KPMG, SAP Prepare for Major Pa. Project

KPMG, SAP Prepare for Major Pa. Project

Tom Shirk

Donald Edmiston

Jon Gearhart

KPMG Consulting Inc. is embarking on an enterprise resource planning project in Pennsylvania that industry and government officials expect to be closely watched as one of the largest projects of its kind.

The project implementing SAP America Inc.'s ERP software has attracted the attention of state and local officials across the nation who are looking for ways to tear down barriers between agencies, improve the flow of information across the government and improve services to citizens.

"The commonwealth of Pennsylvania is a leader in the technology area among the states," said Rodger Cerritelli, senior vice president, KPMG Consulting of McLean, Va. "They were one of the first [state or local governments] to do an outsourcing deal. They would be one of the first states of this size to go forward with an SAP implementation."

The groundbreaking, three-year project, which the Governor's Office for Information Technology has named Imagine PA, will provide software upgrades for 52 state agencies to streamline their accounting, budgeting, payroll, personnel and purchasing, and other core business functions.

A successful project in Pennsylvania will help boost sales for major ERP software companies, such as Oracle Corp. of Redwood Shores, Calif., SAP America of Newtown Square, Pa., PeopleSoft Inc. of Pleasanton, Calif., and systems integrators that implement ERP software, such as Accenture of Chicago, Deloitte Consulting of New York and KPMG Consulting, industry observers said.

There has been "a great resurgence" this year in requests for proposals for ERP packages and implementations, said Dave Natelson, Oracle's vice president for state and local applications. The most sought after ERP packages for state and local governments are financial, human resources and payroll, he said.

Companies are busy responding to RFPs in Connecticut, Maryland, Nebraska, New Jersey, North Dakota, Ohio and Oklahoma, said industry officials.

The state and local government enterprise application solutions market will grow at a rate of 23.4 percent from $822.3 million in 2001 to $1.5 billion in 2004, according to Gartner Dataquest, Stamford, Conn.

The ERP market is no longer focused primarily on back-office functions, such as payroll, human resources and accounting, said Rishi Sood, principal analyst at Gartner Dataquest. More attention is paid to electronic government and customer relationship management, he said.

"The marketplace is extremely competitive now that the enterprise has extended beyond the back office," said Sood. "We are starting to see [ERP] software vendors stake out landscapes of strength in the marketplace."

As a result, all of the major software companies have Internet-based solutions on the market, said Chip Blagg, Deloitte's public-sector global leader of administration and finance.

Two years ago, Pennsylvania officials began two separate but closely related procurements to select an ERP package and a systems integrator to help agencies migrate from the old software to the new.

In June 2000, SAP won a $51.8 million contract from Pennsylvania for its ERP software suite. Pennsylvania officials announced in December 2000 that KPMG had been selected for the systems integration portion of the contract.

At press time, negotiations for the KPMG contract were wrapping up, according to state and company officials. The Pennsylvania contract is structured with KPMG as the prime contractor and SAP as the subcontractor, said Tom Shirk, president of SAP Public Services Inc.

In the past, states have rolled out ERP slowly and cautiously, but now they are moving aggressively, scheduling shorter implementation time-lines similar to those used by the private sector, he said.

Understanding ERP

Enterprise resource planning is a business management system that automates and integrates the major financial and administrative information systems for a private organization or a government.

For governments, these information systems typically include accounting, budgeting, payroll, personnel and purchasing.

The trend is slowly moving from implementing ERP on a system-by-system basis or an agency-by-agency basis to an enterprisewide basis for all systems, either in one agency or all agencies within one government. Vendors install the systems either in stages, referred to as waves, or simultaneously, which is known as the big-bang approach.



An ERP project in Arkansas that would upgrade financial and human resources systems for all state agencies will be the first statewide project to be completed if it goes live as scheduled in July, said Shirk. In Arkansas, SAP is the prime contractor and Deloitte the subcontractor, he said.

SAP received $19 million to implement the computer program and train employees and another $5.9 million on obtaining the software license and a three-year maintenance contract with Arkansas. Deloitte did not provide the value of its share of the project.

SAP and Deloitte have a similar prime-sub arrangement in Delaware, where they have been working on a 30-month implementation of ERP for financial, human resources and payroll systems.

Deloitte has implemented SAP software for the Florida Department of Revenue and the California Department of Water Resources, Blagg said.

The Pennsylvania Office for Information Technology plans to roll out the accounting and purchasing systems to agencies in three waves, completing those systems in 24 months, said Donald Edmiston, project manager for Imagine PA.

The other three functions ? budgeting, payroll and personnel ? will be rolled out at once to all agencies in what the industry calls a big-bang approach. Budgeting will be completed in 18 months and payroll and personnel in 24 months, Edmiston said.

"The wave approach is to take seven or eight agencies that aren't very complicated and roll it out to them first, and do it in three waves," he said. "The big-bang approach is to do it all at once for each of the 52 state agencies."

"The big-bang approach gets them away from the hassle of trying to knit systems together," Shirk said. "It is good for e-government and
for having a comprehensive constituent portal."

States now expect integrators to have the first wave operational in one or two years, Blagg said, adding that the days of the five- to seven-year projects are over. For example, Deloitte will implement the Arkansas project in 18 months, with the first 12 to 14 months set aside for configuration and the last four to six months devoted to implementation and training, he said.

Occasionally the software vendors do the implementation themselves, said software company officials. While some states do the software procurement and implementation together, others separate the two procurements. When they are separated, the state has the advantage of getting competitive bidding on the implementation, Shirk said.

Although SAP has won some high-profile contracts, Oracle and PeopleSoft also have significant state and local ERP business. Oracle has sold ERP packages to state agencies in California, Rhode Island and Virginia, Natelson said.

PeopleSoft has completed 10 contracts for financial, human resources and payroll and is in the process of implementing another one in Vermont, said Jon Gearhart, PeopleSoft's industry director for education and government. He said he believes this number puts PeopleSoft in the lead among software vendors selling to state governments.

Oracle works not only with large systems integrators on ERP projects, but also with 20 to 30 regional-based, midtier systems integrators for state and local ERP implementations, said Natelson. He declined to name the companies.

Accenture is implementing PeopleSoft for statewide ERP projects in Kansas, Massachusetts and New York and has completed projects for financial and human resource systems in another seven or eight states, said Steve Mankoff, a partner with Accenture's USA government operating group.

The newer generation of ERP projects for state and local governments are significant because they challenge both the software companies and the systems integrators to construct systems that handle the unique needs of the public sector, Cerritelli said.

"The trailblazers get to [install] new modules," he said.

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