For states, cash is cast carefully

"States are going to spend in the areas where they've had the biggest problems or where they can get federal funding." ? Ed Nadworny, American Management Systems Inc.

Henrik G. de Gyor

ERP, financial management will see bucks this year


State governments this year will spend heavily on enterprise resource planning projects and financial management systems to help them slash costs and even generate revenue, according to industry officials.

At the same time, the states will continue outsourcing the management and operation of costly health and human services functions to private industry.

"States are going to spend in the areas where they've had the biggest problems or where they can get federal funding," said Ed Nadworny, senior vice president of public-sector services for American Management Systems Inc., Fairfax, Va. "We expect to see more spending in the human services arena and a lot of interest in ERP regeneration."

The Denver-based National Conference of State Legislators reported that state governments have eliminated a $200 billion budget shortfall amassed over the past three years, and will begin a slow recovery as the national economy improves this year.

However, the group warned that state tax revenue usually lags behind national economic trends. This means that any new technology initiatives that state agencies and departments take on will need to be justified by the savings they can generate.

Still, state budget problems don't preclude spending on information technology. The Stamford, Conn.-based market research firm Gartner Inc. estimated that state spending will grow at an average annual rate of 5.9 percent from $42.3 billion in 2004 to $50.3 billion in 2007.

John Goggin, vice president and director of government strategies for the market research firm Meta Group, also of Stamford, said ERP and financial management systems will be in vogue this year because of the accountability they bring to government operations, as well as the role they play in helping state governments develop enterprise architecture programs.

ERP is a business management system that automates and integrates major financial and administrative information systems such as accounting, budgeting, payroll, personnel and purchasing, either agencywide or governmentwide. Because it also standardizes those processes, government officials regard ERP as one of the most effective ways to cut costs.

Financial management systems apply analytical tools that group data from accounting systems and provide accurate, constructive reporting required for preparing budgets.

"There is a demand from [lawmakers] in an election year to be able to account for all of the money that was spent and make sure it was spent wisely," Goggin said.

Several states, including California, New Hampshire, New Mexico, New York and Ohio, will be shopping for major ERP or financial management systems this year, he said.

AMS will concentrate on marketing its Advantage ERP suite to state and local governments this year, Nadworny said. About 175 state and local governments of all sizes nationwide use Advantage ERP, and about 25 of those use the latest Web-based version, he said.

New York-based Deloitte will be looking to assist states not only with ERP implementations but also with business process re-engineering focused on cost containment, said Bob Campbell, national consulting leader of its public-sector practice.

Company officials said that they hope the states will want to replicate Deloitte's success with ERP projects for the Florida Department of Revenue and for San Antonio, and business process re-engineering for Kentucky and Montana.

Although the first wave of state ERP implementations has unfolded more slowly than integrators would have liked, it remains a promising business opportunity, Campbell said.

OUTSOURCING CONTINUES

During the next five years, agencies will turn increasingly to outsourcing as they come to grips with work-force reductions, said Jim Krouse, manager of state and local market analysis for the Reston, Va.-based market research firm Input Inc.

"You will see a trend toward outsourcing health care and welfare [functions]," he said. "Those areas traditionally have been burdensome to government."

Large states with health and human services programs serving hundreds of thousands of citizens will be looking to turn over the management and operation of those systems to private contractors, analysts and industry experts. This trend is already under way in large states such as California, Florida and Texas.

IBM Corp. of Armonk, N.Y., announced in July that it had won an eight-year, $801 million human services outsourcing contract from the California Department of Child Support Services. IBM's subcontractors include AMS and Accenture Ltd. of Hamilton, Bermuda. IBM will build, operate and manage the system; Accenture will provide application development and maintenance; and AMS will handle system implementation at the county level.

At the direction of the state legislature, the Texas Health and Human Services Commission is doing a major consolidation that may lead to increased outsourcing, analysts and industry experts said.

Deloitte has been tapped to oversee the program management office that is responsible for the consolidation, Campbell said.

The commission, which is attempting to consolidate 12 agencies into four, is considering outsourcing a number of functions, including IT support, human resources and eligibility.

Accenture, Deloitte and other integrators are hoping to win new contracts with the commission that result from the consolidation.

IBM, which tracks and collects parking fines for Chicago, will be looking for similar business process outsourcing opportunities with other large municipalities this year, said Tony DeVore, vice president of public sector for IBM's Eastern region.

"A lot of cities and local municipalities are missing out on a big source of their revenue stream just by not being efficient in the way they manage their parking-ticket operations," he said.

In this way, both state and local government can increase revenue substantially by improving the way they collect taxes and parking fines and enforce laws for moving violations, DeVore said.

Cities and states "are looking for new areas of revenue generation, and they are trying to do it without raising taxes. The way you do that is by enforcing the laws on the books," he said.

Staff Writer William Welsh can be reached at wwelsh@ postnewsweektech.com.

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