of physical infrastructure and
management functions, intra-agency and interagency initiatives, and
recommended, ongoing, and completed efforts. For our illustrative
examples, we reviewed documentation such as cost analyses and
performance plans to obtain information about how agencies planned and
implemented consolidation efforts and collected through interviews and
document requests information from the agencies on how they estimated,
gathered, or calculated consolidation cost savings. Because it was not the
purpose of this report to assess the anticipated or actual success of
consolidation efforts, we did not attempt to independently verify the
reliability of these data or estimates. As a result, the reported estimated or
actual cost savings are of undetermined reliability. We also conducted
interviews with agency officials responsible for implementing the
consolidation initiatives, as well as union representatives from the
National Treasury Employees Union. In the examples of the Department
of Defense’s Base Realignment and Closure, the Environmental
Protection Agency’s laboratories, the Office of Management and Budget’s
data center consolidation, and the Department of State’s International
Cooperative Administration Support Services, we relied on our recently
published reports. 2 Table 4 lists the consolidation initiatives and the types
of consolidation for the examples we included in the report.




2
 We drew from our prior reports: GAO, Military Base Realignments and Closures: Key
Factors Contributing to BRAC 2005 Results, GAO-12-513T (Washington, D.C.: Mar. 8,
2012); Military Base Realignments and Closures: Estimated Costs Have Increased While
Savings Estimates Have Decreased Since Fiscal Year 2009, GAO-10-98R (Washington
D.C.: Nov. 13, 2009); Military Bases: Analysis of DOD’s 2005 Selection Process and
Recommendations for Base Closures and Realignments, GAO-05-785 (Washington, D.C.:
July 1, 2005); Environmental Protection Agency: To Better Fulfill Its Mission, EPA Needs a
More Coordinated Approach to Managing its Laboratories, GAO-11-347 (Washington,
D.C.: July 25, 2011); Data Center Consolidation: Agencies Need to Complete Inventories
and Plans to Achieve Expected Savings, GAO-11-565 (Washington, D.C.: July 19, 2011);
and Embassy Management: State Department and Other Agencies Should Further
Explore Opportunities to Save Administrative Costs Overseas, GAO-12-317 (Washington,
D.C.: Jan. 31, 2012).




Page 42                                               GAO-12-542 Consolidation Proposals
Appendix I: Scope and Methodology




Table 4: Federal Agency Consolidation Examples in Various Stages of
Implementation

Consolidation initiative                        Type of consolidation
Department of Commerce Census Bureau            Intra-agency / physical infrastructure
Regional Offices
Department of Defense Base Realignment and      Intra-agency / physical infrastructure
Closure
Department of the Treasury Internal Revenue     Intra-agency / physical infrastructure
Service Processing Centers
Environmental Protection Agency Laboratories    Recommended intra-agency /
                                                physical infrastructure
Office of Management and Budget Federal Data    Intra-agency / physical infrastructure
Center Consolidation Initiative                 and management function
Office of Personnel Management Payroll          Interagency / management function
Systems
Department of State International Cooperative   Interagency / management function
Administrative Support Services System
Department of Veterans Affairs and Department   Interagency / physical infrastructure
of Defense Federal Health Care Center           and management function
Source: GAO.



We did not attempt to identify all consolidation efforts of physical
infrastructure and management functions at the federal level that could
have illustrated the questions, challenges, and practices that decision
makers could adopt to help them overcome challenges. While we believe
that these questions, challenges, and practices are applicable across
different agencies and for various types of consolidation efforts, with our
approach we are not able to definitively say that the experiences
associated with these consolidation activities can be applied successfully
to future federal consolidation initiatives.

We provided the draft for review and comment to the five agencies with
consolidation initiatives that were not covered by prior GAO work and
made technical changes as appropriate. We conducted our work from
June 2011 to May 2012 in the Washington, D.C., metropolitan area in
accordance with all sections of GAO’s Quality Assurance Framework that
are relevant to our objective. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence to
meet our stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions in
this product.



Page 43                                           GAO-12-542 Consolidation Proposals
Appendix II: Additional Questions Related to
              Appendix II: Additional Questions Related to
              Physical Infrastructure and Management
              Function Consolidation Initiatives


Physical Infrastructure and Management
Function Consolidation Initiatives
              The following are additional sub-questions related to the ideas, strategies,
              and leading practices that may facilitate physical infrastructure or
              management function consolidations. This list is not exhaustive, nor is it
              necessary for an agency to consider every listed question. Rather, the
              presence of some of these considerations may indicate that agency
              officials have developed a sound consolidation strategy. Conversely, the
              absence of consideration of these questions could indicate that agency
              officials have not adequately planned their physical infrastructure or
              management function consolidation.

              What Are the Goals of the Consolidation? What Opportunities Will
              Be Addressed through the Consolidation and What Problems Will Be
              Solved? What Problems, If Any, Will Be Created?

              •   Have agency leaders identified specific goals to be achieved through
                  consolidation?
              •   Have agency leaders assessed how consolidation can help an agency
                  incorporate changes in technology, business processes, or the needs
                  of customers or clients?
              •   How have agency leaders weighed the importance of achieving the
                  goals against a realistic assessment of the effort that will be required
                  to achieve them?
              •   How have agency leaders considered the risks to consolidation that
                  could prevent the achievement of goals and planned for ways to
                  manage them?
              •   Are agency leaders defining the benefits associated with consolidation
                  and describing how the future will be both different from and better
                  than the past?
              •   Are agency leaders providing a clear and compelling picture of what
                  will constitute success?
              What Will Be the Likely Costs and Benefits of the Consolidation?
              Are Sufficiently Reliable Data Available to Support a Business-Case
              Analysis or Cost-Benefit Analysis?

              •   What data on the likely costs and benefits of a consolidation are
                  available?
              •   Are the data sufficiently accurate and reliable? What data on the likely
                  costs and benefits of a consolidation are unavailable, and has a plan
                  been developed to mitigate the unavailability or unreliability of certain
                  data?
              •   On the basis of the data available, can a reasonable expectation of a
                  consolidation’s costs and benefits be drawn?




              Page 44                                        GAO-12-542 Consolidation Proposals
Appendix II: Additional Questions Related to
Physical Infrastructure and Management
Function Consolidation Initiatives




•   Have the likely costs and benefits been subjected to a sensitivity
    analysis? How sensitive are the estimated costs and benefits to
    variation in less reliable data or other key assumptions?
How Can the Up-Front Costs Associated with the Consolidation Be
Funded?

•   Can immediate efficiencies or uncommitted funds in other areas be
    redirected to pay for the up-front costs of a consolidation?
•   Has the agency considered how it will assess return on investment for
    any funding for up-front costs?
•   Can a working capital fund or other funds be drawn on as a funding
    mechanism?
•   Is Congress amenable to establishing a funding mechanism for a
    consolidation and appropriating funds for it?
Who are the Consolidation Stakeholders, and How Will They Be
Affected? How Have the Stakeholders Been Involved in the
Decision, and How Have their Views Been Considered? On Balance,
Do Stakeholders Understand the Rationale for Consolidation?

•   Have agency leaders identified affected stakeholders?
•   Have agency leaders determined the necessary frequency and timing
    of communication about the consolidation to internal and external
    stakeholders?
•   Does the communication strategy allow for a two-way exchange of
    information between management and stakeholders?
•   How is the agency planning to involve employees to obtain their ideas
    and get their support? Have union representatives been consulted?
    Are there employee task teams responsible for developing and
    proposing common solutions to particular issues related to the
    consolidation?
•   How does the agency plan to provide information to employees about
    how their jobs might be affected, what their rights and protections
    might be, or how their responsibilities might change with the new
    organization?
•   Is the agency planning to communicate information through different
    channels such as e-mail, face-to-face meetings, large and small group
    meetings, intranet websites, and town hall meetings?




Page 45                                        GAO-12-542 Consolidation Proposals
Appendix II: Additional Questions Related to
Physical Infrastructure and Management
Function Consolidation Initiatives




To What Extent Do Plans Show That Change Management Practices
Will Be Used to Implement the Consolidation?

Will Top Leadership Be Engaged in Driving the Consolidation Plan?

•   Do agency leaders have plans to move deliberately to demonstrate
    their conviction and commitment to making the needed changes?
•   Do agency leaders have plans to provide clear guidance to
    employees about how to conduct business during a potentially
    turbulent period?
Will a Dedicated Implementation Team Lead the Consolidation?

•   Will the implementation team have strong program management skills
    and a proven record of successfully working through or overseeing
    major transformations?
•   Are there networks such as senior executive councils, functional
    teams, or cross-cutting teams that can ensure that changes are
    thoroughly implemented and sustained over time?
Will the Implementation Plan Include Metrics to Measure Progress toward
the Consolidation’s Goals?

•   Will there be an action plan with goals and milestones to track
    progress and identify any needed mid-course adjustments?
•   Will an action plan identify critical phases and the essential activities
    that need to be completed by and on any given date? Are there plans
    to publicize and report progress on specific goals for each phase of
    the initiative?
•   Is there a strategy for tracking employee attitudes toward the
    consolidation and identifying any morale or productivity issues?
•   Will the implementation plan include a strategy for attracting and
    retaining key talent?
Will the Implementation Plan Include a Strategy for Assessing and
Mitigating Risk?

•   Will the implementation plan be informed by a risk assessment that
    includes the following five steps?
    •     Set strategic goals and objectives, and determine constraints
    •     Assess risks
    •     Evaluate alternatives for addressing these risks
    •     Select the appropriate alternatives
    •     Implement the alternatives and monitor progress made and results
          achieved


Page 46                                        GAO-12-542 Consolidation Proposals
Appendix II: Additional Questions Related to
Physical Infrastructure and Management
Function Consolidation Initiatives




Is there a Strategy for Using the Consolidation Experiences of Other
Organizations and Lessons Learned?

•   Have agency officials involved with the consolidation initiative
    identified and consulted with other agencies or organizations that
    planned for or implemented a similar consolidation effort?
•   Is there a process for capturing lessons learned after each phase of
    the consolidation and using the information to improve the
    management of subsequent phases?




Page 47                                        GAO-12-542 Consolidation Proposals
Appendix III: Key Change Management
                                                     Appendix III: Key Change Management
                                                     Practices



Practices


                                                 November 2002


                                                 HIGHLIGHTS OF A GAO FORUM

                                                 Mergers and Transformation: Lessons
  Highlights of GAO-03-293SP                     Learned for a Department of Homeland
                                                 Security and Other Federal Agencies




  www.gao.gov/cgi-bin/getrpt? GAO-03-293SP.

  To view the full report, including the scope
  and methodology, click on the link above.
  For more information, contact J. Christopher
  Mihm at (202) 512-6806 or mihmj@gao.gov.




                                                     Page 48                               GAO-12-542 Consolidation Proposals
Appendix III: Key Change Management
Practices




Page 49                               GAO-12-542 Consolidation Proposals
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  J. Christopher Mihm, (202) 512-6806 or mihmj@gao.gov
GAO Contact
                  In addition to the contact named above, Elizabeth Curda, Assistant
Staff             Director, and Judith Kordahl, Analyst-in-Charge, supervised the
Acknowledgments   development of this report. Jessica Nierenberg and Dan Webb made
                  significant contributions to all aspects of this report. Martin De Alteriis
                  assisted with the design and methodology. A.J. Stephens provided legal
                  counsel. Janice Latimer and Kathleen Padulchick verified the information
                  in the report, and Donna Miller developed the report’s graphics.

                  Other important contributors included Vijaykumar Barnabas; Jill Center;
                  Carol Henn; David Hinchman; Diane LoFaro; James Michels; Angela
                  Miles; Susan Offutt; Joanna Stamatiades; and Laura Talbott.




(450910)
                  Page 50                                      GAO-12-542 Consolidation Proposals
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