What’s IT worth?
From Wichita, Kan., to Washington, D.C., governments are pressed to prove the value of their information-technology spending. Their efforts are more difficult than those of private companies, where a traditional formula for return on investment (ROI) calculates IT expenses versus dollars generated. Governments do not generate profit, so applying only financial ROI measurements is limiting. Many agencies can measure dollars or hours saved because of new software or hardware, but that is only a fraction of the equation.
In the public sector, ROI measurements must include tangible effects — such as cost savings and improved revenue — as well as social and political effects that are more difficult to gauge — such as political stewardship and quality of life. Often, intangible effects of IT are intricately linked and entwined. For example, social dynamics like improved education, lowered unemployment rates and reduced crime can lead to improved public trust, higher esteem and political capital that can be used to influence policy and legislative action.
The Albany, N.Y.-based Center for Technology in Government (CTG), a research arm of the State University of New York, released a study in September that proposes a new method for measuring public return on investment (PROI). The goal of the study was to develop a universal, non-proprietary method that would help governments track the financial, social and political value of IT investments by demonstrating a link between technology and the effects it has on real-life issues. The results could help justify purchasing IT-related products and services for agencies and governments at all levels.
The proposed PROI method can be applied to virtually any government IT project — from simple Web sites to government-wide information systems. It starts with a high-level view of the IT investment and then drills down to identify the specific measures and methods to document public value.
The strategy is simple in concept: connect what happens in government with the effects of an IT-related purchase on the public, then use the results as an ROI justification of the purchase. A detailed explanation of the method is available online at www.ctg.albany.edu/publications/reports/advancing_roi. The study describes public value of government IT projects based on different effects they can have on residents and businesses, including financial (current or anticipated income, asset values, liabilities, entitlements, and other aspects of wealth); political (personal or corporate influence on government actions or policy, role in political affairs, or influence in political parties or prospects for current or future public office); and social (family or community relationships, social mobility, status and identity).
Expanding the view of stakeholder interests to include those elements brings into focus two distinct but equally important types of public value: delivering benefits directly to residents 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, which is non-financial but, nonetheless, an important return. The CTG study identifies the ways government IT investments link to public value. The simplest link results from an IT investment that directly improves a service and enhances its value to residents or officials. The total value may be a composite of cost savings, quality and enhanced trust.
Pennsylvania’s public ROI
The CTG study examined five public sector organizations — two U.S. government agencies and three foreign governments — at the federal, state and local levels. All five made IT investments that improved service to the public as well as government operations.
For example, Pennsylvania’s Integrated Enterprise System (IES) launched several initiatives in 1999 to use technology to improve government effectiveness, efficiency and service provision. One of the initiatives was to create an integrated business information system using enterprise resource planning (ERP) software to redesign core business processes for five administrative functions (accounting, budgeting, human resources, payroll and procurement) and to move them from outdated computer systems into the new ERP. The three-year contract for the project’s software and consulting was approximately $51 million, which was included in the 2001 budget. A key goal was to communicate the value of the change to residents.
Between early 2001 and mid-2004, the ERP implementation was completed for 53 agencies, including all 49 agencies under the governor’s jurisdiction, which encompass more than 90,000 employees and more than 150,000 vendor records. The project eventually set the technical infrastructure and enterprise standards for core administrative functions.
The state immediately improved its operations after implementation, and it continues to see improvements. For example, the system has improved collaboration with suppliers and saved on logistics expenses and inventory carrying costs. Additional benefits include a more detailed view of spending, so decision makers can use budgets more efficiently; reduced vendor queries while controlling costs and processing errors; and better accounting of taxpayer dollars, instilling greater public trust in government. The latter of those benefits is the political and social return of the IES project.
Future potential returns may result as the state invests savings on core functions in other services. For example, expected savings of at least $100 million each year from Gov. Rendell’s strategic sourcing initiative, which will depend heavily on the IES, can be spent on early-childhood education, economic development, and health and human services.
Washington also participated in the study, submitting its digital archives project. Beginning in 2001, the Washington State Digital Archives (WSDA), a program within the Office of Secretary of State, began exploring technologies and techniques for collection, access and preservation of government records. Eventually, it developed a Web site and database that blended the latest technologies with traditional archive theory.
The project called for a $14.5 million joint-use facility, $1.5 million for technology acquisition, $950,000 for software development, and an ongoing budget of $2.1 million per year to create a first-of-its-kind digital records repository that provides online access to Washington’s state and local governments’ electronic records. The archives now include a research room with computer stations, a high-tech presentation classroom and a data center.
From the beginning of the project, Washington Secretary of State Sam Reed and his staff emphasized that the primary value of statewide digital archives was public service. Their vision was to fulfill the state’s record keeping mandate for emerging digital materials, while improving customer service at the local level and enhancing efficiency for the overall system of records preservation and access.
As of May 2006, the WSDA held more than 5.9 million online records, and more than 1,000 searches were conducted on the Web site daily. The WSDA is providing backup storage of public records and long-term preservation of 1 million records from state and local government agencies. Direct returns to the public are evident in greater access to public records, as well as enhanced transparency, accountability and trust in government. Also, there were political returns to Reed and his administration in his election to a second term in 2004.
“Our participation in the CTG project clarified our vision and helped make us think further on continuing to make the public ROI case to each of our stakeholders,” says Adam Jansen, digital archivist for WSDA. “The study makes it clear that governments must focus beyond just the fiscal impact of IT investment and consider the greater societal value that investment creates.”
State and local governments continue to look for technology that improves services, efficiency and effectiveness. But, IT initiatives require a realistic view of policy, management and technology challenges involved, as well as a compelling vision of the benefits. Governments need the kind of “bottom line” information that could reveal the value of IT investments across all types of programs and help guide new investments.
A growing number of governments are beginning to calculate the PROI for IT projects. In fact, a recent study by the London-based Economist Intelligence Unit found that of 776 government executives polled worldwide, 69 percent expect to measure both financial and social ROI of IT investments in the next five years and will publicize that PROI to residents. With government IT budgets expected to grow only moderately — if at all — over the next five years, the idea of PROI could not come at a better time for agencies or, more importantly, their constituents.
Russ LeFevre is director of solution marketing for Newtown Square, Pa.-based SAP Public Services.