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Journal2010Win-Government Financial Management LOB

ITFMA Journal

Government Financial Management LOB:
 Can It Deliver on OMB's Promise?

Paul Wohlleben, former Federal CIO and Partner at Grant Thornton LLP

In tennis, the lob is a defensive shot used to keep a player in a point — rarely do players hit outright winning shots using a lob. In today's government, the Line of Business (LOB) has a much different meaning. The LOB initiatives are key components of the President's Management Agenda, focused on providing common business functions from a fairly small number of centers of excellence to a broad set of customer agencies.

The objectives are twofold: reduce cost and improve quality and operational performance. Unlike the tennis analogy, the government's LOB initiatives comprise an aggressive strategy to produce outright winners. Let's look at the Financial Management LOB (FMLOB), and examine whether it can deliver on this promise.

Checkered Past

Most efforts to develop, implement and operate financial systems in the government have been problematic at best and abysmal failures at worst. The requirements for federal accounting and financial management are significantly more complex than those for companies. Many agencies have their own set of seemingly unique requirements, some resulting from internal processes and some from external influences.

The government has attempted efforts similar to the FMLOB in the past. During the Reagan era, the Office of Management and Budget initiated cross-servicing arrangements. The Agriculture Department's National Finance Center is the most prominent example. In subsequent years, the universe of provider agencies has expanded through the creation of franchise funds. These initiatives have been reasonably successful, mainly by providing services to small agencies. While the initial capabilities were based on custom software, the provider agencies now often offer services running on government-certified commercial packages.

Meanwhile, a number of larger agencies have implemented custom and commercial applications to serve their internal requirements. Most of these efforts rely on vendors with significant experience implementing financial systems as integrators. Even so, most failed to meet their intended goals, and many resulted in problem implementations, cost overruns and few benefits. In some cases, agencies abandoned the efforts.

So what are the lessons learned? Here are the most salient:

• Financial systems projects are complex and difficult undertakings that require capable functional and project skills, strong leadership, and organizational will and alignment.

• Agencies have applied flawed financial systems modernization strategies and approaches.

• Execution fell short.

New Vision

Simply stated, the FMLOB strategy calls for consolidating the government's financial services at a fairly small number of qualified agencies and companies. The providers — the centers of excellence or COEs — would market their capabilities, and agencies would select from among them using a competitive selection process.

OMB and the Federal CFO Council's Financial Systems Integration Committee set ambitious goals for FMLOB financial systems:

• Provide timely and accurate data for decision-making.

• Facilitate strong internal controls.

• Reduce costs by providing competitive alternatives for agencies to acquire, develop, implement and run financial systems through shared services.

• Standardize systems, business processes and data elements.

• Provide for seamless data exchange between and among agencies by implementing a common language and structure for financial information and system interfaces.

Game Plan

Recent OMB guidance lays out a three-stage program for implementing FMLOB, essentially prescribing critical milestones for achieving the vision and goals.

Stage 1: Transparency and standardization. First, the FMLOB team must establish a foundation for a competitive environment and the seamless integration of financial data.

Transparency will provide clarity to evaluate the performance and cost of shared service alternatives and the steps agencies undertake to migrate to a COE. OMB identifies two specific projects: the establishment of common performance measures and the development of migration planning guidance. The standardization of business processes, interfaces and data will provide the basis for managing the cost and risks of migration and ensure financial data can be shared across systems.
To promote standardization, OMB calls for the development of standard business processes and the creation of a common governmentwide accounting code.

Stage 2: Competitive environment and seamless data integration. The COEs must focus on ensuring that competitive options for financial systems are available to agencies and that financial data can be easily compared and aggregated across agencies.

To improve the competitive environment, the FMLOB team created the COE framework: a limited number of stable and high-performing centers providing alternatives to agencies investing in modernized financial systems. The benefit of seamless data integration will be available as an outcome of the standardization efforts of Stage 1.

Stage 3: The results. OMB envisions a fully realized FMLOB where the best financial services are available to all agencies at the best prices. An additional expected benefit is a reduction in governmentwide IT costs and risks.

OMB is executive sponsor for FMLOB. The Federal Systems Integration Commission is serving in an advisory capacity to assist with oversight and guidance. The Financial Systems Integration Office will provide tactical implementation support.

Chances for Success

The number of financial systems migrations that must take place in the relatively near future will be challenging for FMLOB. If each agency implemented and ran modernized systems independently, the costs would be significant and the results would not produce seamless integration of financial data. The FMLOB strategy addresses these concerns. If fully implemented, it should deliver on its goals, most notably, reducing costs and improving data exchange.

The FMLOB initiative is ambitious, challenging, potentially rewarding and high-risk. Anything less than full realization of the program's promise can still deliver great benefits to the government. To those involved in any aspect of the initiative, Godspeed and good luck.

Financial Modernization Success Hinges on Five Factors

Creating a competitive environment. Sizable cost savings will accrue from consolidating the government's financial processes into fewer systems, but competitive alternatives are required to institutionalize savings over time. The more commodity-like the alternatives become through standardization, the greater the resulting savings.

Standardizing requirements. A look back at failed modernizations will find a number where organizations intended to standardize business processes before implementing systems, but failed to. This is difficult and challenging work, requiring significant expertise, strong change management and transformation skills.

Scaling to meet the need. The economics of operating financial systems drives providers to seek growth, through which they can reduce fixed costs per transaction and offer better prices to customers. The ability to flexibly scale both the infrastructure and the resource base to serve new customers is critical; it would seem private-sector providers are better able to meet this requirement

Gaining momentum. OMB can use the power of the budget to ensure that agencies consider and use the COEs for financial systems needs. Market forces must drive agency and provider decisions. If the FMLOB can generate energy and interest and then achieve some early success, the program will be able to sustain continued growth.

Executing. The FMLOB strategy is based on a solid business case, with a market waiting to be satisfied. Effectively implementing the strategy requires granular planning at both the governmentwide and agency levels.

Copyright © 2010 by the IT Financial Management Association. 


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