Thoughts on the State of Federal Cloud Investment

Published: May 17, 2017

Federal Market AnalysisCloud ComputingInformation TechnologyInformation Technology

Overburdened CIOs and the presidential transition are likely the culprits behind falling cloud spending.

There seems to be a lot hand-wringing in the federal cloud market nowadays. Whereas many in industry and government appear to have assumed that agency cloud spending would have ramped up by now, just the opposite is true. Cloud spending has been falling across all sectors of the market. We’ve seen this in our data here at Deltek, and other analysis firms have reported the same.

Explanations why spending is falling have not been difficult to find. Agencies have migrated their “low-hanging fruit,” cloud services are too difficult to buy using currently available procurement methods, agencies remain concerned about data security, service level agreements are not protecting against cloud vendor lock-in, and so on. All of these influences are shaping the market, but to my mind they are peripheral to the two factors that truly drive cloud spending - agency IT leadership and White House stability.

Agency IT Leadership

My intent in calling out agency chief information officers is not to cast aspersions. These hard-working men and women are doing the best they can, I’m sure. What I mean to say is that agency CIOs are struggling to adopt a new technology approach (i.e., cloud) while attempting simultaneously to untie the Gordian Knot of legacy IT investments.

Unlike the knot overcome by Alexander the Great 2,300 years ago, the jumble of wires faced by agency CIOs cannot be cut with the stroke of a sword. Think back to all the initiatives that agency CIOs have had to address over the last few years. Remember PortfolioStat? How about exposing so-called “Shadow IT?” Category Management, anyone? Then there’s OMB’s Revised A-130 guidance with its provision that all contracted IT efforts must be aligned to initiatives in agency Information Resources Management Strategic Plans; plans that themselves now need to be revised. These initiatives are just the tip of the administrative iceberg.

The burden of managing compliance with policy and legislative mandates is cumulative. So, after 8 years of White House technology directives and legislative initiatives is it really that difficult to believe agency IT modernization efforts are slowing? CIOs are in the midst of a struggle to understand what IT assets they have and how the funds they have maintaining them are spent. How is anyone, no matter how competent, supposed to engineer an enterprise-level move to the cloud in the middle of such a complicated and cumbersome process? Some might point to the adoption success achieved by the Federal Communications Commission. Great! How big an agency is it compared to the Department of Veterans Affairs?

Presidential Transition Woes

Add turnover in agency leadership to the chaos of IT management. This phenomenon has nothing to do with Donald Trump. F.D.R. could be in office and the uncertainty and hesitation would still be there. We need to remember that federal cloud computing dawned early in the presidency of Barack Obama. Agencies had 8 years administrative continuity, despite the occasional bout of conflict between Congress and the White House.

This kind of stability always evaporates as a presidential transition looms. Remember this chart that OMB released with the fiscal 2016 budget?

OMB probably put these numbers together in the weeks before releasing the FY 2017 budget request in February 2016. Already at that time agencies forecast that they intended to lower cloud spending by $450M in Fiscal 2017. They warned the market this cut was coming. Was the drop planned because all the “low-hanging” fruit had been plucked? Probably not. How many federal organizations do you know of that still use antiquated business capabilities? A lot, I’ll bet.

I suspect the decline in projected spending came about because experienced federal planners know that they ought to be conservative with proposals for new technology investments when they aren’t sure they’ll be there to oversee the work. They also don’t know if the priorities they’ve established will be the priorities of their successors. My sense, therefore, is that it’s too soon to worry about the demise of cloud investment by federal agencies. If we continue to see falling spending on cloud for the next two fiscal years then we should be concerned. I’m not counting on that happening, however, and neither should you.