OPM Retirement Modernization: Longstanding Information Technology Management Weaknesses Need to Be Addressed
Published: 2011-11-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Office of Personnel Management (OPM) is the central human resources agency for the federal government and, as such, is tasked with ensuring the government has an effective civilian workforce. As part of its mission, OPM defines recruiting and hiring processes and procedures; provides federal employees with various benefits, such as health benefits; and administers the retirement program for federal employees. The use of information technology (IT) is crucial in helping OPM to carry out its responsibilities, and in fiscal year 2011 the agency invested $79 million in IT systems and services. For over 2 decades, OPM has been attempting to modernize its federal employee retirement process by automating paper-based processes and replacing antiquated information systems. However, these efforts have been unsuccessful, and OPM canceled its most recent retirement modernization effort in February 2011. GAO was asked to provide a statement summarizing its work on challenges OPM has faced in managing its efforts to modernize federal employee retirement processing. To do this, GAO relied on previously published work as well as a limited review of more recent documentation on OPM's retirement modernization activities.
section_title: What GAO Found
paragraphs: In a series of reviews, GAO found that OPM's efforts to modernize its retirement system have been hindered by weaknesses in several important management disciplines that are essential to successful IT modernization efforts. For example, in 2005, GAO made recommendations to address weaknesses in the following areas: (1) Project management. While OPM had defined major retirement modernization components, it had not identified the dependencies among them, increasing the risk that delays in one activity could hinder progress in others. (2) Risk management. OPM did not have a process for identifying and tracking project risks and mitigation strategies on a regular basis. This meant that OPM lacked a mechanism to address potential problems that could adversely impact the retirement modernization effort's cost, schedule, and quality. (3) Organizational change management. OPM had not developed a detailed plan to help users transition to different job responsibilities in response to the deployment of the new system, which could lead to confusion about roles and responsibilities, hindering effective system implementation. In 2008, as OPM was on the verge of deploying its automated retirement processing system, GAO reported deficiencies and made recommendations to improve key management capabilities in additional areas: (1) Testing. Test results 1 month prior to the deployment of a major system component showed that it had not performed as intended. The defects, along with a compressed testing schedule, increased the risk that the deployed system would not work as intended. (2) Cost estimating. The cost estimate OPM had developed was not supported by documentation necessary to its reliability. This meant that OPM did not have a sound basis for formulating budgets or developing a cost baseline for the program. (3) Earned value management, which is a tool for measuring program progress. The baseline against which OPM was measuring program progress did not reflect the full scope of the project, meaning that variances from planned performance would not be identified. In 2009, GAO reported that OPM continued to face challenges in cost estimating, earned value management, and testing and made recommendations to address these deficiencies as well as additional weaknesses in planning and overseeing the retirement modernization effort. Although OPM agreed with GAO's recommendations and had begun to address them, the agency terminated the retirement modernization effort in February 2011. The agency has since stated that it does not plan to undertake another large-scale retirement modernization, but instead plans targeted steps to improve retirement processing, such as hiring new staff and working to improve data quality. Nonetheless, the development and institutionalization of the capabilities GAO recommended to address these weaknesses remains key to the success of any future IT initiatives that OPM undertakes.
section_title: What GAO Recommends
paragraphs: GAO is not making new recommendations at this time. As noted, GAO has previously made numerous recommendations to address the challenges OPM has faced in carrying out its retirement modernization efforts.

section_title: Letter
paragraphs: I am pleased to participate in today’s hearing on the Office of Personnel  Management’s (OPM) efforts to modernize the federal government’s  hiring and retirement systems. As you are aware, these systems are  crucial to helping OPM achieve its mission of recruiting, retaining, and  providing services to the federal workforce, with the agency reportedly  investing $79 million for its IT systems and services in fiscal year 2011.
OPM has, however, experienced challenges in managing its  modernization initiatives. Reports that we issued in 2005, 2008, and 2009  on the agency’s efforts toward planning and implementing a modernized  retirement system highlighted its long history of undertaking retirement  modernization projects that have not yielded the intended outcomes. At  your request, my testimony today summarizes the findings from reports  that we have issued on challenges the agency has faced in managing its  efforts to modernize federal employee retirement processing.
The information in my testimony is based primarily on our previous work  at OPM. We also obtained and conducted a limited review of more recent  documentation pertaining to the agency’s current retirement system  modernization activities. We conducted our work in support of this  testimony during November 2011 at OPM headquarters in Washington,  D.C. All work on which this testimony is based was conducted in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: As the central human resources agency for the federal government, OPM  is tasked with ensuring that the government has an effective civilian  workforce. To carry out this mission, OPM delivers human resources  products and services including policies and procedures for recruiting and  hiring, provides health and training benefit programs, and administers the  retirement program for federal employees. According to the agency,  approximately 2.7 million active federal employees and nearly 2.5 million  retired federal employees rely on its services. The agency’s March 2008  analysis of federal employment retirement data estimates that nearly 1  million active federal employees will be eligible to retire and almost  600,000 will most likely retire by 2016.
According to OPM, the retirement program serves current and former  federal employees by providing (1) tools and options for retirement  planning and (2) retirement compensation. Two defined-benefit retirement  plans that provide retirement, disability, and survivor benefits to federal  employees are administered by the agency. The first plan, the Civil  Service Retirement System (CSRS), provides retirement benefits for most  federal employees hired before 1984. The second plan, the Federal  Employees Retirement System (FERS), covers most employees hired in  or after 1984 and provides benefits that include Social Security and a  defined contribution system.
OPM and employing agencies’ human resources and payroll offices are  responsible for processing federal employees’ retirement applications.  The process begins when an employee submits a paper retirement  application to his or her employer’s human resources office and is  completed when the individual begins receiving regular monthly benefit  payments as calculated by OPM.
Processing retirement claims includes functions such as determining  retirement eligibility, inputting data into benefit calculators, and providing  customer service. To do so, the agency uses over 500 different  procedures, laws, and regulations, which are documented on its internal  website. For example, the site contains memorandums that outline new  procedures for handling special retirement applications, such as those for  disability or court orders. In addition, OPM’s retirement processing  involves the use of over 80 information systems that have approximately  400 interfaces with other internal and external systems.
OPM has stated that the federal employee retirement process does not  provide prompt and complete benefit payments upon retirement, and that  customer service expectations for more timely payments are increasing.  The agency also reports that a greater workload is expected due to an  anticipated increase in the number of retirement applications over the  next decade, although current retirement processing operations are at full  capacity. Further, the agency has identified several factors that limit its  ability to process retirement benefits in an efficient and timely manner.  Specifically, OPM noted that:  current processes are paper-based and manually intensive, resulting  in a higher number of errors and delays in providing benefit payments;  the high costs, limited capabilities, and other problems with the  existing information systems and processes pose increasing risks to  the accuracy of benefit payments;  current manual capabilities restrict customer service;  federal employees have limited access to retirement records, making  planning for retirement difficult; and attracting qualified personnel to operate and maintain the antiquated  retirement systems, which have about 3 million lines of custom  programming, is challenging.
subsections: section_title: OPM Has a Long History of Unsuccessful Retirement Modernization Initiatives
paragraphs: Recognizing the need to modernize its retirement processing, in the late  1980s OPM began initiatives that have called for automating its  antiquated paper-based processes. Initial modernization visions called for  developing an integrated system and automated processes to provide  prompt and complete benefit payments. However, following attempts over  more than two decades, the agency has not yet been successful in  achieving the modernized retirement system that it envisioned.
In early 1987, OPM began a program called the FERS Automated  Processing System (FAPS). However, after 8 years of planning, the  agency decided to reevaluate the program and the Office of  Management and Budget requested an independent review of the  program that identified various management weaknesses. The  independent review suggested areas for improvement and  recommended terminating the program if immediate action was not  taken. In mid-1996, OPM terminated the program.
In 1997, OPM began planning a second modernization initiative,  called the Retirement Systems Modernization (RSM) program. The  agency originally intended to structure the program as an acquisition  of commercially available hardware and software that would be  modified in-house to meet its needs. From 1997 to 2001, OPM  developed plans and analyses and began developing business and  security requirements for the program. However, in June 2001, it  decided to change the direction of the retirement modernization  initiative.
In late 2001, retaining the name RSM, the agency embarked upon its  third initiative to modernize the retirement process and examined the  possibility of privately sourced technologies and tools. Toward this  end, the agency determined that contracting was a viable alternative  and, in 2006, awarded three contracts for the automation of the  retirement process, to include the conversion of paper records to  electronic files and consulting services to redesign its retirement  operations.
In February 2008, OPM renamed the program RetireEZ and deployed  an automated retirement processing system. However, by May 2008  the agency determined that the system was not working as expected  and suspended system operation. In October 2008, after 5 months of  attempting to address quality issues, the agency terminated the  contract for the system. In November 2008, OPM began restructuring  the program and reported that its efforts to modernize retirement  processing would continue. However, after several years of trying to  revitalize the program, the agency terminated retirement system  modernization in February 2011.
section_title: IT Management Weaknesses Have Repeatedly Hindered OPM’s Retirement Modernization Efforts
paragraphs: OPM’s efforts to modernize its retirement system have been hindered by  weaknesses in several key project management disciplines. Our  experience with major modernization initiatives has shown that having  sound IT management capabilities is essential to achieving successful  outcomes. Among others, these capabilities include project management,  risk management, organizational change management, system testing,  cost estimating, progress reporting, planning, and oversight. However, we  found that many of the capabilities in these areas were not sufficiently  developed. For example, in reporting on RSM in February 2005, we noted  weaknesses in key management capabilities, such as project  management, risk management, and organizational change  management.
Project management is the process for planning and managing all  project-related activities, including defining how project components  are interrelated. Effective project management allows the  performance, cost, and schedule of the overall project to be measured  and controlled in comparison to planned objectives. Although OPM  had defined major retirement modernization project components, it  had not defined the dependencies among them. Specifically, the  agency had not identified critical tasks and their impact on the  completion of other tasks. By not identifying critical dependencies  among retirement modernization components, OPM increased the risk  that unforeseen delays in one activity could hinder progress in other  activities.
Risk management is the process for identifying potential problems  before they occur. Risks should be identified as early as possible,  analyzed, mitigated, and tracked to closure. OPM officials  acknowledged that they did not have a process for identifying and  tracking retirement modernization project risks and mitigation  strategies on a regular basis but stated that the agency’s project  management consultant would assist it in implementing a risk  management process. Without such a process, OPM did not have a  mechanism to address potential problems that could adversely impact  the cost, schedule, and quality of the retirement modernization  project.
Organizational change management is the process of preparing users  for the changes to how their work will be performed as a result of a  new system implementation. Effective organizational change  management includes plans to prepare users for impacts the new  system might have on their roles and responsibilities, and a process  to manage those changes. Although OPM officials stated that change  management posed a substantial challenge to the success of  retirement modernization, they had not developed a detailed plan to  help users transition to different job responsibilities. Without having  and implementing such a plan, confusion about user roles and  responsibilities could have hindered effective implementation of new  retirement systems.
We recommended that the Director of OPM ensure that the retirement  modernization program office expeditiously establish processes for  effective project management, risk management, and organizational  change management. In response, the agency initiated steps toward  establishing management processes for retirement modernization and  demonstrated activities to address our recommendations.
We again reported on OPM’s retirement modernization in January 2008,  as the agency was on the verge of deploying a new automated retirement  processing system. We noted weaknesses in additional key  management capabilities, including system testing, cost estimating, and  progress reporting.
Effective testing is an essential activity of any project that includes  system development. Generally, the purpose of testing is to identify  defects or problems in meeting defined system requirements or  satisfying system user needs. At the time of our review, 1 month  before OPM planned to deploy a major system component, test  results showed that the component had not performed as intended.  We warned that until actual test results indicated improvement in the  system, OPM risked deploying technology that would not accurately  calculate retirement benefits. Although the agency planned to perform  additional tests to verify that the system would work as intended, the  schedule for conducting these tests became compressed from 5  months to 2-1/2 months, with several tests to be performed  concurrently rather than in sequence. The agency identified a lack of  testing resources, including the availability of subject matter experts,  and the need for further system development as contributing to the  delay of planned tests and the need for concurrent testing. The high  degree of concurrent testing that OPM planned to meet its February  2008 deployment schedule increased the risk that the agency would  not have the resources or time to verify that the planned system  worked as expected.
Cost estimating represents the identification of individual project cost  elements, using established methods and valid data to estimate future  costs. The establishment of a reliable cost estimate is important for  developing a project budget and having a sound basis for measuring  performance, including comparing the actual and planned costs of  project activities. Although OPM developed a retirement  modernization cost estimate, the estimate was not supported by the  documentation that is fundamental to a reliable cost estimate. Without  a reliable cost estimate, OPM did not have a sound basis for  formulating retirement modernization budgets or for developing the  cost baseline that is necessary for measuring and predicting project  performance.
Earned value management (EVM) is a tool for measuring program  progress by comparing the value of work accomplished with the  amount of work expected to be accomplished. Fundamental to reliable  EVM is the development of a baseline against which variances are  calculated. OPM used EVM to measure and report monthly  performance of the retirement modernization system. The reported  results provided a favorable view of project performance over time  because the variances indicated the project was progressing almost  exactly as planned. However, this view of project performance was  not reliable because the baseline on which it was based did not reflect  the full scope of the project, had not been validated, and was unstable  (i.e., subject to frequent changes). This EVM approach in effect  ensured that material variances from planned project performance  would not be identified and that the state of the project would not be  reliably reported.
We recommended that the Director of OPM address these deficiencies  by, among other things, conducting effective system tests prior to system  deployment, in addition to improving program cost estimation and  progress reporting. In response to our report, OPM stated that it  concurred with our recommendations and stated that it would take steps  to address the weakness we identified. Nevertheless, OPM deployed a  limited initial version of the modernized retirement system in February  2008. After unsuccessful efforts to address system quality issues, the  agency suspended system operation, terminated the system contract,  and began restructuring the modernization effort.
In April 2009, we again reported on OPM’s retirement modernization,  noting that the agency still remained far from achieving the modernized  retirement processing capabilities that it had planned. Specifically, we  noted that significant weaknesses continued to exist in three key  management areas that we had previously identified—cost estimating,  progress reporting, and testing—while also noting two additional  weaknesses related to planning and oversight.
Despite agreeing with our January 2008 recommendation that OPM  develop a revised retirement modernization cost estimate, the agency  had not completed initial steps for developing a new cost estimate by  the time we reported again in April 2009. At that time, we reported that  the agency had not yet fully defined the estimate’s purpose,  developed an estimating plan, or defined the project’s characteristics.  By not completing these steps, OPM increased the risk that it would  produce an unreliable estimate and not have a sound basis for  measuring project performance and formulating retirement  modernization budgets.
Although it agreed with our January 2008 recommendation to  establish a basis for effective EVM, OPM had not completed key  steps as of the time of our April 2009 report. Specifically, despite  planning to begin reporting on the retirement project’s progress using  EVM, the agency was not prepared to do so because initial steps,  including the development of a reliable cost estimate and the  validation of a baseline, had not been completed. Engaging in EVM  reporting without first performing these fundamental steps could have  again rendered the agency’s assessments unreliable.
As previously discussed, effective testing is an essential component  of any project that includes developing systems. To be effectively  managed, testing should be planned and conducted in a structured  and disciplined fashion. Beginning the test planning process in the  early stages of a project life cycle can reduce rework later. Early test  planning in coordination with requirements development can provide  major benefits. For example, planning for test activities during the  development of requirements may reduce the number of defects  identified later and the costs related to requirements rework or change  requests. OPM’s need to compress its testing schedule and conduct  tests concurrently, as we reported in January 2008, illustrates the  importance of planning test activities early in a project’s life cycle.  However, at the time of our April 2009 report, the agency had not  begun to plan test activities in coordination with developing its  requirements for the system it was planning at that time.  Consequently, OPM increased the risk that it would again deploy a  system that did not satisfy user expectations and meet requirements.
Project management principles and effective practices emphasize the  importance of having a plan that, among other things, incorporates all  the critical areas of system development and is to be used as a  means of determining what needs to be done, by whom, and when.  Although OPM had developed a variety of informal documents and  briefing slides that described retirement modernization activities, the  agency did not have a complete plan that described how the program  would proceed in the wake of its decision to terminate the system  contract. As a result, we concluded that until the agency completed  and used a plan that could guide its efforts, it would not be properly  positioned to move forward with its restructured retirement  modernization initiative.
Office of Management and Budget and GAO guidance calls for  agencies to ensure effective oversight of IT projects throughout all life- cycle phases. Critical to effective oversight are investment  management boards made up of key executives who regularly track  the progress of IT projects such as system acquisitions or  modernizations. OPM’s Investment Review Board was established to  ensure that major investments are on track by reviewing their  progress and determining appropriate actions when investments  encounter challenges. Despite meeting regularly and being provided  with information that indicated problems with the retirement  modernization, the board did not ensure that retirement modernization  investments were on track, nor did it determine appropriate actions for  course correction when needed. For example, from January 2007 to  August 2008, the board met and was presented with reports that  described problems the retirement modernization program was facing,  such as the lack of an integrated master schedule and earned value  data that did not reflect the “reality or current status” of the program.  However, meeting minutes indicated that no discussion or action was  taken to address these problems. According to a member of the  board, OPM guidance regarding how the board is to communicate  recommendations and needed corrective actions for investments it is  responsible for overseeing had not been established. Without a fully  functioning oversight body, OPM could not monitor the retirement  modernization and make the course corrections that effective boards  are intended to provide.
Our April 2009 report made new recommendations that OPM address the  weaknesses in the retirement modernization project that we identified.  Although the agency began taking steps to address them, the  recommendations were overtaken by the agency’s decision in February  2011 to terminate the retirement modernization project.
In November 2011, agency officials, including the Chief Information  Officer, Chief Operating Officer, and Associate Director for Retirement  Services, told us that OPM does not plan to initiate another large-scale  effort to modernize the retirement process. Rather, the officials said the  agency intends to take targeted steps to improve retirement processing  that will include hiring and training approximately 100 new staff to help improve the  timeliness of processing retirement applications and responding to  retirement claims; demonstrating the capability to automate retirement applications; working with other agencies to improve the quality of electronic data  they transmit to OPM for use in retirement processing; and  improving OPM’s retirement services website to allow enhanced  communication.
Under this approach, OPM does not currently have plans to modernize  the existing, antiquated retirement systems that the agency has long  identified as necessary to accomplishing retirement modernization and  improving the timeliness and accuracy of benefit payments.
In summary, despite OPM’s recognition of the need to improve the  timeliness and accuracy of retirement processing, the agency has thus far  been unsuccessful in several attempts to develop the capabilities it has  long sought. For over two decades, the agency’s retirement  modernization efforts have been plagued by weaknesses in management  capabilities that are critical to the success of such endeavors. Among the  management disciplines the agency has struggled with are project  management, risk management, organizational change management,  cost estimating, system testing, progress reporting, planning, and  oversight. Even though the agency is now considering only modest efforts  to improve retirement processing, the development and institutionalization  of these management capabilities is key to the success of any future  retirement modernization or other IT initiative that OPM undertakes.
Mr. Chairman, this concludes my statement today. I would be pleased to  answer any questions that you or other members of the Subcommittee  may have at this time.
section_title: GAO Contact and Acknowledgments
paragraphs: If you have any questions concerning this statement, please contact  Valerie C. Melvin, Director, Information Management and Technology  Resources Issues, at (202) 512-6304 or melvinv@gao.gov. Other  individuals who made key contributions include Mark T. Bird, Assistant  Director; Larry E. Crosland; Lee A. McCracken; Teresa M. Neven; and  Charles E. Youman.
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