Agencies must use return on investment to judge IT buys

Once upon a time, an agency's empowerment to contract depended on a delegation of procurement authority (DPA) from the General Services Administration. But no more. ~The Clinger-Cohen Act returned contracting authority to agencies and changed the rules of the game. DPAs were out, and return on investment (ROI) was in. Now, and in the future, empowerment— and budget authority— will be derived from this new management tool to justify acquisitions.

Unfortunately, the meaning and value of this tool is not broadly understood. ~Why? I believe it's partly because the gateway document that many people used to understand acquisition planning and justification— the Federal Information Resources Management Regulation— expired along with DPAs and GSA's oversight authority. It's partly because the Federal Acquisition Regulation was not seen as, and has not become, a replacement for the FIRMR. It's partly because too many people whose jobs are related to acquisition are not as familiar as they should be with Office of Management and Budget circulars, policy memoranda, capital planning, investments and budget guidance. And it's partly because too many officials still feel that financial analysis, benefit/ cost analysis and ROI are not within the province of information technology acquisition. They are wrong.

~Why is ROI so significant? Because major acquisitions are competing for a shrinking pool of funds. "Departments and agencies, which once could count on more funds from year to year, no longer can," according to the Clinton administration's 1999 budget proposal. Each proposed acquisition will be measured against others— first within the agency and then governmentwide at OMB— to determine which acquisitions "demonstrate a projected [ROI] that is clearly equal to or better than alternative uses of available public resources," as Raines' Rules established.

~"Return" is an especially important concept today because it is not limited to traditional indicators, such as net present value, benefit/cost ratio or break-even. Although these traditional measures remain important, current thinking about federal ROI is not so narrowly prescribed. Federal ROI may include improved mission performance, reduced cost, increased quality or speed, improved flexibility, or increased customer and employee satisfaction. This means ROI in the federal sector has two important components: dollar-quantified return (costs and benefits) and mission and performance return (outcomes). ROI is a way of valuing the proposed investment, or acquisition, compared with others.

~Congress and OMB have re-engineered the acquisition-approval process from one of procurement control to one of budgetary control. Agencies must now re-engineer their capabilities to become adept at analyzing their business needs and justifying acquisitions in terms of measurable returns. ~However, doing so will bring its own rewards. A good business case is the foundation for establishing goals, buying-in management and staff, being funded, staying on track and measuring to achieve results. Those who think "It's too hard" or who take the position that "this too shall pass" need to recall the public trust— and our obligation to spend the taxpayers' dollars wisely toward public-mandated goals.

-- Costello is the author of the report "Making a Business Case for Information Technology Acquisitions," being published by Acquisition Solutions Inc. Contact her at (703) 378-3226 or costella@erols.com.