Oct 31 2006

Legislating IT Consolidation

In many states, IT consolidation isn't just a smart idea. It's the law of the land.

Kevin Ferguson

WHEN MATT BLUNT WAS ELECTED governor of the “Show Me State” in November, he had one directive for his newly appointed chief information officer: Show me savings.

Governor Blunt’s directive, Executive Order 05-07, took effect in Missouri this past January. It merged the Office of Information Technology into the Division of Information Services, which had overlapping responsibilities, and appointed a new CIO to oversee the expanded division. To facilitate cultural change, the unit was renamed the Information Technology Services Division (ITSD).

Dan Ross, the new CIO, has his work cut out for him. Missouri’s 16 cabinet agencies have long operated as their own fiefdoms, independently purchasing servers, software and networking equipment. There’s been so much autonomy for so many years and the state’s estimated $100 million-plus IT expenditures are scattered across so many departments that it’s difficult to know where to start.

What Ross knows for sure is that he has a lot of trimming to do. “You have to grab this thing by the budget,” he says.

Ross is hardly alone. In recent years, several states have issued legislative mandates to significantly consolidate their technology infrastructure and their IT purchasing, according to the Center for Digital Government, a private institute in Folsom, Calif. The mandates include centralizing servers, storage, networks and enterprise resource planning (ERP) software applications. Already, the states say they have collectively saved hundreds of millions of dollars.

Becoming the Best

“My plan is to become the best value source for IT products and services in state government,” Ross says. He got his chance on July 1, when the IT budgets, staff and equipment of 13 of the state’s 16 cabinet agencies came under his direction, increasing the number of people reporting to him from 203 to approximately 1,200 workers. His top priorities include creating and administering service-level agreements with those agencies, which will funnel their IT purchasing and support requests through his office.

The consolidation began well ahead of the kick-off date with the Missouri Department of Mental Health consolidating its networks with ITSD. Ross says that consolidation will probably break even since they had to buy equipment, but adds that the incremental savings will increase as more agencies’ networks are consolidated.

In addition, the ITSD is trimming personnel costs through attrition. “As every position becomes vacant, we will ask whether it needs to be filled,” Ross says. “It’s likely that tech-support personnel will remain at agency locations, while development staff may be transferred to a centralized location.”

The bigger savings are literally down the road. The Missouri Department of Transportation has paid for, and currently maintains, six strands of fiber-optic cable along the state’s highways, as part of the Intelligent Transportation Systems program that provides motorists with real-time traffic information. The fiber-optic cables could accommodate a statewide wide area network for government agencies, which now subscribe to separate, overlapping communications plans.

Among other things, the fiber-optic cables could be tapped to switch the state government’s phone system to a Voice over Internet Protocol system. Ross estimates that switching to VoIP could reduce the state’s annual $31 million phone bill by one-third to one-half. The fiber-optic cable also could be used for additional voice, video and data applications, including distance learning, which Missouri already offers through nine Telecommunication Community Resource Centers operated by the University of Missouri.

Another possibility involves integrating information maintained separately in the state’s justice agencies so critical information can be shared more effectively among police and corrections officers, court administrators, and other officials at the federal, state and local levels. “As it is now, law enforcement officers too frequently conduct traffic stops without benefit of the most current information about outstanding warrants on the drivers,” Ross says.

Calling the Shots

Similar consolidation efforts are under way 1,056 miles west, in Salt Lake City, where Gov. Jon Huntsman Jr. is pushing for greater government efficiency. A new state law, HB 109, requires Utah to maximize efficiencies by consolidating and centralizing IT functions and infrastructure.

“We’re in the early stages of doing a statewide audit of assets and resources,” says David Fletcher, Utah’s director of the Division of Information Technology Services, “but it’s got a pretty aggressive timeline.” HB 109 anticipates full consolidation by July 2006, which is even more challenging because the state’s new CIO, Stephen Fletcher (a distant relative to David), just started in May, and the state is currently shifting 800 to 1,200 workers to the newly created IT department.

Like other states, Utah has granted some notable exceptions to its IT consolidation mandate. Utah’s courts, legislature, schools and attorney general’s office are not included, though numerous other departments will undergo consolidation, David Fletcher says.

“The legislation has empowered the CIO to make a lot of decisions—to do a lot of things in the best interests of the state,” he explains, adding that there probably will be opportunities in the future to talk about agencies and departments that were not included in the consolidation.

In the interim, Utah and other states that are consolidating their IT infrastructures must retool both their business processes and their enterprise architecture to narrow the government’s statewide range of options for technology standards.

“We’ve made some good progress, such as in the criminal justice information system, where we’ve integrated very well with local government,” Fletcher says. “But we’re looking to integrate not only horizontally, but also vertically. For example, with transportation, we’re working to integrate with federal agencies such as the Federal Highway Administration.”

Consolidated Purchasing

In California, where fiscal reform was the chief plank in Gov. Arnold Schwarzenegger’s recent gubernatorial campaign platform, efforts to consolidate both IT purchasing and IT infrastructure continue. At press time, the first consolidated IT purchasing contract was expected to be awarded in June under the year-old California Strategic Sourcing Initiative, says Terese Butler, project director at California’s Department of General Services (DGS).

The multiyear contract for desktop PCs and related equipment will result in “significant savings” from the $90 million previously spent annually on these items, Butler says. A second multiyear contract, for servers and storage devices, should result in similar savings from the $40 million formerly spent each year.

In addition, California lawmakers have recommended the creation of a Department of Technology Services to oversee the integration of two of its six huge data centers (the Health and Human Services data center and the Stephen P. Teale data center), as well as the Department of General Services’ Office of Network Services. Last January, California CIO J. Clark Kelso also recommended that the Department of Technology Services assume responsibility for the voice telecommunications and data networking functions of the Telecommunications Division of the state’s DGS.

Butler expects California to enjoy huge savings in procurement over the next several years, as the existing servers are replaced and consolidation is implemented.

California should be able to save money by moving some agencies and departments to storage area networks and network attached storage. The migration to SANs and NAS devices in a unified data center could save money by facilitating the consolidation of servers at a single location.

How much money will the consolidation save? “The fiscal impact of consolidating the data centers is difficult to measure,” states The Public Perspective, a report produced by the California Performance Review Commission, an oversight task force. That’s partly because the two data centers have a complex funding system.

The commission’s best estimates are included in the report: Eliminating duplicative management positions in administration, operational recovery, customer relations and security could save the state more than $1 million a year. Consolidating and renegotiating software contracts could save another $1.25 million to $3.75 million a year. (Software licenses now total $25 million at the two data centers.)

“Using some conservative numbers, if there are a minimum of 3,000 servers scattered throughout state departments and, of those servers, 20 percent are candidates for rationalization … the potential [total cost of ownership] savings would still be $1.77 million per year,” the report states.

The California Performance Review Commission estimates that the state’s IT overhaul could result in a net savings of $27.6 million over five years, starting in fiscal 2004. Given that California spends $2 billion a year on information technology, Gov. Schwarzenegger could take a cue from Missouri and change California’s nickname to the “Show Me More Savings State.”

Five Steps to IT Consolidation

STATE GOVERNMENTS have varying game plans for consolidating their IT operations, but each state generally follows five steps to build an efficient, cost-effective, standardized IT infrastructure.

1. Enabling Legislation: Legislation must specify how IT consolidation and ongoing maintenance will be funded and who will govern its operation. In Virginia, for example, the Virginia Information Technologies Agency is billing departments for their IT usage in a “utility computing” structure.

2. Outlining a Strategic Plan and Mission: The strategic plan must establish the scope of the projects, develop a timetable, explain how consolidated or strategic sourcing will complement the mission, and establish the employment status of workers affected by the consolidation.

3. Defining Standards and Enterprise Architecture: Standards and architecture include enterprise applications, e-mail and other communications standards; security and privacy; and interdepartmental interoperability.

4. Implementation: Most states undergoing IT consolidation have just begun the implementation. Consolidating servers and data centers is one of the first tasks.

5. Performance Review: The states mandate that review be ongoing and that periodic written reports be issued.

ACTION: Consolidating servers
SAVINGS: Fewer machines to buy and service; additional savings on electricity and building costs.
CASE STUDY: Virginia expects to save $380,000 in fiscal year 2005. (1)

ACTION: Consolidating telephony contracts
SAVINGS: Cancel unused lines and leverage better prices by using fewer carriers; use Voice over Internet Protocol if feasible.
CASE STUDY: Minnesota hopes to save 10 to 25 percent off current telecommunication costs. (2)

ACTION: Consolidating operating systems and applications
SAVINGS: Fewer applications and copies of each lower licensing fees. Having fewer operating systems reduces costs associated with interoperability.
CASE STUDY: Missouri could save $100,000 a year by consolidating database servers. As of last year, databases from seven judicial circuits were relocated to a central data center, with plans to consolidate 18 to 20 more in 2005. (3)

ACTION: Strategic, consolidated purchasing
SAVINGS: Coordinating statewide purchases of standardized technology goods allows states to obtain better prices.
CASE STUDY: California’s Department of General Services (DGS) renegotiated a state contract with an office supply vendor and expects to save about $9 million between now and July 2006. (4)

Sources: (1) Virginia’s VITA Integration Cost Savings and Avoidance Report; (2) Minnesota’s Drive to Excellence Transformation Roadmap; (3) Missouri Office of Information Technology State of the State IT Report; (4) California’s Strategic Sourcing Initiative; Terese Butler, California DGS