As financial management systems strain, agencies eye COTS relief
- By Paul Korzeniowski
- Aug 18, 1996
Recent legislation has forced federal agencies to examine their financial management systems (FMS) with an eye to producing more and increasingly detailed accounting reports. Faced with costly overhauls of systems developed in-house many are turning to commercial off-the-shelf products as the basis for their future financial management systems.
It was the Chief Financial Officers Act of 1990 that set the tone which was later reinforced by the Government Management Reform Act of 1994 and the National Performance Review's goals which were established in 1993. To meet their mandates agencies now have to produce clean annual audit reports at a minimum.
The legislation also altered the way departments determine their budgets. At one time agencies counted on almost automatic yearly budget increases but that is no longer the case.
"Agencies now have to examine the cost involved with providing their services the amount of money available and then set their budgets accordingly " said Steven Apt deputy CFO at the Treasury Department.The new requirements can strain existing financial systems.
"Many financial systems are home-grown applications running on IBM mainframes " said Wayne Bobby a program manager for financial applications at Oracle Corp.'s Government Business Unit Bethesda Md. "Technically and economically it is simply not feasible to enhance these systems to support new government mandates."
In the past agencies built their own financial systems because COTS packages were geared more toward commercial businesses than federal agencies.
"Federal financial system requirements are complex so software vendors have to make major investments to tailor their products for that market " said Harry Barschdorf vice president at American Management Services Inc. Fairfax Va. "In certain cases vendors decided the potential rewards were not worth the needed investments."
A second factor was the size of many agencies. Government departments can have 50 000 to 250 000 employees and most commercial packages cannot scale to support that many users.
But agencies found that building and maintaining their own systems can be a drag on budgets and personnel. Each time a vendor releases a new version of an operating system a communications protocol a subsystem such as IBM's Customer Information Control System or a new application the agency has to adapt its financial systems to accommodate it. And that is expensive. So agencies have been on the lookout for COTS packages which take such changes into account.
It has taken some time for the COTS market to catch up to government needs. Vendors actually started designing financial packages for the federal market in the mid-1980s and they've gradually become more comprehensive.
"A COTS financial application should meet 85 percent or more of an agency's needs " AMS' Barschdorf claimed.
And these COTS packages aren't inexpensive. They are generally sold in a modular form and contain software customizing tools and necessary server hardware. Depending on what is needed they can cost anywhere from $100 000 to $1 million.
According to the 1996 Federal Financial Management Status Report a congressionally mandated review of financial management reform published by the Office of Management and Budget in 1995 some 10 percent of federal agencies used COTS packages for their FMS.
AMS Computer Data Systems Inc. (CDSI) and Oracle are three of seven vendors that offer products on the General Services Administration Financial Management System Schedule. A software package makes the schedule only after it passes a rigorous benchmark to ensure that it provides at least a basic set of capabilities. The basic requirements were originally defined several years ago by the Joint Financial Management Improvement Program.
The Patent and Trademark Office Crystal City Va. is an example of one agency that has made the shift. In 1992 problems arose with the office's home-grown financial system the applications were unable to document expenditures so that managers could easily track the cost of PTO's services.
The office which has 5 000 employees considered building its own system buying a COTS package or signing a cross-service agreement where another department manages its financial applications.
It opted for a cross-service agreement with the Interior Department which was running AMS' Federal Financial System on IBM mainframes. W.B. Erwin the director of finance at PTO said Interior had gained extensive expertise in this area because from 1989 to 1992 six other agencies had also chosen it to run their financial systems.
The PTO found the commercial AMS application accommodates 90 to 95 percent of its daily business functions and has refused to customize the system to address the remaining items.
"If there is a function that an application does not support we will adapt our businesses process to complete it manually rather than change the system " Erwin explained. "Customization requires that an agency maintain software and we don't believe the benefits are worth the responsibilities."
PTO has supplemented its mainframe financial system with AMS' client/server procurement system which runs on Sequent Computer Inc. Unix servers. The system enables 350 users equipped with PCs running Microsoft Corp.'s Windows operating system on a Novell Inc. NetWare LAN to access financial information.The new system is helping the agency tighten its cost management controls by gathering information on the actual costs of delivering services such as granting a patent. Erwin expects PTO to have such capabilities in place for testing in early 1997 and to deploy them by the end of that year.
The Agriculture Department moved away from its home-grown financial system two years ago. The agency which has 12 000 users stationed throughout the United States also decided to supplement expensive mainframe applications with less costly client/server systems.
Irwin Ted David the deputy chief financial officer at USDA said AMS' Federal Financial System enables the department to keep processor-intense tasks on mainframes and to move other functions to Unix servers and PC clients. The agency has begun migrating its accounts payable accounts receivable and payroll applications which it developed itself to the new architecture.
The new system provides the agency with a more granular view of information. It can monitor purchases to the individual credit card level previously only summary departmental information was available.COTS systems include workflow components which enable agencies to automate manual tasks. For instance an expense system may automatically route an expense form from an employee to his supervisor for approval. Previously the form may have moved via an internal mail system or the employee may have dropped it in the boss' in-box.
Electronic data interchange is a second automation tool. With EDI agencies can electronically move financial data rather than mail paper documents.
The Internet is emerging as another alternative. Suppliers are working to deliver electronic commerce products which should enable agencies to transmit financial data over the Internet.
Business process re-engineering can help justify funding for new financial systems.
"Government agency funding is tight " Oracle's Bobby explained. "Simply automating existing procedures usually will not result in significant savings. Benefits come only when an agency decides to change the way it operates."
But that can be difficult. Employees often resist change and hinder business process re-engineering efforts. Electronic Data Systems Corp. Upper Marlboro Md. avoided that problem because it is a subcontractor for the NASA Earth Observing System Data and Information System (EOSDIS) project. The $826 million project will use satellites to monitor changes to the Earth's atmosphere and determine its impact on items such as the tropical rain forest.
EDS has 650 employees responsible for selecting and integrating computer systems to support the project. In October 1995 the company issued a request for proposals to leading financial software suppliers including Dun & Bradstreet Software Services Inc. Atlanta Oracle Corp. Redwood City Calif. and PeopleSoft Inc. Pleasanton Calif.
Robert Horrigan an EDS program manager and COTS procurement manager for the EOSDIS project selected Dun & Bradstreet's SmartStream package in May. The product relies on Emeryville Calif.-based Sybase Inc.'s relational database management system which was emerging as an EOSDIS standard and therefore simplifies the integration of financial data with other applications. The Dun & Bradstreet software has a client/server architecture so it is flexible and can run on a number of client and server operating systems.
The client/server design was important because the project team is stationed at eight sites. Horrigan said the product's distributed nature will make it simpler for team members to share information.EDS has begun tailoring the package to meet EOSDIS' needs and expects to deploy a pilot system in March 1997. It should complete development by September 1997. Because the project has just begun Horrigan is not sure how much customization will be required.
Customization has been a hot topic among federal users. Government agencies discover their ways of operating may not mesh with commercial packages. Consequently they may have to substantially tailor a COTS package.
"It's really the job of the actual CFOs to decide how flexible they want to be in installing a COTS package " said David Odell product manager for CDSI's i.e.FARS. CDSI's software which is designed for true client/server-based installations is presently being used by a number of federal agencies including the Education and Commerce departments.
And some agencies still think that the traditional way of building a package from scratch is the only way to mimic their business processes. Such thinking has naturally made it difficult for vendors to make inroads in certain agencies.
"In the past we haven't been successful in getting the Department of Defense to adopt our packages " AMS' Barschdorf admitted.
The Federal Financial Systems Management Status Report found that DOD is the government's largest financial application user with 246 applications—three times more than the next closest agency (see chart).
DOD may not be moving to COTS products but other agencies seem ready to adopt them. So far the results are promising.
"Recent government regulations forced federal agencies to meet many new requirements " Treasury's Apt said. "Agencies determined that COTS packages can help with the process have been working hard to implement those systems and are beginning to turn the corner."Korzeniowski is a Malden Mass.-based free-lance writer.
H2At A Glance
Status: Legislation and administration policies are forcing agencies into major revamps of their financial management systems.
Issues: Complexity and high maintenance costs of traditional home-grown systems are pushing agencies increasingly to adopt COTS products.
Outlook: Good. As vendor experience improves COTS products are better able to fit agency demand which will only increase.
H2GSA Financial Management System Schedule Vendors
* American Management Systems Inc.* Computer Data Systems Inc.* Digital Systems Group Inc.* Orion Microsystems Inc.* Keane Federal Systems Inc.* KPMG Peat Marwick* Rel-Tek Systems & Design Inc.