Down To Business: The Soft Financial Discipline Of Federal IT - InformationWeek
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Down To Business: The Soft Financial Discipline Of Federal IT

The administration's budget czars are talking tough about IT spending, but projected 'modest' spending increases show that they're all bark.

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Rob Preston In the private sector, "do more with less" is standard operating procedure at most IT organizations. In the public sector, specifically at the federal level, it's more like "do more with more, but not with as much more as we used to make do with, though in the end we'll probably end up spending more than we had budgeted anyway."

Somehow, the public sector approach doesn't convey the same rigor and urgency as the private sector approach.

In laying out its fiscal 2011 federal spending plans earlier this year, the Obama administration called for an IT budget of $79.4 billion, a 1.2% increase over the 2010 budget of $78.4 billion. The administration claimed that the $79.4 billion was actually a 1.6% decrease from the 2010 "enacted level" of $80.6 billion. In other words, fed IT spending for 2010 was growing at a faster rate than had been budgeted, so the budget for the following year was deemed to be lower by comparison--thus, the "decrease."

Problem is, there's no reason to expect that next year's federal IT spending levels won't exceed budget yet again. "Historical spending data shows that the government, which typically receives more funding than requested, continues to invest in IT despite its fiscal circumstances," according to John Slye, an analyst with market researcher Input. "Factoring out the drawdown of census- and stimulus-related spending shown in the FY 2011 IT budget request, we see moderate budget growth." In fact, Input released a report that forecasts actual federal IT spending will rise from $86 billion in 2010 to $112 billion in 2015, a compound annual growth rate of 5.4%. Apparently, the federal IT spending curve--a steadily ascending arrow for the past two decades--won't be flattening out, as many had expected.

An Input press release says federal IT budgets are "somewhat insulated" from major cuts because the Obama administration and its Office of Management and Budget continue to lay sweeping government efficiency and transparency objectives--everything from improving cybersecurity and delivery of services to citizens to reducing energy costs--at the feet of IT improvements. "The administration will continue to push for cost-cutting measures," Slye said in the Input release. "However, the criticality of IT to government operations and priorities, as well as the gap in federal IT expertise, suggest that IT spending will continue with modest growth."

Imagine a CEO telling his CIO: I know our IT spending has been bloated for years, but IT is critical to our business, both as a means to cut costs and support new products and services, so try to make do with only "moderate" IT spending increases of around 5% while improving your efficiency.

That's what the federal government is telling agency CIOs. At first glance, OMB director Peter Orszag last week seemed to be drawing the line on IT spending when he halted all federal financial system modernization projects budgeted at $20 million or more in order to assess best practices and impose standardization; required fed CIO Vivek Kundra to undertake detailed reviews of the highest-risk IT projects; and tasked OMB deputy director Jeff Zients with developing recommendations for improving the feds' IT procurement and management practices.

Yet on a conference call last week, Zients made it clear that those efforts aren't intended to cut spending, but to "make sure $80 billion spent on IT each year is spent in a way that has much higher returns in efficiency of operations and service quality. This is not about cost reduction, but better return on taxpayer dollars."

Call it soft financial discipline.

Rob Preston,
VP and Editor in Chief, InformationWeek

To find out more about Rob Preston, please visit his page.

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