managing technology costs

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1 managing technology costs BY NORM CUMMINGS

2 The recession of the early and mid 1980s hit southeast Wisconsin severely. Unemployment reached double digits,and revenues declined,along with the tax base. The need for government services increased just as the state and federal governments reduced or eliminated funding to local government programs in response to their own budget problems. Many local governments deferred equipment purchases, maintenance programs, and other capital and operational investments to cope with the effects of the economy much like they are doing during the current recession. Unlike in the 1980s, however, local governments today have significant investments in technology that they rely on and need to maintain to perform vital services. Opportunities exist, between economic downturns, to develop funding systems and invest in operational efficiencies (enabled by technology) that might not start paying themselves off for several years. INVEST, INNOVATE DURING GOOD TIMES During the 1990s and into the current decade, Waukesha County, Wisconsin, developed a vehicle equipment replacement fund, parks and highway pavement management programs, and other funding mechanisms to stabilize future budgets. Beginning in the mid-1990s, the county established similar funding programs for technology replacement, maintenance, and innovation, based on a return on investment (ROI) philosophy and process. In 1996, the county developed the computer replacement fund, an internal service fund designed to allocate the costs for computer equipment and related costs (maintenance contracts and non-application software). The fund, which charged department cost centers in a way similar to an operating lease on equipment, was seeded with property taxes and surplus fund balance. The new fund allowed departments to better account for computer equipment costs in the annual budget process and insured that the county s equipment would be replaced on an ongoing basis with current technology. Opportunities exist, between economic downturns, to develop funding systems and invest in operational efficiencies that might not start paying themselves off for several years. In later years,additional objectives were added to the computer replacement fund to stabilize departmental operating budgets. The fund incorporated the total cost of ownership method accounting for all costs of operating and supporting computer equipment and distributing these costs to the departments that drive them to account for the county s computer-related costs. The new end-user technology fund (EUTF) included information technology (IT) staff costs, network support, common software licenses, help desk support, training (both IT end-user staff and department staff), hardware maintenance, and backup recovery systems.items not included in EUTF were software, server, and IT staff costs that benefited just one department. In addition to stabilizing operating budgets, the EUTF was managed to meet the following objectives: 1) Standardize technology and centralize support to manage costs and provide service effectively. 2) Charge back costs to departments in a way that best reflects their use of technology, providing incentives for them to make the most costeffective decisions when making purchases to replace or expand software and equipment. 3) Enable long-range budget planning for major technology upgrades. CHANGES THAT MAKE A DIFFERENCE Waukesha County had made the investment to provide users with systems that met their needs and had instituted a plan to insure that these systems remained adequate. To do so, however, it became necessary to reduce cost of that service, so the county embarked on a plan of innovation to reduce the cost of technology. In 1996, when the original computer replacement fund was implemented, the county supported 530 desktop computers. By 2005, county employees used 1,400 computers. Replacement cycles were 3 years for power users, 4 years for the remainder of the desktops, and 3-5 years for laptops, depending on software requirements. Server counts had risen to their highest levels, with 132 physical servers operating in the computer room. Support costs were predictably at their highest level, too. October 2009 Government Finance Review 35

3 In the five-year cycle beginning in 2005, the county has moved to server virtualization, replacing 49 physical servers with two high-powered virtual servers,dramatically reducing the cost of servers (see Exhibit 1).Virtual servers also operate on less energy,generate less heat and therefore need less cooling, and reduce the physical footprint used in the computer room. Another opportunity to control costs comes in the form of thin client computers and software. In a thin client system, all user applications, except a Web browser, reside on a server. The server maintains the user s PC image for icons and user-specific applications.all the horsepower driving the PC application is provided by the server. Therefore, the physical device at the user location can be a true thin client device. For fairly generic desktop computer use,the county replaces a user s standard desktop computer with this thin client machine, which is about a third less costly, requires little to no technical support, and allows departments to select exactly which applications will be available to each user. The county was able to start using thin client devices after standardizing the software for its personal computer environment. County departments had numerous brands and configurations for desktop computers until it was determined that a more consistent platform would be more efficient. Desktop standardization, along with the ability to track replacement needs countywide,also made it possible to move easily from a 4-year replacement cycle to a 5-year cycle for all standard desktops, reducing the annual technology costs to the departments. Exhibit 1: Reducing Costs by Replacing Physical Servers OUTSOURCING THE HELP DESK When the computer replacement fund was implemented in the mid-1990s,waukesha County planned to extend desktop computers to all departments over the next several years (replacing dumb terminals).the need for help desk support was expected to grow proportionally, and staff resources would have to be dramatically expanded.to meet the growing need for support, particularly for multiple shift operations, the county chose to outsource the service. With experience, the help desk service provider became proficient at meeting departmental needs 24 hours a day,365 days a year, as customer surveys documented. For county employees, the four-digit help desk telephone number is the same as an internal call,even though the provider is in a different state. The help desk provides cost-effective service based on monthly call volume,with charges per call decreasing after a minimum monthly threshold is met. The service provider is able to keep charges down by sharing the costs of the county dedicated help desk with three or four other customers at a time.the help desk can assign onsite staff if desk-side support is necessary, or on-call county staff can be paged in emergencies outside of regular work hours. Since the county s financial enterprise system is one of the most expensive technological investments it makes, a study was commissioned to review the current system and operations and to recommend improvements, along with a future technological direction. 49 Physical $6,000 Each $294,000 2 Virtual $20,000 Each (40,000) Virtual $5,000 Each (10,000) $244,000 in Savings In recent years, the county also outsourced desktop technician support, again realizing significant savings. The standardization and centralization managed over the years made the transition almost seamless and attracted very competitive proposals from the private sector. Some of the county staff members who had previously provided this service were retrained into new growing areas needing IT support, including digital imagery and management. CHARGEBACK INCENTIVES To keep up with the changes made in the last several years, Waukesha County changed the cost allocation to the EUTF 36 Government Finance Review October 2009

4 for each department. The county now uses a combined allocation of server usage and login identification counts,instead of desktop count and estimate of usage.this new methodology enables departments to reduce costs based on application decisions and to determine the return on investment when judging technology alternatives. An example of how well this system has worked is the county s internal audit division, which was the only user of Lotus Notes. This software requires a dedicated server and special training for internal IT support,and the new allocation identified a $6,000 annual cost from EUTF for the application.as a result, the division decided to change to a different software suite in order to save the annual cost. Other county departments made similar changes after the allocation system was implemented for total annualized savings of $32,500 in the first year. It is not unusual for departments to have similar technology needs, but either not recognize it or believe that their special needs cannot be met by a shared system. In many cases, a review uncovers a number of systems and types of software being used by one division or group. Money can be saved by dor will be responsible for correcting any issues that might arise. identifying the common needs and issuing a request for proposals (RFP) for a single provider. Because of competing requests for asset management systems and upgrades, the county conducted a countywide Waukesha County conducted a review of cashiering systems and needs countywide and identified eleven separate cashiering systems using eight vendor software packages. A full needs analysis and an RFP were developed with a workgroup comprising a representative from each department. So far,six of eleven cashiering systems have been switched to the single county cashiering system, including two of the three most complex (Treasurer and Register of Deeds).A key to the success of this project was the RFP review and discovered five systems or modules being used in the larger system that includes the following departments: highway, parks, facilities management, fleet management, and finance (for compliance with Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments).The highway and parks departments also have different pavement management modules that perform similar functions. The resulting RFP requirement that the software vendor might not identify one system that Waukesha County conducted a develop and maintain all the necessary meets all five needs, but it is expected system integrations. Without this review of cashiering systems and that a proposal will meet at least three requirement, every time a system needs countywide and identified or four of the requirements. would be modified, every system affected by the interfaces would have to be LONG-RANGE PLANNING eleven separate cashiering systems using eight vendor software FAVORS ROI modified and tested.by making this the responsibility of the vendor, the county is assured that all upgrades will be implemented seamlessly and the ven- packages. In 1997, Waukesha County implemented a tier one financial enterprise system that is expected to remain in October 2009 Government Finance Review 37

5 Exhibit 2: Financial Enterprise System Alternatives Financial Metric Option 2: Upgrade Option 3: Replace Financial to Tier 1 Next Generation Applications Suite (Tier II) Capital Project Cost $2,258,000 $1,911,000 Annual Operating Cost $481,000 $327,000 Total 8-Year Hard Cost of Future System $5,033,000 $3,630,000 Net Present Value (8 years) ($1,956,000) ($565,000) Return on Investment (8 years) percent percent place for the next several years. Since this is one of the most expensive technological investments the county makes, it commissioned a study to review the current system and operations and to recommend improvements that could be made in countywide financial operations, along with a future technological direction.the consultant identified three options to evaluate for the next eight years: 1) stay with the current tier 1 system; 2) upgrade to the next generation of the tier 1 vendor; or 3) replace the system with a tier 2 system. The consultant eliminated remaining with the current system for more than the next several years because of the risk that support will no longer be available, since the vendor has announced a new product. Additionally, by remaining with the current financial enterprise system, the county would be taking on additional risk by potentially putting itself in a reactionary position, rather than strategic and planned position. Waukesha County Information Waukesha County, located directly west of Milwaukee County and 100 miles northwest of Chicago, is the third largest county in Wisconsin with a population of over 380,000.The county s annual budget is $256 million for 2009 supporting about 1,500 employees. Waukesha County maintains Aaa /AAA bond ratings from Moody s Investors Service and Fitch Ratings. Waukesha County s end-user technology internal service fund budget, which funds most technology equipment and software, and IT staff and other support costs, is presented with the Department of Administration budget.the budget for 2009 and the proposed 2010 budget can be found at For the other two options, the consultant compared intangible benefits and weaknesses, such as implementation risks, training requirements, and opportunity costs. The tangible evaluation included an analysis of ROI,which quantifies cash flows and the number of years to achieve a positive payback based on all relative costs (see Exhibit 2),and a present value analysis,which compares the discounted cash flows between the two alternatives. The option recommended was the one with the lower cash flow over the 8-year period. While even option 3 suggests a negative ROI,the return begins to turn positive over a 9-year period,and it is not unreasonable to assume a 15-year period, since the current system will have served the county longer than that (assuming a 2013 implementation for the new system). CONCLUSIONS Waukesha County is well positioned in the current economic downturn to maintain technological systems and infrastructure because of the financial stability provided by the end-user technology fund.investments made in the last several years led to virtualization of servers, standardization of desktops, and support incentives that promote shared system and innovative solutions, providing return on investments even in the most challenging times. NORMAN A. CUMMINGS is director of administration and chief financial officer of Waukesha County, Wisconsin. He has been with the County for more than 24 years and served as budget manager and finance director. Cummings has a bachelor s degree from the University of Wisconsin at Madison and a master s degree from the University of Kentucky. 38 Government Finance Review October 2009

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