oversight

Managing Technology: Best Practices Can Improve Performance and Produce Results

Published by the Government Accountability Office on 1997-01-31.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the National Commission on Restructuring the
                          Internal Revenue Service




For Release on Delivery
Expected at
8:30 a.m.
                          MANAGING TECHNOLOGY
Friday
January 31, 1997

                          Best Practices Can Improve
                          Performance and Produce
                          Results
                          Statement of Christopher Hoenig
                          Director, Information Resources Management
                          Policies and Issues
                          Accounting and Information Management Division




GAO/T-AIMD-97-38
Members of the Commission:

It is a pleasure to be here this morning to discuss how best practices
applied by leading organizations can be effectively used to improve the
management of information technology (IT) in the federal government.
This is an especially important issue at the Internal Revenue Service (IRS),
which faces major problems and opportunities in its Tax Systems
Modernization effort. During several hearings over the past few months,
we have testified before you on our analysis of these problems, our
recommendations for addressing them and the IRS’ progress in achieving
adequate solutions.1

Generally speaking, a large gap exists between public-sector and
private-sector capabilities to use information technology to provide
modern, efficient, and cost-effective services. Narrowing this gap is
possible by adopting leading management practices that have been shown
to produce results. As you know, we have recommended IT management
reforms for the last two years that are grounded in our past audit work
and case study research conducted on leading public and private
organizations.

Recently, we have helped to support significant revisions in laws and
regulations, such as the Paperwork Reduction Act, Office of Management
and Budget (OMB) management circulars, and—just recently—the
Clinger-Cohen Act of 1996 (formerly named the Information Technology
Management Reform Act) as contained in the National Defense
Authorization Act for Fiscal Year 1996. In some cases, these revisions
represent the first significant changes made to IT-related legislation in over
a decade. I might add that these accomplishments have only been possible
with the interest, commitment for reform, and support from members of
the Congress who have pushed for greater accountability for public tax
dollars.

In the near future, as a result of these legislative changes and new
direction from the Administration, agency leaders should begin making
technology investment decisions based on careful analyses of relative
costs, benefits, and risks. Consequently, the Congress should be better
informed of how technology expenditures are being used to address the
pressing business problems of government agencies. More important, with

1
 Managing IRS: IRS Needs to Continue Improving Operations and Service (GAO/T-GGD/AIMD-96-170,
July 29, 1996); IRS Business Operations: Issues in Setting Priorities and Managing for Results
(GAO/T-AIMD/GGD-97-22, November 7, 1996); and Financial Management: Challenges Facing the IRS
(GAO/T-AIMD-97-34, January 9, 1997).



Page 1                                                                     GAO/T-AIMD-97-38
    an investment approach, IT projects should have a better chance of being
    initiated, continued, delayed, or cancelled on the basis of mission or
    operational performance improvements—the primary purpose of
    deploying information technology in the first place.

    Much hard work lies ahead in implementing new management processes
    and making tough, informed decisions on how to best apply available IT to
    the government’s pressing productivity, quality, and service delivery
    problems. Valuable lessons are plentiful about both successes and failures
    in the private and public sectors that agencies can learn from.

    Today, I would like to focus my remarks on four key lessons gleaned from
    our ongoing research and our evaluations of strategic information
    management issues in federal agencies:

•   First, better facts are needed about the government’s IT investments. What
    is known is that federal IT-related obligations now total at least $25 billion
    annually. What is not known is what the government is specifically getting
    in return for these expenditures. Investment streams of this magnitude
    must be made carefully and with a full understanding of what the
    anticipated and actualized mission benefits are.
•   Second, IT is characterized by high risk and high return. Real opportunities
    do exist to use it in ways that can boost organizational performance. But,
    risks of failure are ever present and must be rigorously managed in order
    to ensure successful decisions and project completions.
•   Third, repeatable success takes sound management processes that are
    applied with relentless discipline. Our research on those organizations that
    implement IT projects successfully found that with rapidly changing
    technological power and choices, sustainable and effective management
    practices are the key to achieving regular success.
•   Fourth, the challenge is implementation. Leading organizations found that
    understanding these practices was only a small first step. For most, it took
    3 to 5 years to fully institutionalize the practices into improved
    management processes. Similarly, in the federal government, a consensus
    has emerged among government decision-makers on what the problems
    are and what can be done to solve them. Now, agency leaders must
    effectively implement IT management processes and reinforce
    accountability to produce tangible results with IT investments.

    I would like to elaborate on each of these points and then make some
    summary remarks.




    Page 2                                                       GAO/T-AIMD-97-38
                     In the current environment of making government work better and cost
Better Information   less, there are high expectations of information technology to change old,
Needed About IT      inefficient ways of running programs and delivering taxpayer services.
Investments          Most federal agencies are largely dependent on information systems to
                     deliver services, maintain operations, track outlays and costs, manage
                     programs, and support program decisions. Technology offers government
                     a means to revolutionize the way it interacts with citizens to streamline
                     service, improve quality, and curtail unnecessary costs. Demonstrating
                     these critical linkages to top government executives is paramount to
                     achieving the necessary attention, understanding, and support necessary
                     for long-term success.

                     Several facts are well known. The expectations for technology are set in a
                     challenging federal environment. Increasingly, pressure is being brought to
                     bear on shrinking the size of the federal deficit, not only by reducing
                     spending but by getting better service for lower ongoing costs. IT-related
                     obligations in the federal budget, exceeding $25 billion annually, may be
                     put under increasing scrutiny as part of overall discretionary spending.

                     Further, technology itself is evolving at a rapid pace. The industry reports
                     on this issue are consistent. Every few years, the performance-to-price
                     ratio of computer hardware doubles. New product cycles in the
                     information technology industry now average months rather than years.
                     This rapid evolution produces new challenges—such as the security of
                     global networks—before current problems can be fully resolved—such as
                     the replacement of aging, legacy systems that can no longer meet
                     requirements.

                     In this environment of demanding requirements, close scrutiny, and rapid
                     change, more attention needs to be focused on what is not known about
                     the government’s technology investments. First, the government really
                     does not know exactly how much it is spending on IT. The $25 billion
                     figure represents specific IT obligations reported to OMB by federal
                     agencies through a special budget exhibit.2 This information is not
                     comprehensive or collected on a governmentwide basis; therefore, the
                     total amount of annual spending for IT is unknown.3


                     2
                      OMB Circular A-11, Section 43.
                     3
                       Information Technology Investment: A Governmentwide Overview (GAO/AIMD-95-208, July 1995).
                     For the most part, agencies do not break out IT obligations as separate line items in their budget
                     documents, but rather include this information within program or administrative costs. The exception
                     may be in the case of major modernization efforts that rely heavily on information systems, but this
                     too can vary from one agency to the next.



                     Page 3                                                                          GAO/T-AIMD-97-38
                          For example, agencies with total IT obligations under $50 million are not
                          required to report them to OMB. The legislative and judicial branches of
                          government are also not required to report IT obligation data to OMB.
                          Additionally, IT obligations embedded in weapon systems and federally
                          funded research on computers are also not part of the reporting
                          requirement. If included, these figures could significantly alter the size of
                          the governmentwide IT investment portfolio. The Department of Defense,
                          for example, has estimated it spends $24 billion to $32 billion annually for
                          software embedded in weapon systems.

                          Second, most agencies do not capture or maintain reliable information on
                          projected versus actual costs and benefits of IT investments. Without this
                          type of information, it is virtually impossible to construct a return on
                          investment calculation as a way of demonstrating positive net gains in cost
                          reductions, improvements in quality, and reduced cycle time for service
                          delivery.


                          The promise of new information technologies is compelling in the federal
Technology Projects       environment where aging systems that are often ill-designed for changing
Offer Potential for       business or mission requirements prevail. There are inherent risks
High Returns, but         associated with not acting to address these technology deficiencies,
                          including potential operational disruptions to vital government services
Include Significant       such as air traffic control, income tax collection, and benefit payments to
Risks and                 recipients of health care or social security.
Uncertainties             The opportunities for using technology to improve cost effectiveness and
                          service delivery in government are immense. While the return of these
                          investments are not yet proven, examples of how technology can be a
                          powerful tool include:

                      •   reducing public burden, such as IRS’ Telefile project that allows taxpayers
                          to file 1040EZ tax returns via touch-tone phones;
                      •   reducing operating costs, such as data center and telecommunications
                          consolidation projects being conducted by the Department of Defense and
                          now OMB on a governmentwide basis, as well as post-FTS 2000
                          implementation, and governmentwide E-mail;
                      •   creating choices and alternatives for the delivery of government services,
                          such as electronic benefit transfer payments, information Kiosks, agency
                          home pages on the Internet, and electronic data interchange between
                          government vendors and agencies;




                          Page 4                                                        GAO/T-AIMD-97-38
•   increasing the responsiveness and timeliness of services, such as the
    Social Security’s highly rated telephone customer service program;
•   improving the value and impact of government information, such as the
    international trade and environmental data index projects being
    conducted under the auspices of the Government Information Technology
    Services Board; and
•   increasing the integrity and reliability of government information systems,
    such as reducing health care fraud through better software detection
    methods and enhancing the security of federal data through
    implementation of better internal controls.

    But there are also risks associated with taking action to implement new
    information systems. Our reviews of major modernization efforts have
    shown that the introduction of newer, faster, cheaper technology is not a
    panacea for flawed management practices or poorly designed business
    processes. Business needs must dictate the requirements and justification
    for the type of technology to be used.

    To ensure this occurs, program units in agencies must carefully analyze
    the processes or procedures that are being modernized. When processes
    are reengineered in concert with the power of information technology,
    significant results can be achieved. Let me illustrate with a few select
    examples from both the public and private sectors.

•   Liberty Mutual reports that cycle time for the issuance of insurance
    policies averaged 62 days, even though the actual determination time took
    less than 3 days. Upon close inspection, management discovered inherent
    process and support inefficiencies, such as up to 24 different handoffs of
    the policy paperwork, separate appeals processes for both sales and
    underwriting, and separate computer systems for each department. By
    combining process redesign with a more powerful, integrated information
    system, Liberty was able to reduce cycle times by one-half, eliminated
    virtually all policy handoffs, and was able to significantly reduce appeals
    to policy denials.
•   IBM Credit Corporation reports that the process to approve credit for IBM
    customers of computers, software, and services was redesigned from five
    steps and an average cycle time of 7 days to a one-person, 4-hour process
    — a 90-percent improvement in cycle time and hundredfold improvement
    in productivity. Again, better designed and integrated information systems
    were part of the total solution.
•   Eastman Chemical found that maintenance staff were spending as much as
    50 percent of their time finding and ordering equipment parts. By



    Page 5                                                     GAO/T-AIMD-97-38
    combining process redesign with a computerized maintenance information
    system, Eastman Chemical reports it was able to cut by 80 percent the
    time needed to find and order materials. As a result, maintenance
    productivity has risen sharply and the company is saving more than
    $1 million every year in duplicate inventory costs.
•   The Department of Interior’s Bureau of Reclamation has concluded that
    mission rescoping has resulted in a focus on water resources management
    rather than building large public works projects. The Bureau reports that
    reengineering and better use of technology has resulted in a grants
    approval process being reduced from 15 steps over 6 months to 5 steps
    and 1 week. Similarly, fish ladder design and funding approval processes
    have been streamlined from 21 steps taking over 3 years to 8 steps taking
    just 6 months.

    Nonetheless, just as technology can help produce impressive success
    stories, it can also become the focus of costly business failures. Dramatic,
    captured results can be few and far between. A recent research study
    conducted by The Standish Group on private-sector and public-sector
    organizations in the United States confirms this troubling trend.4
    According to the research, IT executives report that one-third of all
    systems development projects are cancelled before they are ever
    completed. This statistic highlights the reality of the complexity in
    planning, designing, and managing successful IT projects.

    ITexecutives participating in the Standish Group research also reported
    that only 16 percent of all IT projects were considered successful—that is,
    judged to have accomplished what was expected within the budget
    anticipated at the outset. In addition, of those IT projects that are
    completed, only about 42 percent of the largest companies are successful
    in meeting their initial objectives. In addition, the study’s participants
    reported that over 50 percent of IT projects exceed their original cost
    estimates by almost 200 percent. These statistics serve as a stark reminder
    that information systems projects carry high risks of failure if not carefully
    managed and controlled.

    Although no comparable data is available that focuses exclusively on the
    federal government, our work on specific systems projects has found that
    a cascade of problems—ranging from poorly defined requirements, poor
    contractor oversight, and inadequate system design to managerial and



    4
     Charting the Seas of Information Technology Chaos, The Standish Group International, 1994.



    Page 6                                                                         GAO/T-AIMD-97-38
technical skill deficiencies—has led to project terminations, delays, or
suspensions of procurement authority.5

GAO  has reported regularly on the urgent need for basic management
reforms in the federal government.6 Systems development efforts often fail
due to inadequate management attention and controls. Despite the
visibility and oversight focus on many large systems development efforts,
agency management has often been ineffective in reducing the risks
associated with large, multiyear projects.

For example, over the last decade, the IRS has been attempting to overhaul
its timeworn, paper-intensive approach to tax return processing. As we
have previously testified before this commission, in 1995 we identified
serious management and technical weaknesses in the modernization
program that jeopardize its successful completion, recommended many
actions to fix the problems, and added IRS’ modernization to our high-risk
list.7 Since then, IRS and Treasury have together taken several steps to
implement our recommendations, but much remains to be done. At stake
is the over $3 billion that IRS has spent or obligated on the modernization
since 1986, as well as the additional $3 billion that IRS plans to spend
through the year 2000.

Inadequate project management and poor contractor oversight have also
contributed greatly to systems development problems. Over the past 15
years, the Federal Aviation Administration’s (FAA) ambitious air traffic
control modernization, which is expected to cost $34 billion through the
year 2003, has experienced cost overruns, schedule delays, and
performance shortfalls. These problems led FAA in 1994 to restructure the

5
 Government Reform: Using Reengineering and Technology to Improve Government Performance
(GAO/T-OCG-95-2, February 2, 1995); Improving Government Actions Needed to Sustain and Enhance
Management Reforms (GAO/T-OCG-94-1, January 27, 1994); and Information Resources: Summary of
Federal Agencies’ Information Resources Management Problems (GAO/IMTEC-92-13FS, February 13,
1992).
6
 Improving Government: Actions Needed to Sustain and Enhance Management Reforms
(GAO/T-OCG-94-1, January 27, 1994); Government Reform: Using Reengineering and Technology to
Improve Government Performance (GAO/T-OCG-95-2, February 2, 1995); Government Reform:
Goal-Setting and Performance (GAO/AIMD/GGD-95-13OR, March 27, 1995); Managing For Results:
Steps For Strengthening Federal Management (GAO/T-GGD/AIMD-95-158, May 9, 1995); Managing For
Results: Critical Actions for Measuring Performance (GAO/T-GGD/AIMD-95-187, June 20, 1995); and
Government Reform: Legislation Would Strengthen Federal Management of Information and
Technology (GAO/T-AIMD-95-205, July 25, 1995).
7
 Tax Systems Modernization: Management and Technical Weaknesses Must Be Corrected If
Modernization is To Succeed (GAO/AIMD-95-156, July 26, 1995); Managing IRS: IRS Needs to Continue
Improving Operations and Service (GAO/T-GGD/AIMD-96-170, July 29, 1996); IRS Business Operations:
Issues in Setting Priorities and Managing for Results (GAO/T-AIMD/GGD-97-22, November 7, 1996);
and Financial Management: Challenges Facing the IRS (GAO/T-AIMD-97-34, January 9, 1997).



Page 7                                                                       GAO/T-AIMD-97-38
$7.6 billion former centerpiece of the modernization—the Advanced
Automation System. That system failed because FAA did not recognize the
technical complexity of the effort, realistically estimate the resources
required, adequately oversee its contractors’ activities, or effectively
control system requirements.

FAA  has made some progress since then. However, much remains to be
accomplished. For example, systems comprising the modernization have
long proceeded without a complete systems architecture—or
blueprint—to guide them, leading to unnecessarily higher spending to buy,
integrate, and maintain hardware and software. Also, FAA’s poor cost
estimating processes and cost accounting practices leave it at risk of
making ill-informed decisions on critical multimillion, even billion, dollar
air traffic control systems. We have recommended that FAA develop and
enforce a complete systems architecture, implement a technology
management framework as outlined in the Clinger-Cohen Act of 1996, and,
finally, institutionalize processes for project cost estimation and
managerial cost accounting.8

We are also finding that many agencies have not instituted well-defined
investment control processes to manage the quality of systems
development efforts and monitor progress and problems at an executive
level. Our recent analysis of the potential risks associated with the Health
Care Financing Administration’s (HCFA) Medicare Transaction System
(MTS) illustrates this problem. MTS is one of the most critical new
claims-processing systems being put into government today. When the
system becomes operational, HCFA expects it to process over 1 billion
claims annually and be responsible for paying $288 billion in benefits per
year. Although MTS is in its early development stages, our work has found
that HCFA is attempting to resolve a series of problems related to
requirements definition, project management, and project cost/benefit.
These are classic symptoms associated with the fate of other large,
complex systems projects—extensive delays and schedule compression
early in the project along with ill-defined systems requirements and
objectives—which must be addressed early to keep risks at acceptable
levels.




8
 Air Traffic Control: Complete and Enforced Architecture Needed for FAA Systems Modernization
(GAO/AIMD-97-30, February 3, 1997); Air Traffic Control: Improved Cost Information Needed To Make
Billion Dollar Modernization Investment Decisions (GAO/AIMD-97-20, January 21, 1997); and Aviation
Acquisition: A Comprehensive Strategy is Needed for Cultural Change at FAA (GAO/RCED-96-159,
August 22, 1996).



Page 8                                                                        GAO/T-AIMD-97-38
                         It is important that federal executives learn from leading organizations
Consistently Applying    that have been successful in applying and managing technology to thorny
Management               business problems as well as opportunities for change. To help federal
Practices Is Important   agencies improve their chances of success, we completed a study of how
                         successful private and public organizations designed and implemented
to Success               information systems that significantly improved their ability to carry out
                         their missions. Our report describes an integrated set of fundamental
                         management practices that are instrumental in producing success.9 The
                         active involvement of senior managers, focusing on minimizing project
                         risks, and maximizing return on investment are essential. To accomplish
                         these objectives, senior managers in successful organizations consistently
                         follow these practices to ensure that they receive information needed to
                         make timely and appropriate decisions.

                         Executives in leading organizations manage through three fundamental
                         areas of practices. First, they decide to work differently by quantitatively
                         assessing performance against leading organizations and recognizing that
                         program managers and stakeholders need to be held accountable for using
                         information technology well. Second, they direct their scarce resources
                         toward high-value uses by reengineering critical functions and carefully
                         controlling and evaluating IT spending through specific performance and
                         cost measures. Third, they support major cost reduction and service
                         improvement efforts with the up-to-date professional skills and
                         organizational roles and responsibilities required to do the job. Table 1
                         illustrates the set of management practices we found in the leading
                         organizations we studied.




                         9
                          Executive Guide: Improving Mission Performance Through Strategic Information Management and
                         Technology—Learning From Leading Organizations (GAO/AIMD-94-115, May 1994).



                         Page 9                                                                     GAO/T-AIMD-97-38
Table 1: Strategic Information
Management Best Practices            Decide to Change              Direct Change                Support Change
                                     1. Recognize and              4. Anchor strategic          9. Establish
                                     communicate the urgency to    planning in customers        customer/supplier
                                     change IT practices           needs and mission goals      relationships between line
                                                                                                and information
                                     2. Get line management        5. Measure the               management professionals
                                     involved and create           performance of key mission
                                     ownership                     delivery processes         10. Position a Chief
                                                                                              Information Officer as a
                                     3. Take action and maintain   6. Focus on process        senior management partner
                                     momentum                      improvement in the context
                                                                   of an architecture         11. Upgrade skills and
                                                                                              knowledge of line and
                                                                   7. Manage IT projects as   information management
                                                                   investments                professionals

                                                                   8. Integrate the planning,
                                                                   budgeting, and evaluation
                                                                   processes

                                     The power and the attraction of these practices is that they are intuitive
                                     and straightforward. And when used, they can help produce repeatable
                                     success. Some of our case study organizations experienced dramatic
                                     improvements, such as

                                 •   the proportion of IT projects completed on-time, within budget, and
                                     according to specified requirements going from 50 percent to 85 percent in
                                     2 years;
                                 •   a 158 percent increase in workload being handled with the same level of
                                     staffing because of redesigned processes and modern, integrated
                                     information systems; and
                                 •   a 14-fold increase in benefits returned from information systems
                                     projects—from 9 percent of that projected to 133 percent of that
                                     projected.

                                     But, as experience shows us, the challenge lies in the discipline and rigor
                                     with which they are consistently applied by organizations.

                                     Rather than discuss each practice individually, let me focus on a few key
                                     ones and highlight their importance in the context of an overall strategic
                                     management framework.


Involvement and                      In the information age, top executives have the responsibility not only to
Commitment From Top                  define business goals, but also to initiate, mandate, and facilitate major
Leadership                           changes in information management to support the achievement of these


                                     Page 10                                                             GAO/T-AIMD-97-38
                        goals. Top executives must get personally involved in understanding the
                        relative costs, benefits, risks, and returns associated with information
                        technology investments they are making decisions about and allocating
                        resources to. Unless top executives make these linkages, meaningful
                        change can be slow and sometimes impossible.

                        Driven by budget constraints, one chief executive in our case study
                        sample benchmarked existing systems development capabilities against
                        industry standards. The CEO discovered that the company was getting
                        only a small fraction of expected benefits from systems investments,
                        while taking twice as long and spending four times the resources
                        compared to an industry standard. To correct this, the CEO fostered
                        partnerships between business unit managers and IT professionals that
                        focused on building information systems with measurable benefits.
                        Within 3 years, some tangible payoffs from this approach were
                        occurring. Returns on IT investments rose from $2 million to
                        $20 million per year, applications development and productivity
                        improvements increased steadily, and staff resources were moved from
                        maintaining existing computer applications to more strategic
                        reengineering development and support.


Focusing on Improving   New technology alone will not improve performance or solve operational
Business Processes      problems. It is merely a tool—albeit a powerful one—that supports work
                        processes and the decisions surrounding those processes. If the work
                        processes are inherently inefficient, then technology will not have
                        substantive impact. Accomplishing dramatic improvements in
                        performance usually requires streamlining or fundamentally redesigning
                        existing work processes. Information technology projects must then
                        become focused on improving the way work is done rather than simply
                        automating existing, outmoded processes. As we have seen in the federal
                        government, initiating information systems development projects to
                        replace old technology or automate processes in and of itself is often a
                        poor project justification.10

                        In one company we examined, long customer waits and unacceptable
                        error and rework rates were threatening successful business growth.


                        10
                         USDA Restructuring: Refocus Info Share Program on Business Processes Rather Than Technology
                        (GAO/AIMD-94-156, August 5, 1994); Social Security Administration: Major Changes in SSA’s Business
                        Processes Are Imperative (GAO/T-AIMD-94-106, April 14, 1994); Veterans Benefits Administration:
                        Further Service Improvement Depends on Coordinated Approach (GAO/T-AIMD/HEHS-95-184, June
                        22, 1995); and Business Process Reengineering: DOD Has a Significant Opportunity to Reduce Travel
                        Costs by Using Industry Practices (GAO/T-AIMD-95-101, March 28, 1995).



                        Page 11                                                                       GAO/T-AIMD-97-38
                           Business unit executives and information technology professionals
                           worked together to redesign existing work processes and systems. As a
                           result, a customer process that used to involve 55 people, 55 procedural
                           steps, and a 14-day service delivery was reduced to one person, one
                           phone call, and one step with a 3-day service delivery.

                           Applying technology to new business processes cannot be done in an
                           organizational vacuum. It requires careful consideration of the technical
                           platform, or architecture, of the information systems. If several process
                           improvement efforts are pursued in an unintegrated fashion, they may
                           result in the creation of many new information systems that are isolated
                           from each other. Such fragmentation can seriously inhibit the
                           organization’s ability to share information assets or leverage the benefits
                           of new technology across the organization. The importance of developing
                           and managing an integrated information architecture is one reason why
                           sound strategic information planning is so critical.


Establishing a Strategic   Strategic planning often is depicted as “visionary” thinking or “where we
Information Management     want to go, whether we can get there or not.” In the federal government,
Process                    strategic management at the enterprise level is often a well-orchestrated
                           paper chase responding to bureaucratic requirements and short-term
                           crises, rather than an integrated, institutionalized process that focuses on
                           producing results for the public. Conversely, in the leading organizations
                           we visited, strategic business and information systems plans were always
                           grounded in explicit, high-priority customer needs. Planning, budgeting,
                           program execution, and evaluation are conducted in a seamless fashion,
                           with the outputs of one process a direct input into the other. Most
                           importantly, strategic goals, objectives, and direction are used to actually
                           manage and evaluate the performance of the organization.

                           In one state revenue collection agency we examined, they decided to use
                           the external customer—the taxpayer—as the focus for rethinking and
                           redesigning its services. Using customer focus groups, comprised of
                           individual taxpayers, small businesses, and large corporations, they
                           redesigned the revenue collection process. Information systems and
                           technology were used to maintain customer profiles to assist the agency
                           in responding to questions, problems, and special situations for each
                           taxpayer.




                           Page 12                                                      GAO/T-AIMD-97-38
Linking Technology              Getting the most out of scarce resources available to spend on IT is
Investment to Performance       another key to success. Executives expect meaningful bottom-line
Measurement                     improvements in the outcomes of key business process changes and
                                applications of information systems and related technologies. For this
                                reason, leading organizations carefully measure the performance of their
                                processes, including the contribution that technology makes to their
                                improvement. Senior management is personally involved in project
                                selection, control, and evaluation and uses explicit decision criteria for
                                assessing the mission benefits, risks, and costs of each project.

                                One leading organization we studied uses a “portfolio” investment
                                process—based on decision criteria for assessing costs, benefits, and
                                risks—to select, control, and evaluate information systems projects. As a
                                consequence of more carefully scrutinizing proposed benefits and
                                measuring actual performance results, the company realized a 14-fold
                                increase in the return on investment from IT projects within 3 years.

                                The key to this investment approach is the ability to identify early—and
                                avoid—investments in projects with low potential to provide
                                improvements in program outcomes. Without this focus, organizations can
                                easily become entangled in a web of difficult problems, such as
                                unmanaged development risks, low-value or redundant IT projects, and an
                                overemphasis on maintaining old systems at the expense of using
                                technology to redesign outmoded work processes.


Establishing an Executive       Leading organizations have found that one important means for
Level Focus for                 establishing a clear organizational focus for information management is to
Information Management          position a Chief Information Officer (CIO) as a senior partner with the
                                organization’s top executives. The position itself is not the solution. What
                                matters is the influence that the right person can bring to bear on strategic
                                management issues and IT’s role in both helping resolve existing
                                performance problems and capturing potential from new opportunities. An
                                effective CIO should:

                            •   serve as a bridge between top executives, line management, support staff,
                                and IT professionals;
                            •   advise top executives and senior managers on the worthiness of major
                                technology decisions and investments, while participating in their
                                selection, implementation, and final evaluation of results achieved;




                                Page 13                                                     GAO/T-AIMD-97-38
•   work with managers to understand and define the role of IT in helping
    achieve expected business or program outcomes, creating a joint
    partnership with line management to achieve successful project outcomes;
•   design and manage the system architecture supporting the business needs
    and decision-making processes of the organization; and
•   set and enforce appropriate technical standards to facilitate the effective
    use of information resources throughout the entire organization.

    In one of our case study organizations, prior to establishing a CIO, the
    cost of maintaining and enhancing existing systems consumed nearly
    all the organization’s IT budget. There was no one to focus senior
    management attention on critical information management and
    technology decisions. Once an experienced CIO was put in place,
    technology investment decisions became highly visible and line
    executives were held accountable for the business case underlying these
    decisions. The CIO focused on improving the speed, productivity, and
    quality of IT products and services.

    A key CIO responsibility is to promote a productive relationship between
    the users of technology and the information management and systems
    staff who support them. Managers in leading organizations recognize that
    they are customers of IT products and services. They assert control over
    the funding of IT projects and take responsibility for understanding and
    helping to define the technology needed to support their work. IT
    professionals then act as suppliers, working to support efforts to meet
    clearly defined management objectives, make critical decisions, and solve
    business problems. This requires facilitation, mediation, balance, and
    consensus—particularly when weighing the needs of individual business
    units with the corporate needs of the organization. The CIO helps make this
    process work smoothly.

    If the management focus of leading organizations who are successful at
    applying technology to business needs and problems are compared with
    typical management practices found in federal departments and agencies,
    major differences appear. Table 2 summarizes some of the primary
    discrepancies.




    Page 14                                                    GAO/T-AIMD-97-38
Table 2: Management Approaches in
Leading Organizations Versus Typical   Best Practice Management      What a Leading                  What Many Federal
Federal Agencies                       Area                          Organization Does               Agencies Do
                                       Decide to change              —Quantitatively                 —Fail to benchmark
                                                                     benchmarks against              performance
                                       Initiate, mandate and         standards and industry          —Delegate IT issues to
                                       facilitate major changes in   leaders                         technical units and staff
                                       information management to     —Evaluates current              —Sustain management
                                       improve organizational        performance and                 rates of turnover that hinder
                                       performance                   opportunities for               true ownership and
                                                                     improvement                     accountability
                                                                     —Holds program managers
                                                                     and stakeholders
                                                                     accountable for IT decisions
                                       Direct change                —Evaluates existing              —Justify or purchase IT
                                                                    mission critical processes       products and services
                                       Establish an                 before applying IT               before evaluating existing
                                       outcome-oriented, integrated —Directs scarce IT               business processes
                                       strategic information        resources towards                —Lack accountability and
                                       management process           high-value, high priority uses   disciplined decision-making
                                                                    —Carefully controls and          for IT investments
                                                                    evaluates IT spending            —Fail to rigorously monitor
                                                                    through specific cost and        the results produced by
                                                                    performance measures             systems investments
                                       Support change                —Maintains up-to-date           —Perpetuate outmoded
                                                                     professional skills in          skill base with inadequate
                                       Build organizationwide        technology management           training and hiring of new
                                       information management        —Establishes clearly            expertise
                                       capabilities to address       defined line and IT             —Fail to delineate line
                                       mission needs                 management roles and            management and IT
                                                                     responsibilities                professional roles and
                                                                                                     responsibilities in major
                                                                                                     system development and
                                                                                                     modernization efforts



                                       The Congress has provided clear direction to move the debate from
Implementation of                      whether to change information management practices in the government
Governmentwide IT                      to what exactly to change and how to do it. Significant changes in law
Reforms                                have already occurred that represent major, positive steps forward in
                                       pushing for greater top management responsibility and accountability for
                                       successful IT outcomes and provide the impetus for improvements in
                                       agency management approaches.

                                       In May 1995, the Paperwork Reduction Act was revised to include many of
                                       the fundamental management practices endorsed by our research. For
                                       example, strategic IT planning provisions explicitly call for linkages
                                       between agency business plans and IT projects. This strategic planning is
                                       to be anchored in customer needs and mission goals. Moreover, the



                                       Page 15                                                                 GAO/T-AIMD-97-38
agency head is now directly responsible for ensuring that IT-related
activities directly support the mission of the agency. Additionally, IT
projects are to be managed as investments, with a process put in place to
maximize the value and assess and manage the risks of major IT initiatives.

In addition, OMB has revised its Circular A-130—the primary
governmentwide policy guidance for strategic information management
planning—to require agencies to (1) improve the effectiveness and
efficiency of government programs through work process redesign and
appropriate application of information technology, (2) conduct
benefit-cost analyses to support ongoing management oversight processes
that maximize return on investment, and (3) conduct post-implementation
systems reviews to validate estimated benefits and costs.

Most notable is the Clinger-Cohen Act of 1996.11 Not only does this
legislation effectively build upon management and strategic planning
themes in the Government Performance and Results Act and the
Paperwork Reduction Act, it also contains some of the most significant
changes made to IT planning, management, and procurement in decades.
Agencies are required to use capital planning and investment processes for
reaching decisions about IT spending, rigorously measure performance
outcomes of IT projects, and appoint Chief Information Officers to ensure
better accountability for technology investments. Collectively, these
changes in law and regulation should make it clear to agency leaders what
the Congress and the Administration intend to be done differently in
investing and managing information and technology.

Just as important as the “what to do” is the “how to make it happen.”
Agency managers need new methods and tools that will help facilitate
fact-based discussions and analyses of proposed IT investments. Toward
this end, we have developed a strategic information management
assessment guide used in five agencies and departments to date—Housing
and Urban Development, Coast Guard, IRS, Pension Benefit Guaranty
Corporation, and the Bureau of Economic Analysis.12 This analysis has
been used to identify management strengths and weaknesses and to
construct corrective action plans. Several of these agencies have reported
that the implementation of new management processes in concert with
our best practices framework has helped save several millions of dollars
by consolidating systems with business function redundancies, and

11
  National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106, Division E.
12
   Strategic Information Management (SIM) Self-Assessment Toolkit, Exposure Draft, Version 1.0, U.S.
General Accounting Office, Accounting and Information Management Division, October 28, 1994.



Page 16                                                                          GAO/T-AIMD-97-38
                     cancelling questionable low-value IT investments. Other agencies have
                     conducted self-assessments on their own, and we are in the process of
                     obtaining feedback on their results.

                     OMB has also published an IT investment analysis guide,13 which provides
                     agencies with a structured management process for reaching decisions
                     about selecting, controlling, and evaluating IT investment projects. Finally,
                     we are developing more detailed management assessment guides for
                     business process reengineering, investment analysis, and IT performance
                     measurement that we expect to distribute in the near future.


                     Two key factors will inevitably affect changes to the government’s
Concluding Remarks   approach to information technology management. First, government
                     leaders must facilitate success. Never before has there been such a sense
                     of urgency to improve how the government is managing and acquiring its
                     information and technology assets. Where possible, success stories both
                     inside and outside of the federal government must be shared and senior
                     agency managers must learn from them.

                     The second key factor affecting long-term improvement to IT management
                     in government is reinforcing accountability for results. In this regard,
                     focused and consistent direction, advice, and oversight is needed from the
                     Congress, the Executive Branch, and central oversight agencies. It is
                     essential that the federal government’s IT portfolio be visibly monitored in
                     the oversight process. Agencies should produce performance baselines,
                     report on all IT obligations and expenses, show projected versus actual
                     project results, and establish a proven track record in managing and
                     acquiring systems technologies. Oversight flexibility should be
                     increasingly earned as demonstrated capability to deliver increases.

                     With proper incentives and encouragement, agency managers can be
                     expected to surface problems early and move towards management
                     resolution before huge sums of money are expended. Budget and
                     appropriations decisions as well as oversight hearings can focus on
                     anticipated risks and returns of IT projects, interim performance results,
                     and final evaluations of long-term improvements to program outcomes,
                     service delivery, and cost effectiveness.




                     13
                        Evaluating Information Technology Investments: A Practical Guide, Office of Management and
                     Budget, Executive Office of the President (OMB Publication 041—001-00460-2, November 1995).



                     Page 17                                                                       GAO/T-AIMD-97-38
           This concludes my prepared testimony. We look forward to working with
           this commission in its efforts to improve the public’s return on investment
           in information technology through management reform at the IRS. I would
           be glad to answer any questions you may have at this time.




(511035)   Page 18                                                     GAO/T-AIMD-97-38
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