Strong Demand Forecast for Financial Management Solutions

By Trish WilliamsPublic-sector demand for financial management solutions continues to swell as federal, state and local government officials upgrade their financial systems with Internet technologies while responding to ever-changing accounting and management requirements.The outlook for business growth "is tremendous over the next few years" as public-service entities modernize their business systems and implement commercial best practices, said Barbara Rivera, vice president of SAP America Inc.'s Government Business Unit in Newtown Square, Pa. At the same time, these government entities must comply with stringent Joint Financial Management Improvement Program (JFMIP) requirements in the federal arena, and with Governmental Accounting Standards Board requirements that influence state and local governments, according to leading information technology analysts and industry officials. The public sector's hunger for financial management solutions is being driven by government managers' desire to adopt commercial practices, a move to true off-the-shelf applications and an environment where responsibilities for these systems are being pushed from agencies to the vendors, said Steve Perkins, senior vice president and general manager for Oracle's Federal Group. "This is a very robust marketplace. The death knell for off-the-shelf enterprise resource planning solutions does not appear to be true. What is true is that people are looking for Internet-based solutions, and there is a mandate for applications that are easy to maintain, easy to update and accessible from remote locations," he said.Looking across the federal government, the Defense Department has done "a pretty remarkable job" of pulling together all of its financially related systems into a smaller group of systems, said Ray Bjorklund, vice president of consulting services at Federal Sources Inc., a market research company in McLean, Va. Pentagon initiatives during the past 10 years have seen military planners fashion hundreds of systems into tens of systems, he said.Because the Defense Department has taken steps to stabilize this environment, industry observers predict bigger bucks and more vigorous demand from civilian agencies for financial management solutions in the coming years. Indeed, Federal Sources forecasts civilian agency spending on financial management solutions will hit $1.3 billion during fiscal 2001 and achieve a compound annual growth rate of 8 percent to 10 percent, Bjorklund said.That doesn't mean defense spending for financial management systems will completely dry up. Federal Sources conservatively estimates the Defense Department will spend $600 million to $700 million annually on such systems during the next few years, Bjorklund said. However, he and officials from companies forging new business opportunities in the financial management solutions arena cautioned these figures depend on how a financial management system is defined, which can vary from company to company and from market research firm to market research firm."We're talking about one of the legs of the ERP monster," Bjorklund said, and the kinds of products that American Management Systems Inc., Oracle Corp. of Redwood Shores, Calif., the German software company SAP and a few others are offering as a component of a broader enterprise resource planning market. "We're not talking about accounting systems so much as we are managing all financial business operations," he said.Industry officials said there are an array of major opportunities coming down the pike in the federal and state and local sectors. "On the defense side, there are still a bunch of things cooking," said Zipora Brown, vice president of AMS' Federal Solutions Group in Fairfax, Va. The company's chief federal financial management system solutions, known as Momentum and Federal Financial System, have passed the Joint Financial Management Improvement Program's FACTS II test. FACTS II is a Treasury Department program in which federal agencies submit quarterly consolidated financial data and year-end closing statements.Among AMS' more notable federal implementations is a financial management system for the General Services Administration. This is one of the largest and most complex agencies in terms of its size and the volume of transactions and business it conducts for the U.S. government, Brown said.AMS recently executed phase two of this implementation, bringing to 4,500 the number of users of the financial system throughout the country. Once fully implemented, there will be about 12,000 users, Brown said.One of the objectives of the program was "to build a paperless, real-time system that is accessible to users anytime, anyplace," Brown said. GSA and many other agencies are evolving into mobile work forces, and federal regional offices also are shrinking. So the need for access to data has become more important for the management of agency operations, she said.AMS officials hail Momentum as the most widely accepted solution in federal financial management, and claim it has more agencywide implementations than any competing system. Its open systems architecture supports interoperability with other federal systems, so reports and financial information can flow freely throughout the entire agency enterprise, company officials said.More recently, AMS inked a deal with the Office of Personnel Management and is now in the procurement process for a number of financial management system opportunities in the civilian and defense areas. Brown would not reveal the value of the OPM contract, but said the agency is "doing a lot of forward-thinking work" that would benefit myriad agencies. "One of the important things for financial management systems is the JFMIP certification, and not all the players have products that fit within the federal management rules; hence, they have the special certification wickets they must pass through," said Bjorklund. JFMIP certification is basically a federal stamp of approval that allows companies to provide agencies with financial management solutions that meet the unique needs of the federal government."AMS has an extremely strong market position, because they have focused on building systems that are tailored to the government market. They clearly are the market leader," Bjorklund said.AMS is not the only company offering JFMIP-compliant financial management systems. Oracle's U.S. Federal Financials received JFMIP certification in July 1999, and the company chalked up a FACTS II certification last August for its financial application software. The software can be used entirely from a Web browser, and demonstrates Oracle's leadership in the e-government space, company officials said. "We've been active in the market or quite a while, and think we have a strong appreciation for the opportunities and complexities of implementing these applications in the federal marketplace," Perkins said."The public sector is a difficult market to break into, and people like AMS have a historic capability," but their focus has been a custom-oriented set of solutions, he said.Meanwhile, the market has moved to off-the-shelf solutions and standard upgrades. In addition, the market has evolved from client-server to Internet-based systems, so AMS must make a transition, Perkins said.On a Web page touting its financial management solutions, Oracle said it could provide the tools "to succeed in the Internet economy and enable companies and public-sector organizations to capitalize on global opportunities, drive profitability and build a smarter business."Oracle has a complete solution from customer relationship management "all the way back from ERP, and it includes logistics, human resources and payroll as well. We have been in the federal marketplace for 22 years and have a very large state and local business," Perkins said.Among Oracle's federal financial management solutions customers are the National Institutes of Health, the Bureau of the Public Debt, Small Business Administration and the departments of Veterans Affairs, Energy and Education. Its state and local business counts as customers California's Department of Motor Vehicles and Department of Consumer Affairs, Richardson Independent School District in Texas and St. John's County School District in Florida.Oracle has been aggressive in its partnering, especially in the public-sector marketplace "where there is emphasis on a procurement model that supports the integrator community," Perkins said. "We probably have been more visible in partnering in the past two years," and that trend will continue, he said.For his part, Perkins sees a trend throughout government for an integrated solution. "I see a move away from point solutions for asset management and financial subledgers and human resources, and more government managers that are interested in putting together a technological architecture that allows you to build out over time," he said.Said Federal Source's Bjorklund: "The concept of Web enablement is now being injected into all these ERP-related systems, because there are a lot of constituencies within civilian agencies that need to have access to financials or inventory or human resources-related information. So being able to do that anytime, from anyplace, on a 24-hours-a-day, seven-days-a-week basis is where Web enablement comes in. It makes the whole front end of the system that much easier to use, because you can do so by dialing in from a browser, " he said.Many state government officials not only want to take advantage of the newer technology to improve their services and carry out their missions, but also so they can be more nimble in responding to legislative and policy changes than in the past, industry officials said.Although there has been a steady movement to ease regulation at the federal level, it sometimes seems that "the less regulation there is, the more rules there are," said Caroline Rapking, vice president of AMS State and Local Solutions Group in Fairfax.The Governmental Accounting Standards Board has developed many new accounting rules that state and local governments must follow or risk not getting good bond ratings, she said.Another condition cited by numerous industry and government officials is the difficulty government managers are having in recruiting and retaining skilled technical people. As a result, more and more government managers are looking for newer financial management systems that do not require as much technical support, industry officials said. The way Rapking sees it, larger governments are going to lead the smaller ones, and the large states will be the "the guys and gals on the front line implementing these systems." The financial management side has been the bread and butter of AMS' state and local solutions group, and there are more than 250 public-sector clients using the company's financial management systems, she said.On the software side, AMS often competes for state and local procurements with JD Edwards & Co., Denver, Oracle and PeopleSoft Inc. of Pleasanton, Calif. From a systems integration standpoint, its competition comes from the likes of Deloitte Consulting, New York, KPMG Consulting LLC, McLean, Va., Accenture and PricewaterhouseCoopers, New York."AMS is a different breed of animal than the rest of the competitors because we serve as both a systems integrator and software provider. Most of our competitors from the software side do not implement their software," Rapking said. And for AMS, that spells an advantage, she said. When a government is negotiating to buy a system, "we have much more flexibility in terms of what we can do from a pricing standpoint. And there is often a lot less finger pointing during an implementation. We can only point a finger at ourselves."XXXSPLITXXX-Joint Financial Management Improvement Program (JFMIP) ? JFMIP certification is a federal stamp of approval that allows companies to provide agencies with financial management solutions that meet the unique needs of the federal government. All financial management software that agencies purchase must meet the JFMIP requirements mandated by the Federal Financial Management Improvement Act of 1996.Governmental Accounting Standards Board (GASB) ? This nonprofit group, organized in 1984 by the Financial Accounting Foundation, sets accounting and financial reporting standards for state and local governments. Its mission is to establish and improve standards of state and local governmental accounting and financial reporting that will result in helpful information for users of financial reports and guide and educate the public, including issuers, auditors and users of those financial reports. XXXSPLITXXX-When officials at the market research company Federal Sources Inc. discuss theoutlook for growth in the federal financial management systems arena, they are not talking about accounting systems, but rather solutions that can manage an organization's financial business operations."What we're talking about is that which is most closely aligned with what people generally call enterprise resource planning," or ERP, said Ray Bjorklund, vice president of consulting services at the McLean, Va.-based company. Enterprise resource planning software can span business functions such as financial and cost accounting, human resources, supply chain management, logistics management, customer relationship management, business intelligence, decision support and business planning.But how one defines financial management systems can vary from company to company, and again by market research firm.Bjorklund said: "We're talking about the kinds of products" that are offered as a component of a broader enterprise resource planning market, products coming from American Management Systems Inc., Oracle Corp., the German software company SAP and others.