Six data centers enough, says study

The Defense Department could save more than $2 billion in life-cycle costs by consolidating from 16 to six data centers and contracting out all but "inherently governmental functions," according to a study by consultants Coopers & Lybrand.

The report, now circulating among senior officials at the Pentagon, rejected more moderate options in favor of an aggressive, business-oriented approach to DOD's use of its resources.

"The changing world environment, the budget realities of today and technological advancements all require that DOD rethink the way it performs its mission, reassesses role assignments and re-evaluates its relationship with the private sector," according to the report.

The study was commissioned by Emmett Paige Jr., assistant secretary of Defense for command, control, communications and intelligence. Paige asked the Coopers & Lybrand team to develop a series of options for improving DOD computing services, considering both consolidation and outsourcing of data center operations.

A DOD spokeswoman declined to comment before any decisions are made as a result of the report, saying only that "the recommendations are still under consideration."

The report analyzed five alternatives, ranging from maintaining the status quo to consolidating and optimizing the data centers and using varying degrees of contractor services. The team analyzed each option in terms of cost, risks and potential benefits.

According to the study, the combination of full outsourcing and further consolidation proves to be the least costly alternative while at the same time addressing concerns about customer service, security and other management issues.

In this case, DOD would maintain key management functions, including security oversight, strategic planning, policy development and budget preparation. But it would contract out functions such as data processing operations, systems support, technical support and any function requiring highly specialized knowledge not available inside the government.

The contractor would also be responsible for deciding whether to consolidate data centers and, in turn, would share any cost savings.

The report comes down strongly in favor of consolidation, based on the savings already seen. DOD will save some $473 million between fiscal 1994 and 1999 by consolidating nearly 200 data centers down to 16.

However, Coopers & Lybrand believes outsourcing is a necessary component of any future restructuring. Private contractors tend to use the "Center of Excellence" approach, which provides better management with less staffing.

That approach also provides more technological and workforce flexibility, according to the report.

"Our recommendations are based on our opinion that, under existing circumstances and in today's environment, [the Defense Information Systems Agency] is unable to compete with the private sector," the report said.

However, DOD runs a serious risk of wasting more money if it does not improve the state of its data centers—including further consolidation—before turning them over to private contractors, industry observers said.

"They have to consolidate before they outsource," said Linda Cohen, a research director for The Gartner Group Inc. who focuses on outsourcing issues. "You can't outsource what you can't control."

Part of the problem is that DOD has not finished its last round of consolidation, said Linda Berdine of Berdine Associates, a consultancy that assists federal agencies with consolidation.

For the most part, DOD has consolidated only data center facilities, not computer operations. But "if you are going to outsource, you don't outsource to solve your problems," Berdine said. "The best possible arrangement is to have your house in order [first]."

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