PROI Impacts IT Spending

By Rand Blazer

Today’s elected officials insist on more comprehensive cost and return analysis for IT procurement proposals to ensure the best, most effective use of public funds for the citizens. At the same time, vendors must be assured that opportunities to provide goods and services are offered on a level playing field–all while avoiding corruptive influences.

In order to manage this scrutiny, government procurement officers are developing business cases with targeted outcomes before submitting procurement proposals. In the private sector, the development of a business case corresponds to measuring the return on investment (ROI) of a particular initiative, using mostly financial metrics. Because government is a nonprofit organization, tangible, financial ROI measurements do not capture the full value of government initiatives for the public. Therefore, ROI measurements in the public sector must include both the tangible and intangible impact of government IT spending.

For example, establishing a centralized government procurement process across multiple agencies in a single marketplace may generate productivity benefits for the government and some larger vendors. However, local and small suppliers incur additional technology costs to join this single marketplace, which may make it difficult for them to join in the bidding process, thus negatively impacting their business. These types of social and political impacts often have been overlooked by traditional ROI methodologies, but now this may be changing.

Developing a New Metric

A new global study by the Center for Technology in Government (CTG), a research arm of the State University of New York, Albany, and sponsored by SAP, an enterprise software provider, offers more viable means for measuring Public Return on Investment (PROI). The goal of this initiative was to develop a universal, nonproprietary methodology to help governments track the financial, social, and political value of IT investments by demonstrating a linkage between IT and the impact it has on real-life issues.

The year-long PROI initiative yielded five case studies and a white paper, “Advancing Return on Investment Analysis for Government IT: A Public Value Framework,” that examines how IT investments can deliver public value across government operations and presents a broad framework for conducting PROI assessments for government IT projects.

According to the white paper, the framework evolves from the principle that “the value of a government’s investment in IT should be assessed from the point of view of the public it serves.” It defines two types of public value: delivering benefits directly to citizens and enhancing the value of government as a public asset.

The study results hold great promise for agencies and government at all levels and could help ease the procurement process for worthy IT investments. As the year draws to a close, now is an opportune time to examine the application of this methodology, as some $64 billion has been budgeted for federal technology spending in fiscal year 2007 in the United States.

Models for Success

The CTG study examined five public-sector organizations–two United States-based governments and three foreign governments–at the federal, state, and local levels. All five governments came to the conclusion that beyond their realization of immediate improvements in government operations, their individual IT investments delivered improved service to their respective citizens.

One of the five participating governments, The Commonwealth of Pennsylvania, applied the PROI methodology to its integrated enterprise project, which aimed to redesign core business processes for five administrative functions–procurement, accounting, budgeting, human resources, and payroll–and transition them from legacy systems into the new ERP system.

Between early 2001 and mid-2004, the ERP implementation was completed for 53 Commonwealth agencies including all 49 of the agencies under the governor’s jurisdiction, which encompasses more than 90,000 employees and over 150,000 vendor records.

By applying the methodology, the Commonwealth determined that the integrated ERP system would enable the entity to realize immediate returns in the form of improved collaboration with its supplier base and save on logistics expenses and inventory carrying costs. Through increased transparency the Commonwealth’s ERP project provided a more detailed view of spending, allowing government decision makers to utilize budgets more efficiently.

The Commonwealth now can reduce vendor queries while controlling costs and processing errors, ultimately providing a better accounting for use of taxpayer dollars and instilling greater public trust in government. These benefits are the political and social returns of the Commonwealth’s integrated enterprise project.

Listening and Learning

Procurement officials seeking to make the procurement process more transparent for all relevant stakeholders more often are turning to technology solutions. As governments worldwide contend with rising service demands and increasing stakeholder expectations for measurable outcomes, the need for connecting IT investments to public value is a growing concern for entities around the world.

In order to showcase all the benefits IT has to offer, governments must have a common and clear way to measure and demonstrate the broader impact of IT investments on the public. For this reason, methodologies such as PROI can prove useful in helping government procurement officers measure both the financial and social value of IT investments and to make those values transparent to all stakeholders.

About the Author

Rand Blazer is president of SAP Public Services, Inc., based in Washington, DC.

Framework Outlines PROI Methodology for Assessing Public Returns on Government IT Investments

The Center for Technology in Government, the research arm of the State University of New York at Albany, in partnership with SAP, an enterprise software provider, conducted a year-long study that looked at the relationship between information technology (IT) and the impact it has on real life issues, and subsequently how government entities can track the operational, social, and political value of their IT investments.

The project yielded five government case studies and the white paper “Advancing Return on Investment Analysis for Government IT: A Public Value Framework,” written by Anthony M. Cresswell, G. Brian Burke, and Theresa A. Pardo, and published by CTG in September 2006.
The white paper offers a universal, nonproprietary framework for conducting Public Return on Investment (PROI) assessments for government IT projects. It addresses the question of describing and measuring public value, using an analysis process that begins with a high-level view of the IT investment and then identifies specific methods that will document its public value.

The framework is based upon six kinds of impacts government IT can have on the interests of public stakeholders: financial, such as income, assets, liabilities, and entitlements; political, including personal or corporate influence on government actions or policy; social impacts on family/community relationships, status, or identity; strategic impacts on economic or political advantages; ideological impacts on beliefs, morals, or ethical positions; and stewardship, the government as guardian of public trust and legitimacy.

According to the report, “Expanding the view of stakeholder interests in this way brings into focus two distinct but equally important types of public value: the delivery of benefits directly to citizens and enhancing the value of government itself as a public asset. An IT investment that makes government more transparent, more just, and a better steward has added public value, a nonfinancial but nonetheless important return.”

The generalized methodology presented in the white paper can be applied to virtually any government IT investment. “Every government IT project will have its own unique goals, value propositions, and stakeholders. So this framework can be used to plan and guide a public value assessment, in combination with measurements, analysis tools, and reporting techniques chosen for the specific situation.”

The five case studies included governments in the United States, Canada, and Europe:
The Commonwealth of Pennsylvania’s Integrated Enterprise System– Enterprise Resource Planning (ERP) software implementation integrated technical infrastructure and
enterprise standards for 53 Commonwealth agencies and improved the efficiency of core administrative functions and public service areas.

Washington State Digital Archives–The state’s investment in digital archiving of government records fulfills its constitutional mandate to preserve records of enduring legal and historical significance and make these records easily accessible to the public, thereby pursuing public value through IT services.

Service New Brunswick (Canada)–Service delivery module provides one-stop access to citizens for federal, provincial, and municipal government services, and also develops and maintains geographic information databases that support economic development.

Austrian Federal Budgeting and Bookkeeping System–By implementing a single ERP software standard throughout the federal government, the Ministry of Finance consolidated 85 budget and bookkeeping units into one federally owned but privately operated agency for annual savings of approximately $30 million.

Government of Israel’s Merkava Project–The largest single IT project in Israeli history seeks to restructure the financial, logistics, and human resource components of government-wide administration into an integrated ERP system that will enhance internal operations and improve benefits and services to citizens.

To download full-text PDFs of the CTG white paper and the five individual case studies, go to www.govinfo.bz/5973-201.