OMB puts brakes on financial systems modernization

The Obama administration announced today that it will overhaul the federal financial management system and prohibit agencies from placing task orders or contracts for modernization efforts.

“Financial system modernizations projects in the federal government have become too large and complex,” Office of Management and Budget Director Peter Orszag blogged this morning. “By setting the scope of projects too broadly rather than focusing on essential business needs, federal agencies are incurring substantial cost overruns and lengthy delays in planned deployments."

The federal government has roughly 30 financial systems projects that will be affected by this policy, according to Orszag. The total cost expended on these projects is anticipated to be $20 billion over the life of the projects, with an addition $3 billion spent annually to maintain them. Jeffrey Zients, deputy director for management and federal chief performance officer, said these changes—which may include ending some projects—will decrease that annual spending.

The underlying issue is getting the government to spend its money wisely. Zients said the overall effort should set the course for higher returns for the roughly $80 billion the government spends on information technology.

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“This effort is about dramatically increasing our success rate and achieving a much higher return on our taxpayer dollars,” Orszag said. Overall, the administration wants to reduce costs, especially regarding over-spending the planned budget, while getting more from each dollar spent, he added.

Financial systems that are not undergoing modernization won’t be affected by the new directive; OMB instead wants to review any modernization projects to financial systems. As a result, officials decided to halt any projects pending OMB’s approval. Those projects are an area of persistent problems for the government, according to a memo Orszag issued today.

Along with the financial management systems reviews, Vivek Kundra, federal chief information officer, will review high-risk IT projects throughout the agencies. Officials will have to develop plans for improving the projects or risk potential changes to the fiscal 2012 budget proposal, according to a memo Orszag issued today. Kundra will issue guidance on the review process in late July.

Administration officials will attempt to root out the core problems plaguing IT projects. Kundra said the administration will strengthen existing policies and get rid of outdated or cumbersome rules. Officials also want to apply best practices to IT projects and consider other options for improving them. For instance, officials will raise the bar for project managers and employees, as well as institute additional ways to hold managers accountable for results with more rigorous reviews of their projects, according to officials and to Orszag’s memo.

One of the main issues facing government IT is the productivity gap between the private sector and the government, according to Zients, who came to the administration from the private sector. The private sector has improved its productivity by applying new technologies to their operations, but the government hasn’t gotten those gains.

“A root-cause reason for that is IT,” he said. IT has been at the center of those productivity gains but too often the government doesn’t get high enough returns on its IT investments, he said.

“There are too many situations where our IT budgets run over-budget, behind schedule, and, oftentimes, fail to deliver their promised results,” Zients said.