Under Montana's ROI process, any agency proposing a new information technology project has to have the proposed project's financials in good order. The business case the agency presents to Scoble, who reports to the chief information officer, has to show how Scoble's office can audit and verify the fiscal returns or reductions in cost that the agency claims the investment will provide.
After that, the agency has to determine the value of the "soft benefits." To do that--and this is where the voodoo sometimes comes into play--points are awarded for intangible gains. For instance, if customer satisfaction with an existing system is good and an agency wants to build a new project that will not take customer satisfaction to a higher level, the project gets no points in that category. Or, if users can adopt the technology in one month, the project scores points; if it will take six months, it gets few or none.
It's relatively easy to tally the hard numbers, such as a reduction in the cost of a transaction, Scoble says. "It's the soft stuff that everyone has trouble with."
JELLY BEAN COUNTING
In government, as opposed to the private sector, the soft stuff is often what really counts. It also has a rightful place in determining return on investment, which is becoming an increasingly valuable tool for CIOs and for agencies with IT projects they want financed.This focus on ROI is somewhat of a sea change. When budgets were flush and technology was hyped as the solution to just about anything that ailed a government, a return-on-investment analysis was anathema. Today, ROI can be a primary factor in determining whether a project is funded. Certainly, legislators, budget officers and CIOs are asking pointed questions about the financial case for projects.
If the return on investment is not in hard dollars, then the project might have to meet some desired goal or target in a strategic plan, or in some way be beneficial to the government, citizens or businesses. Governments are different from businesses in that the bottom line is not the be all and end all: There are other objectives to meet. "We don't fit the perfect model of an ROI that American Express would look at," says Danny Murphy, the CIO in Phoenix, which uses soft and hard criteria in its ROI system. Like Montana and several other jurisdictions, Phoenix is factoring in benefits for constituents, such as expanding opportunities for businesses or enhancing the delivery of services to citizens.
Governments that don't calculate such potential benefits leave a "significant hole in the business case analysis," according to a study by Deloitte Research. The firm's study looked at using e-government to enhance economic competitiveness. Many of the soft e-government benefits, the study found, are "real and quantifiable."
One example cited is Oregon's electronic process for approving the construction of a building. By reducing delays and cutting the costs of processing permits, the process saves the construction industry 10 percent of its costs, or $100 million annually. That kind of savings can be a factor in drawing a company to a state.
ROLE MODELS
Beyond economic development, jurisdictions may see value in projects that increase their own staff's efficiency. For instance, if a service is moved to the Web where citizens can serve themselves, that could translate into time saved by a customer-service representative who would have had to take that call if the Web service were not available. In Virginia, says Dan Ziomek, a director at the state's Information Technologies Agency, agencies can add those savings into project estimates, "to the extent that they can make rough approximations."Clearly, ROI for government IT is not only a squishy science, it's also an emerging one. States and localities are just beginning to develop variations on the private-sector trend. One old hand--and therefore one with a measurable track record--is Tennessee. Its ROI system--known as a documentation process--has been in place for more than a decade, and its components range from a project-cost summary to a benefit assessment. Included is a detailed set of instructions for agency IT directors so they make sure to cover all their costs over a 10-year lifecycle. The idea behind the overall ROI approach, says Richard Rognehaugh, the state's CIO as well as deputy commissioner for Finance and Administration, is not to "risk any of the money that was so hard to come by in the first place."
New Mexico has also been practicing a form of ROI. Moira Gerety, the state's CIO, views ROI as a hard science of numbers and doesn't push her agencies to convert everything into a dollar amount. "You can really have people spinning a lot of wheels to quantify what is not really quantifiable," she says.
That doesn't mean she won't ask agencies to articulate what the soft benefits are and how they fit into the state's strategic plan for IT. That plan has four objectives. Lowering the cost of government operations and IT operations are two that call for hard numbers. The other two are enhancing constituent services and supporting economic development. The latter two do not translate easily into dollar savings. Although Governor Bill Richardson has set economic development as a top priority, "we couldn't really tie ourselves to that one as a measurable outcome," Gerety says. "I'm not going to be measuring the number of jobs created."
What's good for the state is good for its cities. In Albuquerque, departments don't have a standing order to do an ROI on all technology projects, but there's a project plan that takes into account risks, assumptions, constraints, objectives and the like. Projects have to show a benefit, whether tangible or intangible. For instance, paying water bills online might be a benefit that doesn't have much of a cash value but makes sense for constituents. If it ends up serving as the foundation for customers to pay a lot of other bills online, the ROI can be measured over time. Sometimes the only return the city gets is the perception that its e-government services are improving.
THE AFTERGLOW
Most practitioners estimate ROI in advance. But it's also helpful to go through the process after projects have been put in place. Albuquerque, for instance, got a huge return from installing a reporting tool for financial management: Financial reports became much easier to get out to departments, which didn't have to call the IT department nearly as much for technology help. In addition, the city was able to identify and cut costs such as excessive cell phone use and overtime. Over a three-year period, the city realized a nearly 2,000 percent return, mainly from increased employee and IT staff productivity and reductions in spending, according to one private company's analysis.Baltimore also learned about its savings after it implemented a program. Mayor Martin O'Malley began CityStat, a system of worker accountability, on a shoestring. The idea was to instill good management practices among agency heads without any technology implementation at the outset. The city went after the low hanging fruit, from controlling overtime to curtailing wasteful programs.
At the Bureau of Solid Waste, overtime was reduced by more than 10,700 hours over a year's time. The sanitation department nearly doubled the number of illegal dumping citations issued, resulting in an extra $850,000 in revenue over a 36-month period.
Moving on from there, the city employed a customer service request system (technology that merges service requests from many departments into a single system), known as CitiTrack, replaced two legacy complaint tracking systems and combined it with a 311 call system.
CityStat, CitiTrack and the 311 system have continued to grow and produce savings. Baltimore officials figure that after a $2.5 million investment in start-up costs and $4.6 million in annual operating costs, the ROI was $13.2 million above costs in the first year of operation. After three years, the city expects to see a return of $70 million to $90 million. "Although we were pretty sure there would be a bang for the buck," says Elliot Schlanger, the city's CIO, "we didn't have any idea the impact would be as significant it is."
That said, Schlanger cautions that there can be a downside to ROI if a government tries to mimic the private sector. Companies are focused on buying patterns and increases in sales, and their ROI protocols are designed to measure how well a project is helping the company meet those measurable objectives. "In the government space, there's nothing quite equal to that," Schlanger says. "When people call up the government asking about service, or complaining about service that hasn't been delivered, there's nothing about that interaction that's going to increase our return."
What Baltimore looks for is productivity improvements, eliminating wasteful programs and increasing revenue streams. "We take great pains to make sure that our projects project cash positive, there's no doubt about that," he says. "But we do not set goals to attain triple digit returns in investment."
For Montana, the beauty of getting an ROI in advance from departments is being able to use it to scrutinize nondelivery on promises of savings. The promises become part of an audit trail, and those people with a record of overpromising will find their future proposals dissected more closely.
True believers in making the business case with ROI in government also point to another valuable aspect of the system: The ability to pull the plug on a project that goes too far off track. If a project is outside the parameters promised in ROI materials, that failure can be used to bring the project to a halt. ROI, says Scoble, "is the bullet you need."
