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PRIVATE SECTOR CONSULTANTS AND FEDERAL

FINANCIAL MANAGEMENT: MORE THAN BALANCING THE BOOKS

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY

AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 16, 2004

Serial No. 108–244

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

KATHERINE HARRIS, Florida

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

BETTY McCOLLUM, Minnesota

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND FINANCIAL MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

MARSHA BLACKBURN, Tennessee

STEVEN C. LATOURETTE, Ohio

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

KATHERINE HARRIS, Florida

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

MIKE HETTINGER, Staff Director

LARRY BRADY, Professional Staff Member

SARA D’ORSIE, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 16, 2004 ............................................................................... 1

Statement of:

Cruser, George, partner, public sector financial management, IBM Corp.;

David Halstead, vice president, Bradson Corp.; Robin Lineberger, senior vice president, BearingPoint; and Greg Pellegrino, partner, public

sector, Deloitte Consulting ........................................................................... 4

Letters, statements, etc., submitted for the record by:

Cruser, George, partner, public sector financial management, IBM Corp.,

prepared statement of ................................................................................... 6

Halstead, David, vice president, Bradson Corp., prepared statement of ..... 14

Lineberger, Robin, senior vice president, BearingPoint, prepared statement of ........................................................................................................... 21

Pellegrino, Greg, partner, public sector, Deloitte Consulting, prepared

statement of ................................................................................................... 32

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 2

(1)

PRIVATE SECTOR CONSULTANTS AND FEDERAL FINANCIAL MANAGEMENT: MORE

THAN BALANCING THE BOOKS

WEDNESDAY, JUNE 16, 2004

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND

FINANCIAL MANAGEMENT, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Platts (chairman

of the subcommittee) presiding.

Present: Representatives Platts and Towns.

Staff present: Mike Hettinger, staff director; Larry Brady and

Tabetha Mueller, professional staff members; Amy Laudeman, legislative assistant; Sarah D’Orsie, clerk; Daniel Hazelton and Katherine Edge, interns; Mark Stephenson and Adam Bordes, minority

professional staff members; and Teresa Coufal, minority assistant

clerk.

Mr. PLATTS. This hearing of the Subcommittee on Government

Efficiency and Financial Management will come to order.

This is a continuing effort by the subcommittee to focus on financial management across the Federal Government. Today, we are

delighted to have several individuals from the private sector who

are with companies that play critically important roles in the Federal Government’s effort to get our financial management in good

stead.

Because of time constraints and our expectation of the next series of votes, which will last about an hour once they begin, coming

up in anywhere from 30 minutes to 1 hour, I am going to submit

my opening statement for the record. And I would ask the ranking

member and other members who may be arriving to submit their

opening statements for the record so we can get right to our witnesses’ statements and then to questions.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. Maybe before we do introductions and have your

statements, I’d like to ask each of you to rise and be sworn in, as

well as any individuals who you may call on as part of your testimony or question and answer efforts today to rise and take the

oath. Please rise and raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. The record will reflect that the witnesses answered

in the affirmative.

As we begin testimony, because we are somewhat constrained on

time, if we can try to keep statements to the 5 minutes and then

have as much time as possible for Q&A, that would be great. Typically, we give a little bit of background. But I think today, other

than identifying Mr. Cruser as being from IBM, if you would like

to begin with your opening statement, and then we will move down

from there and save again the time for questions.

So, Mr. Cruser.

STATEMENTS OF GEORGE CRUSER, PARTNER, PUBLIC SECTOR FINANCIAL MANAGEMENT, IBM CORP.; DAVID

HALSTEAD, VICE PRESIDENT, BRADSON CORP.; ROBIN

LINEBERGER, SENIOR VICE PRESIDENT, BEARINGPOINT;

AND GREG PELLEGRINO, PARTNER, PUBLIC SECTOR,

DELOITTE CONSULTING

Mr. CRUSER. Mr. Chairman, thank you. I am George Cruser. I

am a partner at IBM Business Consulting Services. I am responsible for our public sector financial management practice. IBM provides financial management services to support the needs of the

chief financial officer.

Our core services focus on strategy and process transformations

needed to improve the budget, finance, accounting operations, and

overall agency performance, along with implementations of agencywide financial systems and other enabling technology.

By transforming and improving business practices, and by using

standards based technology, Federal CFOs have been able to start

moving from an operation that primarily collected data and reported on results, with little time for analysis, to an operation

where having timely, accurate, and comprehensive data is a given,

and more of their time is spent in the analysis and interpretation

of results. Our implementations focus on the use of standard commercial off-the-shelf, or COTS, products that meet Federal Government requirements and help Federal CFOs move more rapidly toward high quality analytics and approved business practices.

In our experience, IBM has found three noteworthy practices

that can be applied Government-wide.

The first is a Federal CFO with the commitment to require timely, accurate, and comprehensive financial reporting, and who accepts nothing less than a strong internal control environment and

an unqualified opinion.

The second is a financial CFO who has used enterprise-wide implementation of COTS software as a platform for transformation

and substantial operational improvements. Implementing standardized financial software has been a means to improve but is not a

best practice in and of itself. The best practice has been the Federal CFO’s commitment to a comprehensive review of financial

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management processes, transforming these processes to align with

the strategic goals of the agency, and then implementing software

solutions to automate data collection, validation, and reporting. A

new financial system can reduce the time to collect and report data

as much as 50 percent, and can allow managers to answer questions directly from the system and make decisions quickly.

The third point is that Federal CFOs have used software upgrades as a platform to make another round of improvements.

Agencies who make a commitment to improvement will see a step

function increase in the improvement with the initial implementation of COTS. Building continuous improvement into the process

will allow for routine incremental improvements. Federal CFOs

have found that they can gain another, albeit smaller, step function

improvement in operations with each software upgrade. Software

upgrades require many of the same steps as the software implementation. Therefore, establishing improvement goals and allowing

the changes necessary to achieve these goals during the upgrade

can yield dramatic results.

IBM believes the greatest obstacle to Federal agencies implementing financial systems is the magnitude of the change they are

willing to undergo. The most significant cost advantage is discipline around standardization. A basic recommendation common to

all COTS implementations is standardized processes across the enterprise, allowing all parts of the agency to use compatible or even

the same software. This allows agencies to have one set of business

practices, allows cross-training and collaboration throughout the

agency, and increases the overall knowledge base of the system.

COTS products have been designed to meet all of the basic functions required by Federal agencies. Unfortunately, in lieu of

streamlining business processes to take advantage of standard

functionality, some agencies have required that the software be

configured to conform to pre-existing business processes. This approach can require such massive reconfiguration of the COTS product that it looks more like a custom product than the underlying

standard product from which it started. This complicates the initial

implementation and all future releases.

Finally, the set of incentives available to the Federal Government versus the private sector is a barrier to success. In the private sector IBM often sees that rising starts in the executive ranks

are selected to manage system implementations, and when successful, lead to other promotions and other financial reward. In addition, these implementations are highly visible. A financial system

failure will have an effect on a company’s stock price—a negative

effect. So throughout the implementation the project team has the

access and the attention needed from the CFO and other officers

of the company. In the Federal Government, providing those who

lead the implementation with the incentives to meet and exceed

the performance improvement target is often overlooked.

Mr. Chairman, this concludes my prepared statement.

[The prepared statement of Mr. Cruser follows:]

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Mr. PLATTS. Thank you, Mr. Cruser. A number of points that you

make in your statement are ones that really jumped out as I prepared for this hearing, and I look forward to coming back to you

to expand on this.

Next we have Mr. David Halstead, vice president of Bradson

Corp.

Mr. Halstead.

Mr. HALSTEAD. Mr. Chairman, on behalf of Bradson Corp., I

would like to thank you for the opportunity to discuss the role of

private sector consultants in implementing new financial management systems and improvements.

Bradson provides financial management, accounting, and financial systems consulting to Federal Government organizations. The

emphasis of our consulting support and solutions over the past 10

years has been on financial modernization and reform, including

implementation of the CFO Act, FFMIA, and the President’s management agenda, as well as the interpretation and adoption of new

standards contained in the FASAB pronouncements, JFMIP systems guidance, and OMB bulletins and circulars.

Bradson has partnered with many Federal agencies to establish

and achieve improvement goals, enterprise-wide changes, and program improvements. A few examples of our ongoing support include building effective cross-walks, determining financial system

specifications requirements, strengthening internal and management controls, analyzing COTS applications and JFMIP-approved

software, and preparing financial statements and audit trails that

result in unqualified audit opinions.

Bradson has been able to achieve these and other successes by

applying logical and practical project plans and approaches that include assignment of experienced accounting and business professionals, use of automated tools, and specific work steps—steps that

contain incremental performance milestones and completion schedules, all focused to deliver the proper levels of energy and expertise

so our customer is better able to achieve financial compliance and

systems improvements.

The leadership and guidance from the current administration,

Congress, and various advisory boards continues to provide the

framework for reforms and improvements. in addition to this leadership, as partners with the Government, we witness daily a Federal work force that is dedicated to meeting reform challenges and

willing to adopt new concepts and practices needed to strengthen

financial accountability. Important concepts and business practices,

such as:

Leadership support. Leadership with the authority to make decisions about resource allocation, funding, and technical direction;

that is, a single senior executive who is responsible and accountable for planning and execution of the implementation project.

Clear and consistent direction and instructions regarding the expectations for accounting, financial systems performance, and accountability reporting. Effective requirements documents and deployment testing. and program plans to avoid uncertainty and provide specific descriptions of agency-wide responsibilities and time

lines.

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A campaign plan to broadcast widely the new system or business

processes that includes the actions to be taken, explaining the benefits and payoffs of the phased logical approach selected by the

agency’s implementation team.

Flexibility in the implementation of new systems standards. Acknowledgement that steady progress and incremental improvements are expected and acceptable. Sponsorship of special initiatives and pilot programs to illustrate the effectiveness of selected

new systems, operations, and improvement processes, to include

adequate time, resources, and training to achieve buy-in from agency employees and users.

Accessibility to and funding for technical expertise, consulting

services, and other outside assistance to provide the help agency’s

need to meet the growing demands for change.

And finally, to facilitate the Government’s implementation of improved financial systems and processes, there needs to be a mechanism for acknowledging and rewarding unique accomplishments.

In other words, Mr. Chairman, agencies require direction on

where to go with improvements but need flexibility and resources

to plan and support how to get there.

Despite these positive actions that will facilitate improvements,

challenges and obstacles lie ahead. The Federal Government is a

very large, complex, and geographically dispersed group of entities,

composed of many missions that serve our Nation and its citizens.

Therefore, it is not a simple task to get consensus on a new system’s integration and functionality requirements, information architecture schemes, and/or deployment plans. In addition to the

sheer size and complexity, there is so much change occurring in

some agencies that it is very difficult to focus on what end state

the new agency-wide COTS system will support.

Second, when implementing a new financial system there is a

tendency to focus on the procurement of the software package rather than on the total business process—the total process that requires important improvements in business operations. Procurement of the selected JFMIP approved application is a significant

step but there should also be adequate resources and technical emphasis placed on changing the associated business tasks required

for successful implementation and sustainment. In most instances,

the more complex work begins rather than ends following the purchase of the COTS application.

And finally, our Federal Government agencies are undergoing extensive reform in areas other than financial systems modernization, placing extra burden on agency manpower and resources. The

CFO Act, GPRA, Clinger-Cohen Act, and GISRA are a few of the

far-reaching requirements that agencies continue to implement. In

fact, nearly all agencies are placing a very high premium on the

success of several challenging reforms, including physical and systems security, the ability to achieve and sustain unqualified audit

opinions, implementation of enterprise-wide IT capabilities, and integration of disciplined planning, budgeting, and reporting, as

called for in the President’s management agenda.

Although the modernization road ahead contains challenges, it

also presents opportunities for success. The combination of clear

and effective guidance and resources from the administration and

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Congress, the hard work and steady progress toward improvement

and dedication of the Federal work force, and the technical assistance and solutions provided by consulting firms, like Bradson, will

continue to result in modernized financial practices and systems.

Mr. Chairman, I thank you for inviting Bradson to speak about

this subject. Bradson looks forward to continuing its partnership

with Federal agencies to provide valuable advice and consulting

services. We hope this testimony will help you in your efforts to

lead and facilitate Government reform.

[The prepared statement of Mr. Halstead follows:]

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Mr. PLATTS. Thank you, Mr. Halstead. Again, we will come back

with questions once we have all the opening statements.

Next we have Mr. Lineberger, senior vice president with

BearingPoint.

Mr. Lineberger, the floor is yours.

Mr. LINEBERGER. Good afternoon, Mr. Chairman, Mr. Towns. On

behalf of BearingPoint, one of the world’s leading system integration and management consulting firms, I want to thank you for the

opportunity to share some of our views on systems implementation

of Federal financial systems. I am the senior vice president responsible for the services that we provide to the Federal Government

and our healthcare clients, responsible for nearly $1 billion worth

of services. I have over 23 years of experience in implementing

technology in government, having begun my career in the U.S. Air

Force where I was responsible for software quality assurance and

development. Since that time, I have supported nearly all of the

cabinet level agencies in their technology efforts.

Today I would like to comment briefly on BearingPoint’s experience in assisting our Federal clients in implementing new commercial off the shelf software, or COTS, such as Oracle, PeopleSoft, and

SAP. We are currently engaged in implementing, leading the implementation of agencies that include the Department of Health

and Human Services, the Department of Interior, the Department

of Veterans’ Affairs, and the Department of the Navy. These programs are at various stages in their implementation lifecycles and

collectively as well as individually offer valuable lessons learned. I

would like to share with you.

The testimony today will focus on six key areas I think that best

represent the practices and/or challenges for successful deployment

of systems across the Federal Government. These six topics represent some of the most common high impact focal points for improving the success rate of these projects.

The first, using proper methodologies and techniques in commercial off the shelf software implementation. Traditionally, our clients

have been using a custom development systems development

lifecycle. They need to adjust and take a look at the new methods

necessary that implements pre-existing software from a configuration perspective, not a software development perspective.

Second, setting realistic expectations for COTS financial systems

implementation. At the beginning, the client leadership needs to

set the expectation that the business processes will change, to

adopt those business practices as they exist in the software and, as

one of my colleagues pointed out, not try to drastically recode or

reconfigure the software as it comes out of the box.

Establish and utilize best practices in governance. It must establish strong executive leadership and sponsorship for the program.

It is necessary to have a dedicated, focused, and committed leader

who can help drive them through some of the barriers such as cultural, resistance within the organization.

Best practices in team-building and development need to combine

three things to effectively lead the organization. You have to have

good, skilled professionals from the systems integrator combined

with top-notch functional experts within the organization built into

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a collaborative team to address the implementation and configuration efforts.

Change management. You have to adequately prepare the work

force to receive and effectively operate the new system. You need

vision and leadership, work force preparation which requires work

force restructuring, role redescription, and training. Most importantly, training must be mandated.

And finally, a broader observation of how to attain better value

from the financial systems implementation. It must utilize the fully

integrated system. Try to use as much of that single branded software as you can to prevent deconstruction of the software in the

development of interfaces which cause both short-term implementation challenges as well as long-term lifecycle costs.

Mr. Chairman, thank you again for this opportunity. I look forward to answering any questions you have on my testimony.

[The prepared statement of Mr. Lineberger follows:]

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Mr. PLATTS. Mr. Lineberger, thanks for your testimony and also

thanks for your service as a member of the U.S. Air Force in the

past.

Next we have Mr. Greg Pellegrino, a partner with Deloitte Consulting and director of Deloitte’s public sector practice.

Mr. PELLEGRINO. Thank you, Mr. Chairman. Good afternoon. I

am Greg Pellegrino. I am the global managing director of Deloitte’s

public sector practice and work with leading governments all over

the world. I also have the unique role of being directly responsible

for our efforts to serve the U.S. Department of Homeland Security

here in Washington. I appreciate the invitation to appear before

you and to provide these brief remarks. I will also refer to my written testimony that we have submitted.

We know that Government leaders want to import the best practices from private sector experiences into public sector operations

here in Washington. In fact, I believe that in the not too distant

future Government here can, and should, establish new standards

that will be recognized as best practices themselves.

But we also know that Government is different than the private

sector. I think the key question, though, for this committee is: How

different can the U.S. Government afford to be in implementing financial management systems? Does different need to mean costlier

and less efficient in achieving the goals of implementing these systems? Customization is expensive. The more unique that unique

agency needs are defined precisely but are also kept to a minimum,

the more departments and agencies will be able to use broadly accepted procedures from the private sector and other leading governments and capitalize on best practices. And I should point out that

there is growing recognition of this among Federal leaders. For example, the U.S. Postal Service chose commercial software to support its massive financial transformation initiative and then re-engineered their processes to support their commercial best practice

implementations. And rather than ask that software be customwritten to map to older processes, they took this approach and

achieved their objectives on time and on budget. The Postal Service

took this approach despite the fact that there are very few software

packages that are intended to support a $67 billion organization of

its size, and worked very closely in a partnership with the vendors

to ensure that those products could scale adequately to their needs.

We need to ask: How different can Government be in focusing on

the process rather than the result? Often the emphasis on projects

tends to evolve into designing specifications and then trying to

meet them, rather than developing solutions and seeking to achieve

them. Yet, more often than not, key success factors that should be

addressed, including stakeholder communication, change management, knowledge transfer, rather than just simply technical specifications, need to become the focus. And incentives must be provided to encourage managers to focus on the solution as a whole.

The Office of Management and Budget and the Office of Personnel Management recently took an encouraging step. They worked

together to put out an open request for information seeking the private sector’s best ideas on Government-wide solutions to financial

management processes, people management, and grants management. And so what they are saying is that anyone who has a provVerDate 11-MAY-2000 12:57 Mar 01, 2005 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 D:\DOCS\97555.TXT HGOVREF1 PsN: HGOVREF1
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en solution that can be adopted for Government-wide use, to bring

it forward.

And even recognizing that Government is different, we need to

ask the question: Can Government afford to balkanize authority

and still expect to obtain results in these large initiatives? Department officials are often given responsibility but not necessarily the

authority they need to fulfill that responsibility in these programs,

leaving no one single executive or manager with department-wide

authority to pursue these strategic objectives. If an initiative is important to a department, clear ownership and the authority to

achieve the results must be maintained at the department level.

We know that Government must address the differences inherent

in its unique nature. In some respects Government timeframes can

be warped by election cycles and sometimes seemingly arbitrary

funding rules. Democracy tends to be that way and we all elect to

live with it. But it does tend to leave management challenges and

it disconnects revenue and cost-savings from appropriations and

budgeting, with little incentive to capture efficiency gains and realign those resources. Budgets have no direction to go but up, as

a result. Managers can be given broader incentives to pursue savings and clearer authority to achieve these business goals.

And so, what we urge is a much stronger role for the chief financial officer, the chief information officer, together, in these types of

programs as well as other major transformations.

We agree that the Federal Government has many unique needs.

We look forward to answering your questions, and we appreciate

the opportunity to spend time with you today.

[The prepared statement of Mr. Pellegrino follows:]

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Mr. PLATTS. Thank you, Mr. Pellegrino.

I was remiss in not recognizing the ranking member of the committee, Mr. Towns from New York. Thanks for joining us, Ed.

We are going to jump right into questions and try to get as many

subject areas as possible before the votes call us over to the floor.

I want to start with, Mr. Cruser, in your written statement, and

you touched on it in your oral statement here today, you capture

what our subcommittee has been after when we look at financial

management across the Federal Government, which is, in your

words, ‘‘Begin the journey of moving from an operation that primarily collected data and reported on results, with little time for

analysis, to an operation where having a timely, accurate, and comprehensive data set is a given and more of their time is spent in

the analysis and interpretation of the results.’’ That is exactly what

we are seeking to do as an oversight committee is help that goal

be achieved across the Federal Government in all agencies. And

each of you and your companies play a critical role in that goal

being achieved, working with the agencies themselves, the software

companies, and having a partnership to allow us to get the most

efficient operation out there and truly where we get to a financial

management system that gives that timely reliable data that can

then be relied on in the management of the agency and its programs.

One of the things that was touched on in all of your written testimonies and again here today was the issue of COTS software and

agencies’ ability to accept that commercial off the shelf versus customizing. I would be interested if each of you would be interested

in commenting on your experience of how common is it that an

agency refuses to accept that off the shelf and wants to customize

and basically keep their business practices as are instead of adjusting internally to what is much more readily available. And then

two followup parts to that. Where there is an agency that wants

to customize and not use a COTS system, what type of discussions

go on between your companies and others with the agency in question to try to weigh the pros and cons, including the cost, as well

as the impact of upgrades that will also have to be customized. If

you could each give me your opinion of how common it is, and then

those discussions that do or do not go on. We will just start and

go across.

Mr. CRUSER. Sure. Happy to, Mr. Chairman. I would argue it is

very common to see resistance to change. And I do not know that

is actually limited to the Federal Government. We see it in our

commercial clients not wanting to change. I think it is somewhat

unique in the Federal Government in that typically managers in

the Federal arena are so accustomed to working with exceptions,

the rules and regulations by which they live. The field handles all

of the normal daily processing, so all they get to see really is exception after exception after exception. So they begin to live in a world

where they think of themselves as being unique because they really

only see the unique aspects as opposed to the 90 percent of transactions that are ‘‘normal’’ transactions. So I think there is a lot of

resistance to changing their processes. But I think there is just a

lot of resistance to change.

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In my written remarks, I noted, regardless if you do not like to

change, a little change yields a little improvement, a lot of change

yields a lot of improvement. That is really the discussions we have

when they want to customize. We try and explain to them that

whatever you think you are saving in pain now, you are going to

have that pain at the next upgrade and the following upgrade and

the following upgrade, not being able to do what you want. So I

think we spend a lot of time trying to convince people to customize

as little as possible, because ultimately, at least at IBM, we want

the client to get as much value as possible because that is how we

get our next good piece of work is because of the results we had

with client A to take to client B.

Mr. PLATTS. Thank you. Mr. Halstead.

Mr. HALSTEAD. Sir, I would say there is resistance to change, but

I would say there is resistance to change anyplace you implement

an integrated agency-wide financial system, whether it be the

House of Representatives or the Department of Homeland Security

or a private industry company. It brings on new processes, new

procedures, people have to sit in training, it slows down their work

processes, and now they are faced with meeting their day to day

reporting requirements and incorporating all the new things that

the new system brings along. You also have the program manager

of the COTS implementation that is concerned about time lines

that he has been given. Where the COTS system may require a

change in this business process X, if he goes out and changes that

business process X, he is going to slow down his implementation,

it is going to cost more, it is going to take more manpower.

So when you are planning a COTS implementation, the milestones, everything looks very rosy, and then you start and it can

quickly balloon into something that you do not want it to. So there

is resistance just from the classic human nature of resistance, and

then there is resistance because you know what it can evolve into

if you allow it to.

Mr. PLATTS. Thank you. Mr. Lineberger.

Mr. LINEBERGER. Mr. Chairman, we see resistance almost 100

percent in terms of across the agencies. But where we see it is middle to lower management. The leadership I think is beginning to

understand the peril of not accepting practice out of the box. In

fact, the governance model that we discussed in our testimony provides a construct to prevent that bottoms-up ‘‘That is not the way

we do it today,’’ or ‘‘The way we do it today is the way we ought

to continue to do it.’’ Provide some constructs for filtering that out

of both the requirements and the configuration process through a

good governance model. A change control board, a change management process will help filter through what actually has to be

changed to support the business versus what is being proffered up

as ‘‘We need to continue to do business the old way.’’

To the second part of your question, the dialog we have about

custom software development in the financial arena, we will not do

it. We do not enter into the dialog because it is bad for the Government to try to build a bottoms-up custom financial system.

Mr. PLATTS. OK. Mr. Pellegrino.

Mr. PELLEGRINO. Mr. Chairman, it is important to recognize the

timing of a hearing like this on this subject because we are in a

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transition that calls for something new in order to be successful

with the implementation of commercial off the shelf tools as important as these enterprise systems are for achieving the objectives of

Government. We have a generation, and generations, of managers

in the Government who have had experience with custom software

development systems that have been built uniquely to meet the

very specialized needs of Government and we are in a period of

time where those are being replaced and a new generation of leaders are emerging with expertise in this new way of doing business.

So, in the future I would expect the Government to be again setting

a standard and helping to shape best practices rather than seeking

to implement those of others.

But in the meantime, I think it is very critical for us to not only

respect and appreciate the uniqueness that Government has, but

also look at ways for Government leaders to justify and make sure

that the investments that they are making in dealing with that

uniqueness is something that returns value to the citizen. I think

from that perspective, we encourage a much more I think accelerated approach to teaching the best practices, focusing on resource

deployment and change management, so that the leaders here in

these agencies feel that they have the budget and the support to

take on the transformation of their agencies that needs to be done

in order to be successful.

As far as the discussion, absolutely, this is a dialog. We are moving from projects that have been about software and that today it

is not about the software, it is about the people and the organization. And this is a journey that these agencies are on where there

are many turns and there are many chances to do the wrong thing

or the right thing, and helping navigate through that is something

that our firm and the leaders that we have who have had experience in successful implementations are very focused on.

Mr. PLATTS. Thank you. I have some followup questions, but I

want to yield to the ranking member, Mr. Towns from New York.

Ed, apparently we expect votes pretty soon. And then figuring that

first vote is going to be open 20–25 minutes, my guess is we have

25 minutes or so here.

Mr. TOWNS. OK. Thank you, Mr. Chairman. I also thank you for

holding this hearing as well.

Let me just sort of pick up on something that you said, Mr.

Pellegrino, and I would like for you to expound on it. You made the

comment that Government is different from private sector. Could

you expound on that. Are you talking about red tape or the bureaucracy? What are you really talking about?

Mr. PELLEGRINO. Sure. The objectives of the Government and the

way that it manages its operations and its objectives are very different in the sense of a focus on creating value for its citizens as

opposed to the private sector motivation of creating shareholder

value. That suggests something that I think is very fundamental

to these projects; and that is, these projects and the efficiency of

Government in meeting citizen needs is primarily focused on how

to meet the needs for equity, how to meet the needs for performance and delivery, how to meet the needs of the Government workers themselves in a way that addresses those unique roles that

Government plays in our country and around the world. I think

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from that standpoint, this is not about differences that should be

a disabler or should prevent Government from seeking world class

operations, but rather should be something that should be reflected

in its approach to implementing a business case that strives to

meet those objectives of delivering value to the citizens for the taxpayer dollars.

So there is a fundamental difference but it is not a barrier that

should be preventing Government from achieving objectives in

these types of programs.

Mr. TOWNS. Thank you very much. Let me just throw this out

to all of you, and we will just go right down the line, starting with

you, Mr. Cruser, is the Government dedicating enough resources to

address the needs of agencies seeking to implement secure and efficient financial management systems? Enough resources there?

Mr. CRUSER. In my experience, while the total count of resources

might be enough, I do not think that they have pulled enough of

the right talent off of the line and dedicated them to the implementation of a financial system. So, unlike in a commercial enterprise

where ten people will be taken and told they no longer have your

old job, all you have to do is implement systems, we find in the

Federal Government we have access to 20 people but they have a

day job doing all the things they always did and around that day

job they need to do the financial implementation. So in the end,

you do not have enough focused resources typically to be successful

in the financial implementation.

Mr. TOWNS. Thank you. Mr. Halstead.

Mr. HALSTEAD. Sir, to dovetail on that, I would say that the resources are probably there, the resources and the technical expertise that needs to be there, though need to focus on things like

project management capabilities, earned value management capabilities, specific technical and functionality capabilities. Many times

a budget director is taken off their normal job and they are put in

charge of the implementation, or at least a component of the implementation. So without knowing what the numbers are for resources, I would say they probably are sufficient but they probably

need to be realigned a little bit to focus on, for instance, front-end

analysis long before the purchase is made, and then post-implementation testing and sustainment after the implementation is

made. So there could be some realignment that I think would help.

Mr. TOWNS. Thank you very much. Mr. Lineberger.

Mr. LINEBERGER. I believe that overall the number of dollars and

head count—the dollar amounts are adequate, there is enough dollars, the human capital is the shortage and I do not see enough of

available resources. Our clients are typically one deep in a lot of

these critical functions. They are making day to day tradeoffs between pulling someone off the line and letting a day to day type

activity languish versus dedicating their one deep person to a particular functional area.

Second, within the programs, I do not see enough resources,

whether dollar or human capital, allocated to the change management function. Across the board, I think we are not spending

enough time and energy in the preparation of the work force and

the training of the work force in advance of the deployment.

Mr. TOWNS. Thank you. Mr. Pellegrino.

45

Mr. PELLEGRINO. Mr. Congressman, we do not see that adequate

level of resources typically on these types of complex engagements

and programs. We see in commercial implementations that are

similar to these in complexity as much as a one-to-one match of the

Government resources with the private sector resources in order to

help support the knowledge transfer to the workers from the private sector experts in order to provide for change management,

provide for the business process change that needs to occur, and it

is really done in a collaboration together. We do not see that type

of level of commitment of resources. We do not see those resources

being simply available, let alone the fact that if they were available

there are many other things that are also a priority in these agencies. And so this is an area where the business model and the approach to implementing these complex programs needs to match

the resources available and that there needs to be a clear agreement in terms of the approach to procurement, the approach to the

partnership with the private sector partner who is assisting the

agency that is consistent with his level of resource issues that are

quite common.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Towns. Mr. Pellegrino, I think it

was you, in talking about the customizing issue, I think you said

a ‘‘justification for uniqueness,’’ that maybe there should be some

threshold that is established. Were you envisioning something at

the CFO/CIO level of saying that we are going to spend X dollars

on customizing instead of using a COTS system in presenting that

to the secretary or head of the agency, or is it something lower

level where that justification should be made to the CFO/CIO?

Mr. PELLEGRINO. I think you can take the approach of both looking at this at the overall program level, at the COTS level, and you

can also take the approach of looking at it all the way down to a

specific business process within the agency. And what I encourage

is that the leadership involved with these programs that are responsible for achieving the business objectives treat this as a portfolio and that they manage that portfolio based on ultimately getting to the agency objectives that they are expected to meet while

also justifying where they are going to deviate from either Government accepted standard processes or tools or industry best practices. And that justification should be treated as a business case,

that deviating from that is for a purpose and it is a purpose that

meets either a unique agency role, or a need of a citizen, or other

part of the Government.

Mr. PLATTS. Thank you. Across all of your testimonies is the importance of leadership and setting the tone in that culture of an

agency, department with the senior leaders. What would be your

opinions on the level of involvement and interaction between CFOs

and CIOs in deciding what this new financial management system

is going to look like, what programs are going to be used, and

whether it is going to be customized or not, what business practices, what significant changes. How close is that dialog in your

opinion between CFOs and CIOs?

Mr. LINEBERGER. Mr. Chairman, in every case that we are implementing, there is a great amount of dialog and it generally shapes

up around enterprise architecture and the technology base as a

46

purview of the CIO, both dealing with the early implementation,

supporting the development, supporting the deployment, and ultimately the role of the CIO in sustainment. So they are sort of owning the architecture and then being involved to assure that the network connectivity and throughput of the infrastructure beneath the

application is adequate to support the deployment. And what we

try to do actually, is get—I believe those are a deputy secretary for

administration, budget, and finance—the Deputy of Administration

to become the program sponsor to which in many organizations

both the CIO and the CFO reports. So that we have a single champion there to become an arbiter if ever necessary. But then collectively giving the CFO the purview of what we call the applications

layer. Then the business practices associated with the business of

finance, have him take the business approach, defining which practices will or will not be implemented, and really having the CFO

or his proxies push back on the customization and configuration in

favor of the business practice and substantiate it.

Mr. PLATTS. You touched on a followup that I was going to have

as part of the interaction between CFOs and CIOs. Who is your

main contact person within an agency or department that you are

working with? You seem to try to identify the deputy secretary or

project person that kind of leads the charge.

Others that would like to comment?

Mr. HALSTEAD. I would say we are finding much the same thing.

The CFO/CIO are working together. There still probably could be

some improvement related to a single senior executive that takes

the fall if the system implementation is not successful.

Mr. PLATTS. The accountability, that this is your responsibility

and there is no passing the buck or shading the responsibility?

Mr. HALSTEAD. A lot of the questions and answers have been related to the difference between private industry and public sector.

I would say one of the greatest differences, certainly, is that in the

private industry there is a single person that will lose their job if

the implementation is not successful. I am not sure the same can

be said for the public sector. So although the CFO and the CIO

work together very well in terms of funneling up the requirements

on the CIO side and handling the finance side, the functionality on

the CFO, down the road sometimes that synergy loses some momentum.

Mr. PLATTS. That accountability example, I believe it was DoD

where they had spent $100 million on a new system and 7 years

in realized that this was not going to work. In the private sector,

if a corporation spent $100 million and in 7 years, someone would

be out the door. We just say, well, start over and try again. Big difference.

I want to try to touch on a couple of other topics, if we could.

Mr. Towns, do you have other questions?

Mr. TOWNS. Yes, I do, but I will defer.

Mr. PLATTS. Let me touch on one other one here. Mr. Halstead,

in your statement you talked about one of the challenges in the

agencies is that they purchase a system and think they are done

as opposed to thinking that is just the beginning of a long process.

That highlights a question I was going to touch on, which is, with

the systems being used being certified under the Joint Financial

47

Management Improvement Program and that they have been tested and meet the requirements of that, it seems that we still have

agencies that put in these new systems and then cannot do what

that certification is supposed to make sure they do. A specific example would be NASA in their implementing a new system and yet

cannot prepare financial reports as the system is supposed to be

able to do. Any thoughts on how that happens, not necessarily specific to NASA, but in a broad sense?

Mr. HALSTEAD. I would say, in general, two things. First of all,

there is a lot of energy behind identifying which of the COTS systems they are going to purchase, and there are not that many options. Then the system is implemented. It is being overlaid in a series of legacy manual and integrated processes, some are not integrated, and it is being overlaid with a number of feeder systems

that some are not interfacing properly. So you have the issue of a

new application being installed in an old environment, and you

have the instance of a new application being installed in an old

business process environment. So even if you come on board with

a new ERP, you have still got many of those same issues. I do not

know specifically what happened at NASA, but I know from helping other Federal agencies that is what we encounter more often

than not.

Mr. PLATTS. And to some degree it is that unrealistic expectations of we do this system and, boom, we get immediate results

versus the added commitment of implementation that is really

going to be required.

Mr. HALSTEAD. Well, it is high level architecture type of incompatibility as well as small frustrating things like my requisition

has ten digits and this new COTS application has nine and so I

cannot process my documents. That can slow down the process for

successful implementation. So we do see it at the higher level, the

frustrations, as well as the worker staff member who cannot just

get their work done and transition to the new system as quickly

as they would like.

Mr. PLATTS. Thank you. Mr. Towns.

Mr. TOWNS. We talked about change is difficult and you indicated the resistance of that middle management and below. Why

do you think that has occurred? And I agree with you that change

is difficult. I have noticed that in my own office. [Laughter.]

Why do you think that occurs?

Mr. CRUSER. I think one of the pieces is a middle manager understands today what they do and how they can be successful. And

I think oftentimes in communicating what this change will be it is

very hard for that individual. We have not done a good job at explaining to that individual here is what the new world is going to

look like, here is how you are going to be successful in it, and today

you have the skills you need to be successful in it or you are missing this skill and we are going to get you that skill before you need

it so you will be successful in this new world. We do not paint a

very good picture for what it is going to look like tomorrow. So if

you do a good job today and you know how to do it, you are fearful

of maybe I will not be able to do a good job tomorrow because no

one has really told me what tomorrow is. So I think it is a long

48

term better communicating of what the future is like and what

your pathway is to get to that future.

Mr. TOWNS. Thank you. Do you want to add something?

Mr. PELLEGRINO. Yes. I would add, Mr. Congressman, the challenge here is that so often these things are built based on the processes that have worked before and what these managers have

grown up with in their careers. And these now, with new expectations, with new processes that these systems help enable, these become people projects. These become projects that are not just about

technology, they become projects where the difficult process of leading people to achieve a new set of objectives, to achieve new goals

is one that is just quite hard and it needs to be acknowledged in

the approach to these programs that type of change for a work

force this large is quite a difficult undertaking. And so, we would

like these leaders to think that the project really starts when those

systems are implemented rather than thinking of this as being a

whole new world when they come in with the a new system implemented yesterday and that everything is going to be easy. It is

quite a difficult process. And the people change aspect is the hardest thing that these managers will face in their careers in programs like this.

Mr. TOWNS. Thank you. Thank you, Mr. Chairman.

Mr. LINEBERGER. Mr. Towns, may I comment?

Mr. TOWNS. Yes.

Mr. LINEBERGER. I think also if we look upstream in the program

justification process, the business cases, the business case that the

secretaries have to bring forward to get funding generally is justified around cost-savings, cost take-out. And so what you begin with

is a process by which people become fearful—if this becomes implemented, where are they going to get the cost-savings, where are

they going to get the efficiencies. That translates into personal risk

around their job. So that to look for ways to justify or to be able

to implement these programs and sell them on quality, cost avoidance, and better data, as one of my colleagues talked about, looking

for ways to justify and move the programs through on those bases

rather than pure it costs this today, we can go to shared services

and have this many fewer people, and that is something at the beginning that is setting a tone of resistance out of personal fear, in

my opinion.

Mr. TOWNS. Thank you very much.

Mr. PLATTS. Thank you, Mr. Towns. I am going to just skip the

first vote. So if you want to——

Mr. TOWNS. I think I need to go.

Mr. PLATTS. I am going to let you run. Thank you for your participation.

I am going to try to get in two more questions here before running. We have a couple others I will not get to, not many, but if

we present to you a few, would you mind submitting answers just

in writing back to us for the record, that would be great.

One other one I wanted to touch on. Earlier I asked how common

it is about customizing versus just taking the COTS system. How

common do you find it with programs that you have been involved

with that at some point there is a major change in direction once

you get into it, and how would you classify the cost of that, whethVerDate 11-MAY-2000 12:57 Mar 01, 2005 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 D:\DOCS\97555.TXT HGOVREF1 PsN: HGOVREF1
49

er it be in dollar terms or time and delay? How common are those

type of delays, and does it relate to just not enough leg work being

done up front by the agency of what they really were looking for

from the system that you are helping them to implement?

Mr. CRUSER. I would start by saying the desire to make a significant change happens daily and much of the work we do is to convince people not to. I think what I am seeing over the course of the

last several years is more people are understanding that every

change they make—I almost use a house renovation example for

people, of every time you make a change, the builder makes a lot

more money. So you have to really want this change because it is

going to delay things, and it is going to cost more money, and it

limits the surety of our success. So, you know, we want to be successful in phase I, phase II, phase III. So I think we convince them

more often than not, not to change. And when it is a change, it is

typically something that they cannot get around—some policy

change or regulatory change has forced some change. We have to

make that change, you integrate that successfully in the program

and move forward.

Mr. PLATTS. Great. Mr. Halstead.

Mr. HALSTEAD. Sir, I would say that much of the change is generated by organizational—if the front end requirements analysis is

done methodically and properly, and I believe that in most cases

it is, the organization is still evolving. We can take Homeland Security and the Department of Defense over the last 3 years. That

organization today is still getting new organizational charts nearly

weekly. So what end state will this COTS application support, who

will do the reporting, who will do the imputing, who will do the different levels of treasury reporting, those questions spawn changes,

unfortunately, required to the overall core application or the feeder

systems that are going to be implemented. So if the agency has set

itself up for hitting the bull’s eye rather than just the target, which

is sometimes a problem, and then those changes start coming in,

there is an expensive customization process that is required.

Mr. PLATTS. Thank you. Yes?

Mr. LINEBERGER. Mr. Chairman, if you would set a threshold

somewhat, let us just say 10 percent of program cost or schedule,

as qualifying as major, I do not see in the programs we are working any single customization or individual requirements change at

this point having driven that kind of a change. What I do see at

that level of impact is inclusion of new scope. An example would

be budget formulation versus execution. Most of the COTS packages have evolved with a pretty good budget execution capability

organically built in; however, they are all generally weak on budget

formulation. So that as they begin then to say let us bring budget

formulation into this, you do rebaseline, it gets really more aggregating or bringing in new scope rather than, say, one single process

change or change order. So I do not see major, in terms of at least

setting that as a standard, individual changes or reconfigurations

causing that.

Mr. PLATTS. OK. Mr. Pellegrino.

Mr. PELLEGRINO. I just would like to bring a slightly different

perspective on change, in that the more that these programs are

focused on enabling new business models, greater efficiency, transVerDate 11-MAY-2000 12:57 Mar 01, 2005 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 D:\DOCS\97555.TXT HGOVREF1 PsN: HGOVREF1
50

formation of agency operations, there needs to be an environment

where change, even major change and course corrections and adjustments to business processes, the strategies that departments

are executing themselves, then they need to be enabled. The specification orientation around procurement, the length of the procurement, the lack of a partnership between the private sector team

and the agency in achieving objectives versus meeting specifications, is one that there can be a lot of resistance to changing the

spec while at the same time the mission is changing right underneath the project itself. That creates a departure. The business

leadership in the Government is going to continue to stay focused

on meeting constituent needs and the mission while it is evolving

while at the same time the degree to which these things have been

defined precisely have the project teams kind of going along as if

nothing has occurred for fear that it will raise cost, for fear that

they will be held accountable for missing their budget and their

milestones and so forth. So there needs to be an environment

where, while minimizing customization, change is enabled to make

sure that objectives are met and that the leadership on both sides

are held accountable for meeting those targets amidst a rapidly

changing environment here in Washington.

Mr. PLATTS. So we keep the focus on what is the ultimate goal

we are after and do whatever is necessary, including sometimes

change, so we achieve that ultimate goal.

I am going to close with, one, an observation, and you have

touched on it in your statements and in your written testimony as

well, and that is the importance of the public sector following the

example of private sector in raising the level of importance or focus

and prioritization to the CFO position and the role the CFOs play.

That is certainly something that this subcommittee agrees with. As

with DHS, we are trying to raise the standard at DHS of the CFO

and the priority given to that position and that office.

My final question is, is there something and I will say hard to

do, but any one thing in particular you think this subcommittee

really should be looking at, be aware of as we follow some of the

major implementations that are ongoing in various agencies for our

oversight responsibilities? Is it that interaction between CFOs and

CIOs? Is it the regard the CFOs have at the senior level, the secretary level? Is there any one thing that we should really look for

or be mindful of? How about we just go down the line.

Mr. CRUSER. I guess the top item that would come to mind for

me would be to really make sure that as it is being reported to you,

you understand here is the ultimate goal that we are trying to get

to and here is the progress that we are making to that goal. Because I think all too often it is much easier to give a status report

that at the end of the day you do not have any idea if they are

close to that goal or not close to the goal as they tell you about all

kinds of other things that got done as opposed to how effective they

were toward meeting the end goal.

Mr. PLATTS. So advancing down the path, not just being busy

along the path.

Mr. CRUSER. Right.

Mr. PLATTS. OK.

51

Mr. HALSTEAD. And I think that starts with establishing what

standards this COTS off the shelf solution must meet, but then allowing for flexibility in how the specific agency will use those

standards to meet its reporting requirements. And then the third

component would be the accountability of each individual person

for their role and responsibility.

Mr. PLATTS. OK. Thank you. And this is a vote where I am going

to have to run here shortly.

Mr. LINEBERGER. I would look for evidence of a strong governance model that includes configuration management and change

management, and participation in each of the operating divisions

in the resolution whether or not they are adopting those requirements, changes, those configuration changes in the program.

Mr. PLATTS. So that management team from top to bottom is

truly there and it would fulfill its assigned mission.

Last word, Mr. Pellegrino.

Mr. PELLEGRINO. When these efforts fail to achieve objectives it

is usually no surprise. The leadership, the teams involved knew

well in advance that things were not going along as planned. And

we should be looking at what those indicators are where resources

are not being committed adequately, where changes are being

made on an unnecessary frequency, where dates are being missed,

and where things are not being accepted as specified. Those are all

attributes that need to be looked at by leadership that are accountable for achieving these objectives and taken seriously so that

course corrections and adjustments can ensure value for the dollar

being spent.

Mr. PLATTS. Great. Thank you. And I again thank each of you

for your written testimony and your appearance here today. I

apologize for the time crunch but I do not think you want to sit

here for an hour while we are over there voting. So I appreciate

your letting us run through this. We will keep the record open for

2 weeks to followup with just a couple of written questions for you

and look forward to those responses.

This hearing stands adjourned.

[Whereupon, at 3 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]

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