Finding and Funding IT Projects

Innovative solutions to locating the money are out there.

by , / November 30, 1997
It's an undeniable fact of life in
government today: Budgets are tight. If you've been awake for the last several years, you probably already know that.

But here are a few facts, nonetheless: Total government expenditure as a percentage of gross domestic product has steadily decreased from a high reached in 1991. Federal outlays, for example -- where the data are probably the most accurate -- increased by 11 percent in real terms from 1988-92 and by only 5 percent from 1993-97. They are projected to increase less than 1 percent in the next five years.

It's not a big surprise that money for new projects is scarce and will continue to be.

But scarce funds shouldn't wipe out IT projects. After all, information technologies can deliver sizable efficiencies leading to cost reductions and other benefits. A well-designed IT project is not a mere expenditure but a true investment.

Public managers are looking hard for ways to reap the investment potential of technology but face significant barriers everywhere they turn. This series reports on recent research that seeks to understand and ultimately help overcome these barriers. This article summarizes the problem and some of the most promising solutions being explored in governments today. The remaining articles will analyze three of the most important and innovative ideas in more detail, focusing on case studies that other jurisdictions should soon consider adopting.

Naturally, budgeting involves saying "yes" to some proposals and "no" to others. When resources are scarce, many proposals will be left unfunded. This is expected and isn't necessarily a "problem" -- unless bad proposals get the funds while good ones languish.

Unfortunately, a series of biases in government budgeting often make the public sector unsuccessful at finding and funding good IT projects.

For instance, some of the best IT investments are valuable because they involve large economies of scope and scale -- for example, public/private cooperation to use the banking ATM networks for benefit payments. Such projects typically require cooperation that extends far beyond the boundaries of a single program, an organizational unit or a single budget year. Yet traditional budgets focus on the next year of spending for a single program or agency, too often overlooking multi-year and multi-agency opportunities. Further, projects involving infrastructure construction are often costly -- precisely the kind of project shunned when budgets are tight.

Another example: The best IT investments often depend on significant organizational learning and innovation. As such, their value can't be proven by experience. Unfortunately, as government is risk averse and generally mistrustful of ideas not already in the mainstream, it tends to avoid such projects. As a corollary, governments are reluctant to consider innovative approaches to funding IT projects, such as user charges, capital funding, performances contracting and revolving funds. This limits public managers to the already overburdened tax levy.

Taken together, these characteristics make government IT budgeting worse than it should be. In an economy based on information, with a public demanding better service and lower taxes, this is a big problem.

So, what can the public managers do? Research at Harvard's Strategic Computing Program points to a variety of promising options. Twelve of the most popular options for better IT budgeting were discussed and analyzed by federal, state and local practitioners and researchers at a recent Harvard workshop. Workshop participants rated each option in terms of their degree of present involvement with the option, the degree of confusion and conflict to be overcome in implementation, and the estimated impact of each option on social value (value created net of expenditures).

While each of the 12 options were evaluated as the top priority in one situation or another, six were rated as generally the most attractive in terms of their ease of implementation, their net social impact or their degree to which they are inappropriately ignored in most jurisdictions today.

Jerry Mechling is director of Strategic Computing and Telecommunications in the Public Sector, at Harvard University's John F. Kennedy School of Government. Victoria Sweeney is a research affiliate with the same program.


The two easiest IT budgeting improvements involve educating and training those who propose and evaluate IT investments and use capital budgeting vehicles for projects that create multi-year assets.

Education. Public-sector managers considering IT often know what business results they want but fall short when it comes to knowing how technology can help. This gap can and should be filled. Education should focus on the human and organizational dimensions of IT-enabled changes in work processes and on improving communication between the technology community and various program and political communities. Senior executives need to better understand how IT creates value -- for instance, through network-based work processes. Without this knowledge to guide design and implementation, IT projects are often unduly risky and not worthy of funding.

The primary lessons to be learned are not about technology per se but about what technology can do, particularly as related to organizational change and implementation. Technology can also help change how education itself occurs within the organization -- for instance, by offering distance education, groupware and "just-in-time" delivery of relevant information as teams form to work on specific projects.

Capital budgets. Many IT projects are necessarily broad in scope and scale. They can be costly, with high upfront costs that can be killers. Multi-year funding in such cases -- by spreading costs over the life of the investment -- can substantially improve the chances for project approval. Though some governments have moved to multi-year funding, many have not.

Capital funding is immediately attractive because it reduces the "sticker shock" of large-scale projects, but it also has other benefits. For example, the commonwealth of Massachusetts has twice issued bond bills for technology projects -- the second effort coming because of the overwhelming success of the first. After the initial Information Technology Bond Bill of 1992 went through -- with 21 projects -- many managers in the state government thought they would increase the probability of getting funded if they cooperated in producing another technology bond bill. This second IT bond bill, introduced and adopted in 1996, included 112 projects totaling over $300 million. Because it represented such a huge opportunity, it encouraged agencies to develop more comprehensive and strategic plans for IT.

Education and capital funding are valuable steps for most jurisdictions and among the easiest to implement. But infrastructure and cross-organizational projects typically offer even greater net value, along with typically greater implementation difficulty.

Infrastructure projects. Infrastructure investments -- in networks, standardized data, etc. -- offer a happy combination of exceptionally high value and only moderate implementation difficulty. Information infrastructure can improve service delivery processes in the near term while also creating shareable data and communications capacity for the future. While infrastructure requires long-term commitments, it often facilitates projects not feasible or even imaginable at the time of the initial investments.

Cross-organizational projects. Often, applications that integrate specific services across agencies and governments are extremely valuable. Certainly, as organizations become familiar with the Internet, the potential for cross-organizational links becomes more apparent, allowing workers in many settings to provide a broader range of services to the citizen. But the Internet isn't the only way. Information kiosks operating under other protocols can also allow citizens to access services without having to own their own computer.

Cross-organizational projects, however, raise issues that are often easier to resolve in traditional, inside-the-organization projects. For instance, agencies and governments may be using technologies that can't "communicate," just as 5.25-inch disk drives can't make any sense of a 3.5-inch disk. The standardization required for interoperability may require compromise and new investments by all concerned, however, and many managers question whether they're authorized to invest in activities extending beyond the boundaries of their narrowly constructed agency missions.

In some cases, financial and other complexities may require government to create new organizations charged with multi-agency responsibilities -- as might be the case with geographic information systems, automated fingerprint identification or electronic benefit distribution systems. However, the creation of new organizations adds complexity that may be too much for some to handle.

"Non-traditional" funding, especially performance contracting and user charges -- in addition to the capital funding options mentioned above -- are greatly underutilized and will be important options for many jurisdictions over the next five years.

Performance contracting is perhaps the most immediately constructive non-traditional IT funding mechanism. It represents an exceedingly attractive opportunity, especially for those aiming to improve revenue collection or in settings where the unit costs of service delivery are readily measurable. The experience of California's Franchise Tax Board (FTB) provides an excellent example. FTB contracted not merely for IT systems but for specific organizational results -- in this case, documented improvements in revenue collection.

Performance contracting allows government and vendors to share the organizational risks of implementing an IT project -- the largest category of risks, by far. FTB formed strategic partnerships to share the risks and also share returns with vendors; this created strong motivation for success on both sides, eliminating the adversarial relationship that too often characterizes dealings with vendors. Governments and vendors who have experimented with performance contracting call it a "win-win" for all, including citizens seeking more efficient services.

User charges represent another important non-traditional option for IT funding. Though federal policy opposes user charges that exceed marginal cost, major opportunities exist in states and localities for charges that offset significant portions of the underlying costs of collecting and maintaining the data involved. Undeniably, user charges have been controversial and, in many settings, will require serious analysis and debate before they can be implemented. Still, user charges will undoubtedly allow some governments to offer new services while at the same time avoiding the need to charge the general taxpayer for services that benefit direct users rather than the larger society.

Case in point: The Information Network of Kansas (INK) is a Web site that allows citizens to find information about schools and other government information, to contact elected officials and much more. Businesses use INK to access information and to file government forms electronically. Because it's fast and easy to use, nearly every bank in the state now uses INK rather than the traditional, paper-based way of filing documents.

The important distinction between citizen and business use of INK is that, while the information of interest to citizens is free, businesses pay an annual subscription fee that allows use of a handful of "premium" services -- typically, industry-specific applications. INK provides these applications efficiently and without draining state resources that could otherwise benefit the broader society. The state benefits further by being freed from paperwork that INK handles electronically. By charging enough to maintain the entire network, INK provides one-stop information to the state's citizens -- whether at their home or work computer or at computers located at libraries.

December Table of Contents

Jerry Mechling Contributing Writer