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OMB FY 2017 Budget Guidance – Agencies Told to Cut More

While the FY 2016 federal budget appropriations bills are working their way through Congress, the Office of Management and Budget (OMB) is looking to FY 2017 and has again directed agencies to submit lower discretionary budgets.

Following their normal budget process and timelines, federal agencies are beginning to prepare their FY 2017 budgets, which will not be submitted to Congress until February 2016 to take effect that October, more than 16 months from now.  As is customary for this time of year, OMB issued a memo with specific budget preparation guidance for FY 2017 to outline any new or specific parameters that agencies are to follow.

Discretionary Budget Requirements

Key provisions in OMB’s guidance to agencies for their FY 2017 budget submission include:

  • A five percent reduction below the agency’s net discretionary total for FY 20 17 as stated in the FY 2016 Budget (unless otherwise directed by OMB)
    • The 5 percent reduction is to apply equally to defense and non-defense programs. Agencies that are split between the two may not reduce one area more than 5 percent to offset the other area.
  • Requirement to sufficiently fund ongoing Presidential priorities
  • Inclusion of a separate section that identifies recommendations on how they will continue efforts to increase effectiveness and reduce fragmentation, overlap, and duplication
  • Identifying additional investments in programs that support their missions, especially programs with strong evidence of effectiveness. However, the agency’s total net discretionary for FY 2017 may not exceed the FY 2017 total provided in the FY 2016 budget request. Agencies should separately identify and rank these investments by priority.

As in previous years, agencies are to exclude the following:

  • Shifting costs to other parts of the Federal budget
  • Reclassifying existing discretionary spending to mandatory
  • Reductions to mandatory spending to be enacted in appropriations bills
  • Across-the-board reductions
  • Enacting new user fees to offset existing spending, (although agencies may submit these separately as alternative ways to achieve the guidance level.)

Other Parameters

In addition to the directives above, agencies are instructed to continue to support the President's Management Agenda (PMA) focused on agency effectiveness and efficiency as well as government-funded data and research efforts and workforce improvements. In support of the PMA, OMB wants agencies to focus on

  • Implementing CAP goals
  • Using data-driven management reviews (e.g. FedStat)
  • Supporting Agency Digital Service Teams
  • Reducing their real property footprint
  • Reducing improper payments
  • Enhancing shared services
  • Implementing the DATA Act and FITARA.

Further, OMB wants agencies to prioritize institutionalizing the use of data and evidence to drive better decision-making and achieve greater impact at their agencies.

While there are no surprises or major changes in how OMB is directing agencies to develop their budgets over recent years, it seems that the number and complexity of requirements continues to grow.

Room for Expansion across Agency Shared Services Adoption

A recent survey of federal agency leadership explored drivers behind the uneven adoption of shared services for acquisition, human resources, and information technology. Delving into agency business cases sheds light on which agencies are leading the way with transitioning major information technology efforts to shared service environments. 

Survey Summary

In March 2015, the Partnership for Public Service and Deloitte released findings from a survey on shared services progress. Researchers interviewed CFOs and leaders from 18 of CFO agencies to take stock of federal shared services including the attitudes and efforts underway across acquisition, human resources (HR), and information technology (IT). The respondents offered varying perspectives on government buying. Some viewed agencies as independent service providers, which may lend a competitive aspect to shared service arrangements. Others are inclined to see government as a single purchaser, which contributes to a more collaborative environment. Over half of respondents (55%) indicated that terminating or transitioning services was difficult. 28% suggested it was a moderate challenge, and 17% said it was easy. Survey respondents identified primary objectives for adopting or expanding shared service use. The top drivers included cost savings (78%), mission delivery (67%), customer service (56%), and cost avoidance (50%).

 

The survey findings stopped short of offering assessing the status of each of the agencies. However, agency budget materials provide some insight for plans related to shared services. 

Observations from IT business cases

According to the Office of Management and Budget’s exhibit of business cases for major IT investments, federal agencies identified 738 major efforts totaling $43,609.1 million in their FY2016 budget request submissions. Of these investments, 383 include current or planned shared service spending, nearly 52% of those major IT efforts. 

Across the Department of Defense’s 124 major investments, 41 include current or planned efforts for shared services. Total funding associated with these efforts totals over $7.3 billion. Due the nature of the data reported, it is unclear what portion of those resources will be directed toward shared services. Of the major investments planned Defense-wide, 58% involve shared services. Across the Army’s 31 major efforts, 23% have current or planned shared service elements.  19%of the Air Force’s 31 major investments include shared services, and 16% of the 19 major IT projects for the Navy and Marine Corps do as well.

Analysis of the major investments across civilian agencies highlights the range of adoption progress across organizations. By the level of spending associated with those investments, the top five civilian agencies for shared services are Veterans Affairs, Homeland Security, Health and Human Services, the Department of Commerce, and the Department of Agriculture. 79% of the 24 major investments at the Department of Veterans Affairs include current or planned spending on shared services. At the Department of Homeland Security, 66% of 89 major investments involved shared services. Within Health and Human Services, 60% of 94 major efforts include shared services components. 72% of the 23 major investments detailed for the Department of Commerce have shared service elements. The Department of Agriculture reported on 24 major IT efforts, 83% of which include shared services.  Total funding associated with these major investments across the top five agencies combines to roughly $12,070 million. As with the Defense Department, the portion of each fund intended for shared services is not specified.

Take Away

 

Agencies are approaching shared services as a means to increase operational and cost efficiencies. In some cases, concerns about mission delivery contribute to some reluctance to relinquish program control.  In others, the ability to standardize and ensure consistency of services is helping shared services gain traction. Additionally, agency leaders are working to resolve uncertainty about specific benefits and costs associated with the move to shared services in order to decide if it’s right for a particular organization. Given the varied landscape of mission and program requirements across the government, it’s hardly surprising that there’s a range of positions and approaches in play for how shared services are being implemented. 

 

Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.

Commerce Department Looks to Modernize IT by Sharing

The Commerce Department’s CIO, Steve Cooper, has called out three focus areas for technology priorities: shared services, infrastructure, and modernizing the department’s technology strategy. Implementation of shared services will have a palpable impact on contracting, since the federal agency is considering a broker model to deliver services and achieve cost savings. 

The Department of Commerce has established four working groups targeting opportunities to implement shared services within technology, finance, human resources, and acquisition. The aim of these groups is to identify capabilities within those lanes to have delivered by a set of shared service providers. The department will likely stand up a shared service broker, an internal organization that will be responsible for selecting and managing providers, service agreements, and performance. By focusing shared services for commodity technologies and capabilities, bureaus will be able to free up resources to deliver greater value to mission activities. 

According to a recent interview with Commerce's CIO, the acquisition approach has yet to be determined. One potential option will be to pursue shared services as a joint effort along with other functional areas. The other option would treat these services independently. While bureau leadership is in favor of more broadly adopting a shared service model, none of the bureau CIOs have volunteered to take on the responsibilities of being the provider. This presents an opportunity for vendors to fill the role. A request for information (RFI) is expected out by the end of the year, which will then lead to a request for proposals (RFP) for the selected services. Since the leadership consensus across Commerce’s CIOs is inclined toward testing out shared service models sooner rather than later, service providers should watch for upcoming opportunities. In the short term, an RFI and RFP are expected for video teleconferencing and audio conferencing. 

Additional direction for efforts related to shared services and cloud services implementation are covered in the department’s enterprise transformation roadmap. Other areas to monitor for opportunities at Commerce include technology infrastructure modernization, like secure wireless.

 

Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.

 

Federal Spending on Enterprise Business Systems Stays Strong

Ongoing initiatives to modernize government business systems offer prime examples of the ways federal agencies are looking to leverage technology transformation to achieve cost savings and efficiency gains. 

At end of 2014, Deltek’s Federal Industry Analysis team completed analysis of the market for business systems, identifying four segments characterized by different types of enterprise solutions. These four segments are financial management, asset and material management, human resources management, and administration and government management. 


Financial Management – The goal of improving financial management across the government has led to updated guidance for financial management system and shared services initiatives. Systems in this segment include solutions for payroll, accounting, invoice processing, budget formulation, and collections. This segment is expected to grow by 4.7% from FY 2014 to reach $3.4 billion in FY 2015.

 

Asset and Materials Management – Business systems for asset and materials management facilitate tighter asset control. Systems in this segment include solutions for supply chain management, inventory control, and fleet management. This segment remains flat from FY 2014 to 2015.

 

Human Resources Management – These systems support efforts to improve workforce performance. Solutions include personnel management, performance management, recruiting, and compensation management. This segment is expected to grow by 8.3% over FY 2014 levels to $3 billion.

 

Administration and Government Management – These systems include solutions for contract management, program management, customer relationship management, and travel management. Spending in this segment continues near FY2014 levels.

 

Deltek predicts contractor addressable spending on federal business systems to total $10.6 billion for FY 2015, increasing slightly over FY 2014 spending levels.  While many government efforts to improve business systems have been underway for some time, policies and legislative mandates continue to shape both the strategic direction and agency progress. For example, demand for improved business performance is underscored by reporting requirements and the need for increased financial transparency. The goal of reducing spending is also linked to efforts like adoption of shared services and plans to address auditability of financial systems. Ongoing budget pressure has increased the tendency to take an incremental approach to streamlining and enhancing government business operations.

 

Agencies making the largest investments in modernizations efforts include the Department of Defense, Treasury, and Veterans Affairs. Going forward, agencies are looking to continue advancing business system capabilities through mobile access and business analytics. The role of cloud environments is expected to expand, as only a small percentage of systems have completed migrated to cloud environments. Further exploration of the government initiatives targeting modernization of business systems is available in the recent Federal Industry Analysis report Federal Enterprise Business Systems, 2015.

 Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWinIQ. Follow me on twitter @FIAGovWin.

 

Federal Shared Services Marketplace Goes Public

Since the spring of 2013, government agencies have been able to find and buy shared service offerings through an online database called Uncle Sam’s List. The site was launched by the Chief Information Officers Council as part of a strategy to promote use of shared services. By August 2013, over 100 shared services were listed, and the total number was still growing. Now, those shared service listings are being made public to improve government-industry collaboration. 

The Office of Management and Budget (OMB) issued its Shared Services Strategy in 2012. The plan outlined steps for agencies to take toward reducing over $46 billion in duplicative IT investments, focusing on commodity IT purchases as well as government-wide and intra-agency shared services. In the four months following the strategy release, agencies faced a series of deadlines to advance enterprise planning and the Shared-First approach. Since the initiative launched, agency adoption of shared services through Uncle Sam’s List has simplified acquisition and delivered cost savings. For example, by consolidating computer buying contracts, the Department of Commerce was able to cut its spending on desktop computers by 35 percent and achieve over $200 million annually in administrative costs. 

The information-gathering phase of promoting shared services involved collecting data about what agencies are paying for different products and services. Gathering that data proved valuable early on by highlighting the broad range in prices the government has paid for the same capability. Different agencies were paying anywhere from $21 to $98 per month for identical cellphone plans. That knowledge allows agencies to identify the lower end of the spectrum and target moving toward that price point. To date, Uncle Sam’s List has been maintained within the MAX.gov internal government collaboration site. Initially, the community was entirely maintained by the CIO Council’s Shared Services subcommittee, who determined which service areas, providers, and contracts got listed. That, however, is about to change. 

On September 16, 2014, Federal Computer Week reported that Uncle Sam’s List will be going public. Over the next weeks, version 1.2 of Uncle Sam’s List will get updated with an XML feed. Once the database is public, federal and commercial providers will be able to feed into the list. Building on interview comments from the co-chairman of the CIO Council’s Shared Services Task Force, the article suggests that the move is expected to encourage “a balanced and competitive environment.” 

Vendor Implications 

Easier access to data about federal and commercial commodity IT and service offerings will undoubtedly impact market competition. The ability for industry to access and add to the database will create new opportunities for vendors to provide IT services to agencies targeting agile delivery. The move could also provide vendors with greater visibility into competition within the federal commodity IT and service marketplace. The clearinghouse of services could allow greater insight into the business opportunities around shared services and reframe how vendors characterize markets for their products and services, raising vendor profiles as well as making it easier to identify common requirements being met through shared services.

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @FIAGovWin.

 

New CIO at the Helm of the FDCCI Task Force

Shortly after becoming the CIO of the Department of Justice, Joe Klimavicz also took the helm as chair of the Federal Data Center Consolidation Initiative Task Force.  In this role, he aims to focus on the promotion and adoption of private sector best practices that are applicable to government.

Klimavicz aims to push shared services and cloud computing as proven means for consolidation and optimization in the public sector.  “Whenever possible, interagency sharing of data centers and their assets increases efficiency across the federal government,” Klimavicz stated in a recent blog post on www.cio.gov

The task force will continue to focus on hardware and software utilization.  Sharing these assets across an agency, department or the federal government can allow the hosting organization to charge for usage, while eliminating IT duplication and creating standardization across the agency.

Klimavicz is also a supporter of cloud computing.  As former CIO at NOAA, he saw first-hand the benefits of consolidating 19 different e-mail systems onto a single cloud platform.  The move freed up floor space across NOAA data centers. 

The Task Force will also work to establish benchmarks and metrics to measure progress toward core data center optimization. 

I’m curious to see if Klimavicz will bring more visibility to data center consolidation and optimization progress.   Since becoming part of the PortfolioStat process in 2013, few statistics are available to the public regarding data center optimization progress.   Counts of core vs. non-core data centers by agency have not been published, nor have the final criteria for agencies to use to select their core data centers. 

Agencies continue to say that they are pursuing data center optimization and consolidation.  However without data to support efforts, it’s difficult for the public to assess progress or accomplishments.

 

Justice to Streamline IT Buying through Service Broker

In the coming year, the Justice Department will join the ranks of agencies leveraging service broker arrangements for acquisition of IT infrastructure and services.

In recent years, Department of Justice (DOJ) has progressed efforts to consolidate contracts, reducing redundancy of acquisition efforts and improving enterprise capabilities. Some of these initiatives began as informal strategic sourcing efforts. The department has actively leveraged Enterprise License Agreements (ELAs) and Blanket Purchase Agreements (BPAs) to achieve cost savings. The majority of the department’s mobile device and wireless services were consolidated through several contract vehicles. By leveraging strategic sourcing and shared services for wireless and telecom needs, DOJ can lower equipment expenditures by moving to contracts with best negotiated prices.

Now, it seems that the Justice Department is taking the next step by pursuing service broker. Other federal agencies that have adopted a service broker model include Defense Department and the National Nuclear Security Administration (NNSA). These broker arrangements allow agencies to identify solutions for common requirements and simplify technology buying within organizations.

According to recent reports, DOJ expects to target infrastructure and commodity IT services initially. These technologies would include wide area network (WAN), data centers, storage, email, telecommunications, security, and Trusted Internet Connection (TIC) services. The “next tier” of services that would be addressed, according to Justice’s CIO Klimavicz, cover business enterprise services, such as voice and collaboration.

The decision to formally adopt service brokerage aligns with the department’s strategic plans and technology initiatives. For a number of years, DOJ has actively leveraged Enterprise Level Agreements and Blanket Purchase Agreements to achieve cost savings. In 2012, Justice established ten commodity area working groups focus on IT functions, like data centers, email, and mobility. These groups provide recommendations to the DOJ CIO Council to address commodity investment areas, to identify potential for consolidation and cost savings, as well as to manage milestone and performance metrics.

DOJ’s near term information resource planning highlights 5 goals including institutionalizing IT portfolio management, streamlining operations, enhancing IT security, delivering innovative solutions, and expanding information sharing. The shift to centralized delivery of IT capabilities, such as multi-component (enterprise) IT services, and use of enterprise platforms is expected to drive greater value than silo solutions. Ongoing assessments and continuous enhancement of existing IT assets and vendor relationships will improve the value of the IT portfolio by evaluating the risks of adopting new technologies too soon or sustaining legacy technology for too long.

Brokerage would facilitate increased use of shared services, enable enterprise capabilities, and consolidate departmental purchasing power to improve pricing through strategic sourcing. The Department of Justice’s vision for strategic sourcing has led to the establishment of a Vendor Management Office (VMO) targeting improvement of buying practices for IT infrastructure. The VMO will lead efforts to analyze procurement data, to identify best practices, and to centralize enterprise procurement vehicles.

As with other federal markets being impacted by strategic sourcing, vendors will need to be increasingly mindful of market positioning. IT spending will be increasingly directed through agencies strategic sourcing and preferred contract vehicles, but that shift inhibits spending as government organizations look to achieve economies of scale for commodity IT purchases. The establishment of Vendor Management Offices means contractors can expect increased oversight and greater need to partner smartly.

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @FIAGovWin.

 

Forecast Decodes IT Market Hot Spots

Austerity may be the new norm for federal spending, but both sides of the government IT contracting table are still looking for a big payoff.

The Federal Industry Analysis Team’s flagship forecast report, Federal Information Technology Market, 2014–2019, predicts a decline in the federal IT market from $101 billion in FY 2014 to $94 billion by FY 2019, reflecting a -1.6% Compound Annual Growth Rate (CAGR). The report analysis examines the diverse influences shaping individual market segments and federal agency buying patterns, calling out the primary drivers and inhibitors affecting the IT investment decisions of federal agencies.

Declining IT budgets have ushered in an era in which agencies are tasked to “do more with less.” The realities of more limited funding resources are spurring cost saving initiatives across the government. Commodity information technology purchases are one area especially worth noting. Increased use of strategic sourcing contracts and enterprise license agreements are just two ways that agencies are approaching commodity IT cost reduction. The intention of driving down commodity costs can be found behind the shift away from reliance on desktop computers and toward greater use of thin clients, mobile devices, and laptops. Another tactic to save money comes in the form of delays to technology refresh cycles and efforts to scavenge existing commodity IT resources. These cost reduction initiatives are expected to facilitate operating on a new, lower budget baseline.

A lower baseline typically tracks to lower levels of contracted spending. In many cases, however, agencies intend to reinvest the savings that these changes produce. These reinvestment goals stand to provide contractors with a chance to provide additional products and services. Unlike in the past when agencies might have used recovered funds to pursue ‘nice to have’ capabilities, they are now in the position of stretching to make ends meet.

Facing federal technology mandates and expanding mission requirements, agencies are hard-pressed to prioritize investments to achieve the biggest impact and deliver the greatest value to government organizations. For many agencies, this focus will draw support for investments in hot spots like cybersecurity, cloud computing, virtualization, and big data solutions (e.g. data mining). As budget pressure continues, agencies will be particularly adverse to cuts in security spending. In order to facilitate expansion in cloud computing, big data, cybersecurity, program management and other critical areas, agencies will have ongoing requirements for support services.

Deltek’s Federal Industry Analysis (FIA) Team foresees the recent downward spending trend continuing in coming years but not entirely uniformly. The team’s forecast draws on a whole host of primary and secondary research. Looking beyond the funding reported through the Office of Management and Budget (OMB), the FIA team’s market sizing includes spending from the judicial and legislative branches, the intelligence community, federal organizations that are not subject to federal IT budget reporting requirements, and IT embedded in large defense systems. This off book spending helps to offer a more complete view of government buying. 

These market trends are influencing the future of information technology contracting and creating an environment full of both challenges and opportunities. The trick for vendors is positioning for those opportunities while avoiding pitfalls and keeping an eye on the shifting landscape. The first order of business is getting the lay of the land. Then, the next step is determining which moves will get your business ahead and which ones could be dead ends. For more analysis of contractor-addressable budgets across the federal Hardware, Software, IT Services, and Communications and Network Services markets, see our new GovWin IQ report “Federal Information Technology Market, 2014-2019.”

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Originally published in the GovWin FIA Analysts Perspectives Blog. Follow me on Twitter @FIAGovWin.

 

Shared Services to Ease DATA Act Implementation

Dick Gregg, Fiscal Assistant Secretary of The Treasury and the executive assigned to implementing the DATA Act, expressed concern about the quick three year implementation timeline for the DATA Act at a recent Federal Financial Management Conference.  However, he believes that moving agencies to shared financial management services is a “force multiplier.”

Gregg believes outsourcing financial management functions to one of the four recently approved federal financial management shared service providers could streamline the compliance process.  “The sooner we can move more agencies into shared services, the easier it’s going to be to implement the DATA Act,” he stated.

The Digital Accountability and Transparency Act creates standards for agency reporting of financial data and makes it publically available.  The Act specifies a three year implementation timeline to begin with Treasury’s establishment of a data analytics center modelled after the Recovery Accountability and Transparency Board’s Recovery Operations Center for the Stimulus.  The center will work with OMB to establish agency financial reporting standards.  OMB will also set up a two-year pilot program for use by contractors and grantees.  Gregg wants to move quickly with demonstration programs to see what will work. 

The Act provides no funding for implementation.  This may explain the less than enthusiastic reception from some agency financial managers.  They fear reporting may cast more of a burden on already strained resources.  According to Mary Peterman, president of the Association of Government Accountants, “…generally, they all believe in the essence [of the Act], except that whether the legislating transparency is a value proposition for the citizenry is somewhat the question.”    

Ultimately, the new financial reporting will be available via USASpending.gov which is now managed by Treasury.  After implementation, the federal spending data available via the site will provide a deeper view into federal spending.  Not only will the additional data provide transparency to the public, it should help agency executives gain more insight into their operations, leading to improvements in efficiency and effectiveness. 

 

Four Shared Service Providers Announced for Federal Financial Management

One of the administration’s initiatives to streamline operations has been to implement shared services for core administrative functions.  On May 2nd, OMB in conjunction with the Department of Treasury, announced the designation of USDA, Treasury, Interior and Transportation as approved shared service providers for financial management across the federal government.

In March of 2013, the administration issued a memo, Improving Financial Systems through Shared Services, to promote the use of shared services for federal financial management across agencies.  The designation of the four agencies moves this initiative forward.

Shifting financial services management to other providers will allow agencies to focus more on mission-based programs.  Agencies will also gain efficiencies and economies of scale for system implementations, maintenance, and enhancements while reducing costs.

The four providers were required to undergo an extensive application process and evaluation.  Other service providers may be designated in the future as agencies migrate to these four providers and demand increases. 

USDA replaces GSA as an approved shared service provider for financial management services.   USDA offers SAP as their back-end software, as opposed to Oracle which is offered by the other three providers.   

According to Federal News Radio, GSA getting out of the financial management business is “no real surprise.”  They announced last summer that they would be shedding their human resources management offerings.  GSA offered CGI’s Momentum software for financial management.

USDA’s financial solution is based on a commercial, off-the-shelf resource planning product which is web-based and provides funds management, financial reporting, and general accounting capabilities.  The solution has been deployed in 28 of USDA’s administrative organizations. 

The designation of these providers is just one step in the process to implementing financial management shared services across the federal government.  Treasury's Office of Financial Innovation and Transformation (OFIT) will be working with the providers to address any of their needs and concerns, and resolve any identified issues.

 

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