managing
technology
costs
T
he 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
effi-ciencies (enabled by technology) that might not start paying them-selves off for several years.
INVEST, INNOVATE DURING GOOD TIMES
During the 1990s and into the cur-rent 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 pro-grams for technology replacement, maintenance, and inno-vation, 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.
In later years,additional objectives were added to the com-puter replacement fund to stabilize departmental operating budgets. The fund incorporated the total cost of ownership method — accounting for all costs of operating and sup-porting 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 tech-nology fund (EUTF) included information techtech-nology (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 cen-tralize 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 cost-effective 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 serv-ice, 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 employ-ees 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 require-ments. 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.
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 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 oper-ate on less energy, generoper-ate 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 serv-er. 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 plat-form would be more efficient. Desktop standardization, along with the ability to track replacement needs county-wide,also made it possible to move eas-ily from a 4-year replacement cycle to a 5-year cycle for all standard desktops, reducing the annual technology costs to the departments.
OUTSOURCING THE HELP DESK
When the computer replacement fund was implemented in the mid-1990s,Waukesha County planned to extend desk-top 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
grow-ing need for support, particularly for multiple shift opera-tions, 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 dif-ferent state. The help desk provides cost-effective service based on monthly call volume,with charges per call decreas-ing 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 out-side of regular work hours.
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
Since the county’s financial
enter-prise 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.
Exhibit 1: Reducing Costs by Replacing Physical Servers
49 Physical Servers @ $6,000 Each $294,000 2 Virtual Servers @ $20,000 Each (40,000) Virtual Software @ $5,000 Each (10,000) $244,000 in Savings
for each department. The county now uses a combined allo-cation of server usage and login identifiallo-cation counts, instead of desktop count and estimate of usage.This new methodolo-gy 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 coun-ty’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 identi-fied 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 depart-ments 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 identifying the common needs and issuing a request for pro-posals (RFP) for a single provider.
Waukesha County conducted a review of cashiering sys-tems 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 work-group 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
requirement that the software vendor develop and maintain all the necessary system integrations. Without this requirement, every time a system would be modified,every system affect-ed by the interfaces would have to be 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-dor will be responsible for correcting any issues that might arise.
Because of competing requests for asset management sys-tems and upgrades, the county conducted a countywide 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 might not identify one system that meets all five needs, but it is expected that a proposal will meet at least three or four of the requirements.
LONG-RANGE PLANNING FAVORS ROI
In 1997, Waukesha County imple-mented a tier one financial enterprise system that is expected to remain in
Waukesha County conducted a
review of cashiering systems and
needs countywide and identified
eleven separate cashiering
sys-tems using eight vendor software
packages.
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 oper-ations and to recommend improvements that could be made in countywide financial operations, along with a future tech-nological 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 sys-tem 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 reac-tionary position, rather than strategic and planned position.
For the other two options, the consultant compared intan-gible 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 pos-itive 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 eco-nomic downturn to maintain technological systems and infra-structure because of the financial stability provided by the end-user technology fund. Investments made in the last sever-al years led to virtusever-alization 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.
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) -8.90 percent -1.14 percent
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 www.wauke-shacounty.gov.