Attachment C: IT Shared Services Model Analysis

Transcription

1 Attachment C: IT Shared Services Model Analysis Budget Idea: Require all city departments to consolidate independent Human Resources, Finance, Budget, and Technology units into the central administration s Human Resource, Budget, Finance, and IT Departments instead of duplicating personnel and administrative costs for the performance of these services Information Technology Functions: Provided by Regional Computer Center History The Regional Computer Center (RCC) was formed in 1968 due, almost exclusively, to the idea of sharing resources in a consolidated manner. This can be attributed primarily to the technology of that time. A mainframe computer was being used to perform information processing for law enforcement. It being more computer than was needed just for those purposes, the City of Cincinnati and Hamilton County joined with law enforcement to share the computer resources. Mainframe computing was, by its very nature, centralized. It required specialized skills in programming, technology and operations to perform the tasks that provided the required results. Over time, the information processing industry has gone through many evolutions of technology. Personal computers brought some processing down to the desktop but major application processing remained at the mainframe platform. Later evolutions produced applications developed by vendors that could be run on server platforms. That, along with networks, began to take applications off of the mainframe and put them on more economical and accessible servers. As expense of server platforms came down and education of technology became more understandable to the general public, agencies felt comfortable in managing much of their own technology needs. The RCC had always been a charge back agency and continues to be. Ease of technology management and the expense of charge back caused some agencies to choose to manage their own technology rather than paying for those services through the RCC. In some cases agencies used existing staff to do this. In other cases they added IT classifications to their table of organization. As this happened, revenues to the RCC decreased. This resulted in some requested solutions not being provided due to a lack of funds. Lack of funding often caused requests that came to the RCC for enterprise solutions to be postponed, if not entirely rejected. During the ten years 2000 through 2009, funding to the RCC dropped approximately 43.75%. (a) Where possible, agencies acquired their own scaled down solutions rather than pooling funds for an appropriately scaled enterprise solution. Over time, this has resulted in a decentralized means of performing many IT functions. The exceptions to this are the true enterprise services used by all City agencies. The RCC still manages enterprise functions. These include the data and phone networks, , egov, HR system and financial system (although even now separate solutions for some of these are being considered and purchased by agencies). The current funding model is inadequate and does not provide sufficient resources to fund the enterprise services provided or recover existing expenses. A lack of funding in combination with an inability to change had caused stagnancy and has resulted in a very outdated model. This has provided the current decentralized environment in which there are inefficiencies, unnecessary costs and duplication of efforts. (b) (a) - Appendix A is a graph of the funding for years 2000 through 2007 with 2009 statistics added (b) - Appendix B shows a representation of the redundancies between Departments and the RCC 1

2 Today As technology has a way of evolving in cycles, centralized processing and resource use is relevant once again. The idea of server consolidation was considered some years ago. Under the commitment of Milton Dohoney, the project was aggressively initiated with two primary goals: 1. Increase efficiency and reduce costs through the reduction of under-utilized servers; and 2. Relocate and consolidate IT platforms into the RCC Data Center to protect servers previously located in office areas. Despite significant funding problems the project continues to be an overwhelming success. To date, over 100 servers have been consolidated to a single storage area network (SAN) platform. This eliminated the redundancy and the cost of purchasing and managing all of these servers individually. However, this just begins to shift into the direction the industry is moving today. There is still much technology available that is yet to be implemented in order to align ourselves with the industry. Two years ago the RCC performed a detailed evaluation of what was occurring within the IT industry. A separate detailed study was performed by the RCC which obtained feedback from client agencies about the services being provided. In this study the RCC asked all client agencies to provide honest feedback about where failures occurred; where successes occurred; and what direction should be taken by the City in the future. These studies, the formulating of the information and a subsequent report took almost a year to complete. These were by no means superficial studies. They acquired guidance and used information provided through consulting services. Best practice models were studied. Decisions were defined through discussions with many City Administrations around the country and their IT professionals. Conclusions were arrived at through the scrutiny of an IT kitchen cabinet specifically assembled for this purpose. Ultimately the RCC made a proposal for a new operating model. This model will produce improved efficiency, reduced redundancy, financial savings, and compliance with annual audits. The widely accepted industry model and the one the RCC has recommended is that of shared services of enterprise functions. This brings enterprise services into a centralized environment. Technology has once again made it possible to effectively run many applications from a central resource, thereby eliminating multiple occurrences of duplicate products. Regardless the concept, if you can place many needs into a single solution why would the expense of individual solutions be preferred? A computer application would require a server that may cost anywhere from $5,000 to $20,000 or more in some cases depending on the type and need. In order to provide a proper production environment, at very least a second server of the same cost should be purchased for development and testing. These servers should be housed in an environmentally sound and physically secured data center. To provide adequate data protection, a backup system should be purchased for the system. This along with tapes may cost over $2,000. These devices will obviously use electricity to power and cool in the data center. Servers need to be managed with operating system patches and fixes on a regular basis to ensure compliance with the manufacturer. Tuning of the server is required to ensure optimal operation of the hardware. These and other duties are procedures that must be performed regularly by personnel. These are additional costs to the Department. This is where decentralization has brought the City. Consider if the hardware can be eliminated. Consider if the data center does not have to be established or maintained. Consider if a backup and tapes do not have to be acquired. Consider if many of the administrative duties can be eliminated from the Department. Instead, replace these with a single 2

3 device which will house all of the applications, perform all of the backups, provide redundancy and business continuity and all stored in an environmentally sound and physically secured data center with generator backup all at a fraction of the cost of the individual solution. Would this not be a preferred alternative? Yet, the desire to control their own applications has caused Departments to resist this technology. But at what cost to the City is this being done. (c) Rationale for Shared Services Information Security: Centralizing services in a shared services environment will improve consistently applied IT security. Information Security should address integrity, availability, and confidentiality all simultaneously. Information and computer systems are critical assets. Currently City agencies are permitted to manage IT security independently of any corporate or consistent approach. This lack of consistency puts the City s resources in a much greater risk than necessary. The challenges are establishing cohesive support for the policies required to address proper security such as funding, enforcement and training for IT staff to use the necessary tools. The new model will permit consistency to these challenges. Leveraging collective resources enables everyone to conform to a defined security strategy. It reduces the threat of potentially damaging network traffic. It joins resources to provide adequate tools for all participants rather than weak singular solutions. It produces standards which detail specific technologies, methodologies, and implementation procedures to satisfy the City s current and future needs as they present themselves now. Ultimately, once these objectives are realized and enforced, the City would have the potential of bringing outside business in thereby reducing cost to taxpayers. Governance: To ensure success, the City needs to enforce a strong IT Governance Structure. No new IT initiative of the City would be authorized without the evaluation of the Governance Board. It would provide empowerment and the authoritative structure that aligns technology with business goals through lt oversight, management, and regulatory control. Governance will be responsible for defining and prioritizing IT needs enterprise wide. It will act as a support structure during the budget discussions with the understanding that it is useless to establish IT direction without the required funding to accomplish it. Funding: Under the proper funding model, IT should no longer have the broad budget swings. Regardless the service, the cost of doing business must be funded. These costs are the items that are necessary to the City in order to perform the enterprise IT functions. Some of these costs are: voice and data networks, Data Center, HR system, Financial system, egov and applications. By adequately funding these enterprise services, the city will know from year to year what their expenses will be. It will not be dependant on the RCC s ability to recover costs through charge backs or based on budgeted amounts in the event that the budget does not come through. Major improvements or maintenance to these will be promoted at the discretion of the governance board for funding. Under the current funding structure, these costs exist but are not fully funded. At the end of the year, reconciliation may dictate that Departments have to share in the cost to zero balance the budget. This produces (c) - Appendix C illustrates an industry estimate of expected savings from consolidation through virtualization 3

4 unanticipated expenses to Finance and unexpected costs to departments. Having defined costs will help reduce, if not eliminate, this type of funding uncertainties. This will also serve to realize the actual costs of doing business. In cases outside of enterprise funding, agencies will have the opportunity to enter into Service Level Agreements with the RCC. To balance, the RCC has continually increased overhead rates to clients, (one of several factors for client loss). The Budget Office has recommended an additional General Fund overhead appropriation to properly support the enterprise. Cost of implementation and subsequent savings cannot be immediately determined. These depend on the IT staff in agencies other than the RCC and the extent to which they are engaged in IT duties. Over time, savings will occur when efficiencies are realized. Based on industry analysis, the average cost savings of moving enterprise processes to a shared services model range from 15 to 20 percent. Moving administrative processes to a shared services delivery can produce a cost savings of 45 to 50 percent. A shared services model yields operational improvements including consolidation of skills and technology investments, economy of scale, flexibility, and standardization of best practices. It also produces an increase in service quality. These benefits not only have economic value in the form of cost savings, but far reaching strategic implications that enable organizations to concentrate on their core functions. Economic value arises from a lowering of total costs of the existing back-office support functions. There are immediate economies of scale, as consolidated functions and processes eliminate redundancies and minimize the cost of transaction processing activities. These redundancies include duplication of staff, services, and hardware/software purchases. Facilities and utilities costs are lowered because there is typically an aggregation and reduction of what previously may have been many separate locations providing the same function (ex. Data Center/server consolidation). Economies of Scale: Exact savings is unknown without the details of what is occurring within the departments. Two previous studies commissioned by the City of Cincinnati in recent years estimated that the organization spent at least $27 million in technology services. The current IT structure makes it difficult to ascertain the exact amount or identify redundancies in services, though a soft application inventory shows a lack of standardization across the organization. In IT, a single built-in redundancy of a platform is good for the sake of disaster recovery and business continuity. However, it is not typically beneficial to have multiple servers when a shared device will meet the need. It is not advisable to house servers outside of a data center and it is not cost effective to develop multiple data centers at tens, or even hundreds of thousands of dollars per center. These problems and other duplications exist in the City. Providing a single scalable solution meets the needs of the City without producing unnecessary redundancies. Benefit to the City There are functions that make sense to run from a central resource and there are those functions that do not make sense. It makes little sense for every Department to purchase and manage its own payroll system. Where centralizing resources works for a payroll system, so it also does for data centers, hardware, software and personnel. It is advisable to combine servers operating at 20% capacity in order to use a single device operating at 75%. It makes even more sense to virtualize servers where 4

5 possible to place anywhere from 20 to 40 servers on a single device. Likewise, if personnel are spending 40% of their time performing similar duties, consolidation of those duties will produce improved efficiency. IT Oversight: Under this proposal there will be oversight by the governance board to ensure that enterprise-wide IT spending is properly aligned with the City's overall vision. Systems not determined to be in the best interest of the City s vision need to be considered at alternate levels. In practical terms this means that IT oversight will weigh customized solutions and systems against what is best for the overall good of the City as an organization. The model allows for departmental flexibility but requires that any customized needs be shown and considered acceptable by the Governance Board. Security: Throughout the world, there are increasing business risk management trends such as cyber warfare, hacking, etc. that pose serious risks for organizations large and small. Often IT security is reactive, rather than proactive. Recently the RCC has taken steps aimed at proactively improving the IT security throughout the City. Specifically, the RCC established an Information Security Officer (ISO) position. The ISO will work closely with IT executive leadership and oversight bodies to ensure that the entire City's IT assets and new development are highly secure. Without a commitment to enforcing security centrally, the entire enterprise can be at risk. This includes standardization where deemed appropriate. The most widely used version of IT standardization is the standard desktop. Larger organizations, particularly Fortune 500 companies and certain agencies within the US government, are recognized as the leaders in this area. This proposal will centralize enterprise service offerings and allow the City to begin standardizing things like document management, PC support for enterprise applications, IT security etc. Reduce Redundancies / Economies of Scale: Removal of IT redundancies is amongst the greatest problems cited by business and government. Having redundant applications, processes, hardware and software typically forces the enterprise to retain skilled employees to support each of these technologies individually. A great deal of financial savings is lost due to a lack of standardization on these tools. Consolidating these products and services will result in cost savings for the organization through economies of scale. Consolidation of knowledge produces the ability to leverage other solutions across the organization which will prevent repeated analysis. In short, it will join the collective knowledge and economies to realize the greatest benefit for the expended effort. Benefit to Departments The purpose of researching a new model for IT was to identify a better means of fulfilling IT services for the City. To do this it must prove to be beneficial to the departments. The very actions of improving the efficiency of IT will improve business for the City departments as long as the efficiencies are directed toward enterprise services. Better Services: The three critical areas of fragmentation can be used to demonstrate how this will provide better services. These are fiscal problems, enterprise direction and economies of scale. Addressing fiscal problems will permit the advancement of IT initiatives. Agencies want enhanced CHRIS tools. They want document management tools. They want enhanced network services. These have been all but 5

6 impossible to provide due to the financial constraints. Agencies are either left to look for individual solutions, workarounds, or must do without. A lack of enterprise direction was another complaint expressed by departments during interviews. A Governance Board will provide the means by which the City can prioritize needs and establish direction. Instead of spending resources on inappropriate projects, resources can be channeled to projects deemed important as defined by the Governance Board. Rather than having individual departments determine their own solutions there can be a vehicle through which initiatives can be directed to determine if a universal nature exists for the need or if it is a departmental specific need. Governance will also provide scalable solutions for the enterprise. By collecting information through oversight and solving problems at an enterprise level, solutions can be developed that will meet the needs of departments collectively. The same wheel does not have to be created several times but can be created once at the enterprise level. The costs will be less overall to the City. Stronger solutions can be provided to departments than they can acquire on their own. This is the concept of synergy the whole is greater than the sum of their individual components. Safer and More Secured Systems: The vehicle that binds everyone and everything together is the network. The network is the collection of components that provides the vehicle for all services. These components do not function in a vacuum. Each part functions in harmony with the other parts. If any single part is damaged, it can impact the whole. For this reason there needs to be a single source for security. Unless standards for security are consistent across the board, they are ineffective. Security for all will only be as strong as its weakest point. Managing and observing a universal security policy will provide the best chance for a safe environment. Better Funded IT Services: As previously described, the fiscal area is one that has prevented advancements in the past. Technology is expensive. The City does not place HVAC units or furnaces in every room or even every floor of a building. One is installed that will serve the needs of the entire building. We do this without even thinking because it would be irrational to spend the money to create a separate solution for everyone. IT is no different. Leveraging funding across the enterprise will provide the City the ability to develop solutions that were impossible to address in the past. Departments will no longer have to settle for solutions that are inadequate but were what they could afford on their own. Enterprise initiatives will be prioritized by governance and funded at the enterprise level. Responsiveness: Decentralization caused silos. This kept staff locked into budget areas. Unless budget was available, the work could not be done. The fiscal solution of funding enterprise services will break those barriers. It will permit response to enterprise questions without the concerns of charge codes and budgets. It will permit qualified staff to be assigned without regard to where they are funded. It allows the necessary skills to be the driving factor rather than available funding. Needs There are many examples of needs that can be cited which support this. One such example is that of telepresence. This would offer a solution for many people to meet without having to leave their own 6

7 office. Telecommunications tools will permit linking people together with voice and video. This project is not inexpensive. It is not something any single agency can do themselves. It may be a high priority item for some Departments but not for others. However, through governance, this type of project can be evaluated on what benefits it brings to the total enterprise. All agencies would be able to take advantage of this service. It would be funded centrally thereby providing what is necessary to do the job properly for everyone. It will prevent the need for travel in many cases thereby creating savings to the City. There will be a single point of management rather than duplicating those efforts. This, and other examples, demonstrates a need for enterprise management of IT. Even if we had the luxury of implementing independent solutions for technology, why would we choose to do so? As previously cited, developing solutions that are greater than the sum of the component parts should be the goal in any business at any point in time. This is what we are attempting to do. 7

8 Appendix A This chart represents the funding received by the RCC over the years 2000 through $13,000,000 $11,000,000 $12.0 RCC CITY/COUNTY BUDGET $10.7 $6.1m City/County Decline $9,000,000 $9.2 $8.4 $9.3 $8.7 $8.3 $7,000,000 $6.7 $5,000,000 $4.1 $3,000,000 $3.1 $3.0 $2.6 $2.6 $2.4 $2.2 $1.7 $1,000, CITY COUNTY 2009 funding was $5,300,000 (050 fund) ; $1,600,000 (424 fund) by the City ; $500,000 (County) for a total of $7,400,000. There were adjustments during the year of $400,000 making a final total of $7,000,000. 8

9 Appendix B Current Model Redundancies Between Departments 9

10 DEPARTMENT Total PCs TCO (Not well managed) TCO (well Managed) Appendix C Device reduction Savings Potential Savings File/ Print Database Application 10 Total Servers TCO (3yrs) Annual Cost Potential Office of the City Manager 28 $164, $95, $68, $533, $177, $35, Recreation 350 $2,053, $1,194, $858, $319, $106, $21, Public Health 280 $1,642, $955, $687, $639, $213, $42, Water Works 662 $3,883, $2,259, $1,624, $5,066, $1,688, $337, Regional Computer Center 850 $4,986, $2,901, $2,085, $5,599, $1,866, $373, Human Resources 30 $176, $102, $73, $53, $17, $3, Department of Law 85 $498, $290, $208, $0.00 $0.00 $0.00 Police 650 $3,813, $2,218, $1,595, $1,279, $426, $85, Fire 380 $2,229, $1,296, $932, $1,333, $444, $88, Public Services 150 $880, $511, $368, $479, $159, $32, Community Development 75 $440, $255, $184, $0.00 $0.00 $0.00 Citizens' Complaint Authority 9 $52, $30, $22, $159, $53, $10, Transportation & Engineering 221 $1,296, $754, $542, $319, $106, $21, Parks 80 $469, $273, $196, $533, $177, $35, Finance 120 $704, $409, $294, $693, $231, $46, City Planning 100 $586, $341, $245, $213, $71, $14, MSD 560 $3,285, $1,911, $1,374, $4,106, $1,368, $273, Assumptions based on research Totals 4630 $27,164, $15,802, $11,362, $21,333, $7,111, $1,422, * 15-30% savings from Infrastructure consolidation ** Estimated average server cost: $8000 *** Total Cost of Ownership(TCO) over three years: $ **** Industry research suggest server cost represents 7%-15% of TCO $5,333, $1,777, $15,999, $5,333, ***** Possible 4:1 reduction of servers through virtualization ****** or a large company, the cost of purchasing a desktop PC may be only $1,200, but, kept for four years, the total cost of ownership (TCO) could be as much as $5,867 per year, according to Gartner, Inc. However, if the company s PCs are locked down and well managed, the cost per PC per year can be 42 per cent lower at $3,413. Potential Savings: 47% (Time reported for Infrastructure roles) of (2009 IT FTE's reported) equals 91 FTEs which 20% (18.2) could be reduced based on consolidation savings