United States Postal Service: Opportunities to Strengthen IT Investment Management Capabilities
Released: 2002-10-15T00:00:00

Letter

Introduction

Postal Service’s Mission and Organization

The Postal Reorganization Act of 1970 (P.L. 91-375) created the United States Postal Service, an independent, self-supporting organization, replacing the former United States Post Office Department. The act charges the Postal Service with binding the nation together through the personal, educational, literary, and business correspondence of the people and providing reliable and efficient mail services to all areas of the country. The Postal Service is intended to be self-supporting from postal operations and is mandated to break even over time. With nearly 800,000 career employees, the Postal Service is the second largest employer compared with U.S. private sector organizations. It has an extensive infrastructure, consisting of more than 38,000 post offices, branches, and stations; 240,000 delivery routes to over 137 million delivery addresses; a fleet of 215,000 vehicles; 350 major processing and distribution facilities; and nearly 800,000 career employees.

The Postal Service is now facing a financial crisis brought about by declining revenues and growing operating expenses and capital needs, including the cost of existing and new investments in information technology (IT). In February 2002, we reported significant declines in the Postal Service’s net income from fiscal year 1995 to fiscal year 2001 and a net loss of $1.68 billion in fiscal year 2001 alone, resulting in part from declining mail volumes and from terrorist incidents. In April 2001, we placed the Postal Service’s transformational efforts and long-term outlook on our High-Risk list, noting that the Postal Service is at growing risk of not being able to continue its mission of providing the current level of universal service throughout the nation while maintaining reasonable rates and remaining largely self-supporting through postal revenues.

The Postal Service has acknowledged the need for a new business model in light of these events and various trends now shaping the delivery services marketplace, such as consumer interest in new service types and increasing security concerns. Other increases in the cost of doing business, such as the rising costs of retirement and health benefits, heighten the need for action. To conserve cash and limit debt, the Postal Service has continued its freeze on capital spending for most facility projects, and its total budgeted capital outlays have declined in fiscal year 2002 for the third consecutive year to $2.2 billion.

The Postal Service has reported that it plans to respond to these trends by providing customers with added value, improving the efficiency of operations, containing costs, fostering a performance-based culture, and improving its management of enabling functions such as financial management, purchasing, and IT. The Postal Service has established the specific goal of connecting all of its components through IT, to enable it to enhance security, add valuable product features, and manage its operations in real time.

The Postal Service accounts for its expenditures in separate expense and capital accounts, according to Generally Accepted Accounting Principles to which public financial reporting by U.S. corporations must conform. Expenditures categorized as “expense” generally comprise operating costs and are primarily funded through a general operating budget. Expenditures categorized as “capital” are for one-time costs, are project-specific, and are depreciated.

The Postal Reorganization Act vested direction of the Postal Service in an eleven-member Board of Governors, including nine appointed by the President. The nine governors appoint the Postmaster General, who is the Chief Executive Officer, and who, with the nine governors, appoints the Deputy Postmaster General. The Postal Service’s executive vice presidents are the Chief Operating Officer and the Chief Financial Officer. The Postal Service has senior vice presidents for Government Relations and Public Policy, Human Resources, Operations, Office of the Chief Marketing Officer, and Office of the Chief Technology Officer. Figure 2 shows an overview of the Postal Service’s current organizational structure.

Postal Service’s Information Technology Environment

The Postal Service has come to rely increasingly on IT. In the early 1980s, it used data centers and mainframe computers to support administrative functions such as personnel, accounting, and payroll processing. In the mid-1980s, the Postal Service began to incorporate IT into its core business activities by interconnecting various components of its mail processing system through telecommunications and automation. Today, the organization relies on IT throughout the full range of its operations and management processes to run the machines that process and sort mail, assign mail efficiently to alternative surface and air carriers, support point- of-service terminals, collect and analyze inventory and sales information, process payroll and other accounts payable, and perform other activities. Communication networks also play a vital role in linking together various elements of the Postal Service’s infrastructure and transmitting information to various locations for storage, processing, and analysis. The Postal Service expended approximately $700 million for IT in fiscal year 2002 and plans to spend about $1 billion for IT in fiscal year 2003.

The Postal Service currently manages almost 650 IT systems and applications that operate in support of postal functions. It has 24 IT-related projects in development or recently completed, each estimated to cost at least $10 million. The total investment cost estimated for these projects since 1997 is more than $2 billion, ranging from about $10 million to about $404 million per project. (See app. I for a list of the Postal Service’s IT- related projects currently in progress.) Projects with major IT components in development or implementation phases include the following: Point of Service ONE—A retail point-of-sale information system that is intended to replace outdated retail terminals at postal retail windows and provide more timely and accurate information.

Associate Office Infrastructure—Expected to support a common information system for retail, delivery, and administrative operations in post offices.

Delivery Operations Information System—Scheduled to replace three current information systems and assist delivery unit supervisors in managing office activities, planning street activities, and managing route inspection and adjustment activities.

Time and Attendance Collection System—Expected to replace five existing time and attendance systems and enable labor resources to be more efficiently allocated by providing supervisors with accurate, real-time labor data by type of work being performed.

Advanced Computing Environment—A major infrastructure modernization initiative that is expected to replace existing workstations and transitions applications to a Web-based environment.

Weaknesses in the Postal Service’s Investment Management Process

Given the challenges the Postal Service currently faces, effective management of its existing and new IT investments is crucial if it is to provide the service expected while remaining self-supporting. However, recent reviews, performed by the Postal Service’s Office of Inspector General (OIG) and by us, have raised some concerns regarding the Service’s investment management. The OIG has identified weaknesses in the management of some investments in recent years. For example, in September 2001, the OIG reported that projects have been proposed to the Board of Governors for approval without adequate documentation and analyses and that other projects may not achieve anticipated performance and financial results.In March 2001, the OIG’s review of the Delivery Operations Information System found weaknesses in the methods and assumptions that were used to derive figures on estimated savings and return on investment. In September 1999, the OIG found that Point of Service ONE was not achieving the results outlined in its business case. The Postal Service has made enhancements to its investment policies and procedures to address the issues the OIG raised. In September 2000, we identified a number of issues with the management of the Postal Service’s e-commerce program, including inconsistencies in reviewing and approving e-commerce initiatives and deficiencies in the financial data reported. We made several recommendations to the Postal Service that addressed these issues. This program was subsequently scaled back by the Postal Service, as both revenues and customer response fell below expectations.

Postal Service’s Approach to Investment Management

Several individuals and oversight boards are involved in managing IT investments, from reviewing and approving a proposed IT project, through the process of budgeting for it and monitoring it once it is implemented, and evaluating it at its conclusion. These individuals and oversight boards and their roles are described below.

Board of Governors—Eleven-member board that governs the Postal Service; comprises the Postmaster General, the Deputy Postmaster General, and nine Presidential appointees; expected to approve any project with capital and “expense investment” costs of $10 million or more.

Capital Projects Committee (CPC)—Three members of the Board of Governors who are to review proposals for any new project with capital and expense investment costs of $10 million or more and make recommendations to the full Board on whether to approve it.

Postmaster General—Chief Executive Officer of the Postal Service and a member of the Board of Governors; expected to approve or review any project with capital and expense investment costs of $7.5 million or more.

Establish Team—Comprises the Deputy Postmaster General, the Chief Financial Officer, the Chief Operating Officer, the Chief Marketing Officer, the Senior Vice Presidents of Operations and Human Resources, the Controller, and a field vice president; is to set financial and nonfinancial goals for the Postal Service at the start of its annual planning and budgeting process and determine funding for existing and proposed IT projects as part of the budget formulation process.

Capital Investment Committee (CIC)—Comprises the Chief Technology Officer (CTO) and other senior executives. Is to review proposals for any project with capital and expense investment costs of $7.5 million or more.

Deploy Team—Comprises several vice presidents; with the Establish Team, is to determine funding for IT projects as part of the Postal Service’s annual planning and budgeting process.

Vice President of Finance (Controller)—Is to review and validate proposals for any project with capital and expense investment costs of $5 million or more.

Capital and Program Evaluation (CAPE)—Group within the Finance Department under the Controller. During the review process for new projects, is expected to validate the assumptions and cost, benefit, and schedule estimates; prepare the Postal Service’s 5-year Capital Investment Plan (CIP); monitor projects with capital and expense investment costs of $5 million or more; and perform cost studies of selected completed projects.

Chief Technology Officer (CTO) Organization—Comprises the Office of the CTO and the Information Technology Department headed by the Chief Information Officer (CIO). The CTO organization assists other functional units in developing business cases for projects that have an IT component. It is also involved in the project concurrence process, where feedback on a project is given to the sponsoring organization by functional areas and relevant field units. The CTO organization is also responsible for developing systems standards and requirements for organizationwide compliance. At the strategic level, the CTO and CIO recommend and present corporatewide IT projects before the Establish Team during the annual capital planning cycle.

CTO Investment Review Board—Three-member board comprises the CTO, CIO, and Manager of IT Value; is to manage the process of selecting projects within the CTO organization, review the performance of all IT projects in development, and conduct detailed reviews of selected IT projects on a monthly basis.

The Postal Service has established a number of capital planning, investment control, and budgeting processes to manage its IT investments. These include processes for (1) developing the investment portfolio, (2) approving major new projects, and (3) controlling and evaluating projects.

Process for Developing the Investment Portfolio

The Postal Service’s annual capital planning and budgeting cycle begins in January with a process called the CustomerPerfect! management cycle. The Establish Team and the Deploy Team, composed of Postal Service executives, manage this annual organizationwide direction-setting process, led by Operations and aided by the Budget and Financial Analysis (B&FA) and the Capital and Program Evaluation (CAPE) groups within the Finance Department. The Establish Team is expected to align the organization’s targets and goals with its commitment to listen to the three “voices” that represent aspects of its mission: the Voice of the Business (financial benefits), the Voice of the Customer (customer satisfaction), and the Voice of the Employee (employee satisfaction). The Establish Team is to review project and program funding requests and make preliminary selection and funding decisions on the basis of how the requests fit the organization’s mission and budget. This process sets the Postal Service’s financial and nonfinancial goals for the year. Figure 3 provides detail on the Postal Service’s capital planning and budgeting cycle.

Process for Approving Major New Projects

The process for approving major new IT projects is the same as for any other new projects with capital costs of $5 million or more. These major projects are to proceed through the formal approval process and are monitored by the Finance Department in conjunction with the program sponsors when they are in development and implementation phases.

The process for approving proposed capital investments is defined in the Postal Service’s F-66 manual. The process begins with the sponsoring unit preparing a Decision Analysis Report (DAR), which presents the business case for the proposed project. Figure 4 provides detail on the process for approving major new projects.

Control and Evaluation Process

During a capital project’s life cycle, control and evaluation are accomplished through two processes. Project sponsors are to produce quarterly compliance reports that summarize the project’s status. These reports are to be used by CAPE, along with other financial information, to produce the quarterly Investment Highlights that are distributed to the Board of Governors and others to present the status of Board-approved projects. This project oversight process continues for 18 months beyond a project’s initial implementation. The Program Performance Group, part of CAPE, studies selected projects that are still in development to determine whether they remain on track to achieve cost goals. The Program Performance Group may also conduct cost studies, after implementation, to determine whether cost goals have been met. Changes in scope, schedule, or total capital funding needed for a project trigger the requirement for a modified DAR, which must be reviewed and approved through the same process as the original DAR.

At the operational level, the CTO organization’s project managers and portfolio managers conduct the day-to-day oversight of IT projects, including those sponsored outside of the CTO organization, by tracking performance of IT projects in the Program Tracking and Reporting System (PTRS) and reporting project status every month to the CTO Investment Review Board. When problems are identified, they are addressed through interaction with the sponsoring organization, which may choose to bring the issue to senior executives if the problem is likely to affect their ability to meet their objectives.

IT investments that are not funded by capital funds are controlled and evaluated through the annual budget process. Executive-level oversight is performed through annual reviews of program descriptions called “program narratives,” which provide input to the budget decision. At the operational level, ongoing oversight is performed through routine tracking of system operation. Figure 5 shows the Postal Service’s project control and evaluation process.

IT Investment Management Framework

Based on research into the IT investment management practices of leading private- and public-sector organizations, we have developed an information technology investment management maturity (ITIM) framework. This framework identifies critical processes for successful IT investment organized into a framework of five increasingly mature stages. The ITIM is intended to be used both as a management tool for implementing these processes incrementally and as an evaluation tool for determining an organization’s current level of maturity. The overriding purpose of the framework is to encourage investment processes that increase business value and mission performance, reduce risk, and increase accountability and transparency in the decision process. This framework has been used in several GAO evaluationsand has been adopted by a number of agencies. These agencies have used ITIM for purposes ranging from self-assessment to redesign of their IT investment management processes.

ITIM is a hierarchical model comprising five “maturity stages.” These maturity stages represent steps toward achieving stable and mature processes for managing IT investments. Each stage builds upon the lower stages; the successful achievement of each stage leads to improvement in the organization’s ability to manage its investments. With the exception of the first stage, each maturity stage is composed of “critical processes” that must be implemented and institutionalized for the organization to achieve that stage. These critical processes are further broken down into key practices that describe the types of activities an organization should be performing to successfully implement each critical process. An organization may be performing key practices from more than one maturity stage at one time. This is not unusual, but efforts to improve investment management capabilities should focus on becoming compliant with lower stage practices before addressing higher stage practices.

Stage two in the ITIM framework encompasses building a sound investment management process—by developing the capability to control projects so they finish predictably within established cost and schedule expectations—and establishing basic capabilities for selecting new IT projects. Stage three requires that an organization continually assess proposed and ongoing projects as parts of a complete investment portfolio: an integrated and competing set of investment options. This approach enables the organization to consider the relative cost, benefit, and risk of newly proposed investments along with those previously funded and to identify the optimal mix of IT investments to meet its mission, strategies, and goals. Stages four and five require the use of evaluation techniques to continuously improve both the investment portfolio and investment processes to better achieve strategic outcomes. Figure 6 shows the five maturity stages and the associated critical processes.

As defined by the model, each critical process consists of “core elements” that indicate whether the implementation and institutionalization of a process can be effective and repeated. Key practices must be executed to fulfill the core elements and implement the critical process. The core elements are as follows: Organizational commitments—Actions taken by management to ensure that the critical process is established and will endure. Key practices typically involve establishing organizational policies and engaging the sponsorship of senior management.

Prerequisites—Conditions that must exist within an organization to enable it to successfully implement a critical process. Key practices typically involve allocating resources, establishing organizational structures, and providing training.

Activities—Actions that must be taken to implement a critical process. An activity occurs over time and has recognizable results. Key practices typically involve establishing procedures, performing and tracking work, and taking corrective actions as necessary.

Objective, Scope, and Methodology

The objective of our review was to assess the Postal Service’s capabilities for effectively managing its IT investments. To determine these capabilities and the organization’s level of maturity in managing its IT investments, we applied our ITIM framework and the associated assessment method. As a part of the ITIM assessment method, we obtained documentary and testimonial evidence and observed demonstrations of several internal systems showing the organization’s execution of various key practices. We evaluated the Postal Service against 14 critical processes in maturity stages two, three, four, and five. We did not evaluate the Postal Service on key practices for one critical process in stage three—Authority Alignment of IT Investment Boards—because major IT capital investments are managed by the same oversight entities, and we determined that this critical process was not applicable.

To determine whether the Postal Service had implemented the 14 critical processes we assessed, we first reviewed documentation relating to the organization’s IT investment management practices, including written policies, procedures, and guidance that it had developed, and other forms of documentation that provided evidence that these practices had been executed. Documents included the Postal Service’s F-66 manual, Investment Highlights reports, executive memoranda, program narratives required for the annual budget formulation, DARs, performance indicators, and the minutes from meetings of the CIC, the CPC, and the Board of Governors. We also reviewed a variety of administrative and system documents from the CTO organization, including evidence of its formulation process for IT investment proposals and its oversight process for IT investments.

We interviewed a number of senior officials, including the Chief Financial Officer (CFO), the CTO, and the CIO. Within the Office of the CFO, we also spoke with the Manager of Capital and Program Evaluation and the Manager of Corporate Budget. Within the Office of the CTO, we interviewed the Manager of IT Value and a representative from the Enterprise Architecture Office. We also spoke with senior officials from the functional units, such as the Manager of Logistics Systems, the Manager for Human Resources Technology Management, and the Manager of Customer Service Operations.

As part of the analysis, we selected four projects, representing a range of functional units, stages of development, and sizes, and examined them to determine the extent to which the Postal Service’s policies and procedures for IT investment management were being implemented. The projects we selected for review were (1) Enhanced Security Capability, (2) Organization Structure, Staffing and Management, (3) Point of Service ONE, and (4) Surface-Air Management System. Appendix II contains additional information on each of the projects we reviewed. To perform the project reviews, we reviewed project management documentation such as DARs, project management plans, and PTRS reports. To clarify information in these documents and gain further insight we also interviewed managers in the sponsoring functional units, project managers, and the members of the project management teams. The teams included staff who had been assigned responsibility for project oversight within the Office of the Chief Technology Officer.

We compared the evidence we collected through document reviews and interviews to the detailed requirements for each key practice and critical process that is specified in the ITIM. In accordance with the ITIM assessment method, we considered a key practice to have been “executed” when we determined, by team consensus, that sufficient evidence existed to confirm that the Postal Service was executing the practice in accordance with stated ITIM criteria. When we determined that there were significant weaknesses in the Postal Service’s execution of a practice or found insufficient evidence of its execution, we concluded that the practice was not executed. Once the key practices were assessed, we determined which of the 14 critical processes had been implemented. A critical process was determined to be “implemented” when all related key practices were designated as executed. Otherwise, according to the ITIM assessment method, the critical process would not be considered to have been implemented.

We conducted our work at the Postal Service’s headquarters offices in Washington, D.C., from October 2001 through July 2002, in accordance with generally accepted government auditing standards.

Postal Service Executes Most Key Foundational Practices

At the stage two level of maturity in the IT investment management framework, an organization has attained repeatable, basic selection and control processes and successful IT investment control processes at the project level. In other words, the organization can select projects that meet established selection criteria and can identify expectation gaps early and take appropriate steps to address them. According to ITIM, critical processes at this stage include (1) defining investment review board operations, (2) developing processes to determine the progress of individual IT projects, (3) creating an inventory of IT investments, (4) identifying IT project and systems business needs, and (5) developing a basic process for selecting new IT proposals. Table 1 shows the purpose of each critical process in stage two.

The Postal Service is executing nearly 90 percent of the key practices associated with stage two critical processes. Specifically, the Postal Service is carrying out all of the key practices associated with selecting proposals that meet established criteria, aligning IT projects with the organization’s business needs, and maintaining information on IT projects and systems in an inventory.

The Postal Service has yet to execute a few key practices associated with establishing an IT investment management foundation. For example, the Postal Service does not have guidance defining the overall framework for its IT investment management process, and policies and procedures for project oversight are not documented. When the Postal Service implements the remaining critical processes associated with stage two, it will acquire the additional key controls needed to fully implement basic control processes. For example, with an investment management process guide, the Postal Service will gain assurance that IT investment activities will be performed in a consistent and cost-effective manner.

Table 2 summarizes the status of the Postal Service’s critical processes for stage two, showing how many associated key practices it has executed.

The following discussion provides information on steps the Postal Service has taken to implement each of these critical processes.

Boards Are Established but Operating without a Complete Process Guide

The creation of decision-making bodies or boards is central to the IT investment management process. At the stage two level of maturity, organizations define one or more boards, provide resources to support their operations, and appoint members who have expertise in both operational and technical aspects of proposed investments. Resources provided to support the operations of IT investment boards typically include top management’s participation in creating the board(s) and defining their scope and formal evidence acknowledging management’s support for board decisions. The boards operate according to a written IT investment process guide tailored to the organization’s unique characteristics, thus ensuring that consistent and effective management practices are implemented across the organization.Once board members are selected, the organization ensures that they are knowledgeable about policies and procedures for managing investments. Organizations at the stage two level of maturity also take steps to ensure that executives and line managers support and carry out the decisions of the IT investment board. According to ITIM, an IT investment management process guide should be a key authoritative document that the organization uses to initiate and manage IT investment processes and should provide a comprehensive foundation for policies and procedures developed for all other related processes.

The Postal Service has executed four of the six key practices for this critical process by establishing investment boards; providing adequate resources for related activities; appointing experienced senior-level executives to the boards; and implementing policies, procedures, and processes to ensure that executives and line managers support and carry out decisions made by the boards.

However, the Postal Service has yet to develop a written, organization- specific process guide to direct the operations of the investment boards. While the F-66 manual provides general guidance on the organization’s investment management process, it does not constitute an IT investment process guide because it does not sufficiently define the investment process. Specifically, the manual does not include information on the roles of the Establish Team and the CTO Investment Review Board. In addition, it does not provide detail on the processes followed by other boards involved in the investment management process (e.g., the CIC and CPC). Finally, the manual does not identify the manner in which investment boards’ processes are to be coordinated with other key organizational plans and processes (such as the budget formulation process). Without an investment management process guide, the Postal Service lacks the assurance that IT investment activities will be coordinated and performed in a consistent and cost-effective manner.

Table 3 shows the rating for each key practice required to implement the critical process for establishing IT investment board operation at the stage two level of maturity. Each of the “executed” ratings shown below represents an instance where, based on the evidence provided by Postal Service officials, we concluded that a specific key practice was currently being executed by the organization.

CTO Organization Oversees IT Investments

Investment boards should effectively oversee IT projects throughout all life-cycle phases (concept, design, testing, implementation, and operations/maintenance). At the stage two level of maturity, investment boards should review each project’s progress toward predefined cost and schedule expectations, using established criteria and performance measures, and should take corrective actions to address cost and milestone variances.

According to ITIM, effective project oversight requires, among other things, (1) having written polices and procedures for project management; (2) developing and maintaining an approved management plan for each IT project; (3) making up-to-date cost and schedule data for each project available to the oversight boards; (4) reviewing each project’s performance by regularly comparing actual cost and schedule data with expectations; (5) ensuring that corrective actions for each under-performing project are documented, agreed to, implemented, and tracked until the desired outcome is achieved; and (6) having written policies and procedures for oversight of IT projects.

The Postal Service has executed most of the key practices in the area of project oversight. For example, the Postal Service has developed several policies and procedures for project management, including the Program Management Process Guidelines, which are high-level project management guidelines used for all projects; the more-detailed Software Process Standards and Procedures used by the Postal Service’s business solution centers to develop and maintain systems; and the recently-issued Integrated Solutions Methodology, which provides a process for managing a system’s development throughout the life-cycle phases. In addition, IT projects have an approved, up-to-date project management plan, in accordance with project management guidelines. Data on a project’s actual cost and schedule are provided to the CTO Investment Review Board,which is responsible for overseeing the performance of IT projects, and to other oversight groups as appropriate. Actual cost and schedule data for the four projects we reviewed were provided to (1) the CTO Investment Review Board in the form of PTRS reports, (2) the Board of Governors through quarterly Investment Highlights reports featuring capital expenditures and schedule data, and (3) field and headquarters offices through accounting and management reports featuring data on projects’ actual capital and expense costs.

Finally, the CTO Investment Review Board regularly oversees the performance of projects by comparing actual cost and schedule data to expectations and performs special reviews of projects that do not meet expectations. When these reviews are performed, corrective actions are defined, documented, agreed to by the program manager and the CTO Investment Review Board, and tracked until the desired outcome is achieved. According to the IT program manager for Organization Structure, Staffing and Management (OSS&M), special meetings were held for this project to address schedule performance issues. Also, officials from the CTO organization stated that the office generates reports listing projects that are not meeting cost, schedule, or customer satisfaction expectations and brings them to management’s attention so that “special reviews” can be performed. These reports identify the manager and group responsible for the project, provide a summary of the problem, the status of the resolution, and a target date for resolving the problem. The CTO Investment Review Board tracks action items to resolve the problem until they are completed.

Notwithstanding these strengths, the Postal Service has a few weaknesses in its oversight of IT projects. First, while the Postal Service has written policies and procedures addressing how the CTO Investment Review Board is to oversee IT investments, it does not have any that sufficiently define the Establish Team’s role in the oversight process. The F-66 manual, for example, notes that senior management is to continually review the performance of capital projects and discusses some mechanisms that could be used for this purpose (e.g., compliance reports). However, it does not provide specifics on the role of the Establish Team or define processes for oversight of projects beyond the initial deployment phase. Without adequate policies and procedures, project oversight may not be performed consistently. In addition, without these policies and procedures, the Postal Service lacks the transparency that is helpful in both communicating and demonstrating how project oversight is performed.

Second, the Postal Service’s investment boards do not adequately oversee project performance by comparing actual cost data to expectations. Specifically, while the Establish Team and CTO Investment Review Board each compare actual cost data to annual budget expectations, the Postal Service could not demonstrate that these boards compared the data to original expectations established in the DAR. In addition, while the Investment Highlights used by executives to monitor project performance contains schedule information, it does not contain complete information on actual project costs because it does not report operating expenses. Without comparisons of complete actual cost data to original expectations, Postal Service executives may not be able to easily determine whether the projects they have selected are progressing as planned or whether corrective actions are needed.

Table 4 shows the rating for each key practice required to implement the critical process for project oversight at the stage two level of maturity and summarizes the evidence that supports these ratings.

IT Project and System Information Is Maintained to Support Project Management

To make good management decisions, an organization must know how funds are being expended toward acquiring, maintaining, and deploying its IT investments. Implementing this critical process requires an organization to identify all projects and systems within the organization and create one or more repositories or inventories of information about them. This information is required to track the organization’s IT resources to provide a basis for analyses showing major cost and management factors and trends. An IT project and systems inventory can take many forms and does not have to be centrally located or consolidated. The guiding principles for developing the inventory are that the information maintained should be accessible where it is of the most value to investment decision makers and relevant to the management processes and decisions that are being made.

According to ITIM, organizations at the stage two level of maturity provide adequate resources for tracking IT projects and systems, designate responsibility for managing the project and system identification process, and develop related written policies and procedures. Resources required for this purpose typically include managerial attention to the process; staff; supporting tools; an inventory database; inventory reporting, updating and query tools; and a method for communicating inventory changes to affected parties. Stage two organizations develop and maintain information on their IT projects and systems in one or more inventories according to written procedures, recording changes in data as required, and maintaining historical records. Access to this information is provided on demand to decision makers and other affected parties.

The Postal Service has executed all of the key practices for this critical process. The Service has established a number of repositories of information on its IT projects and systems in the form of the Enterprise Information Repository (EIR), and automated systems such as PTRS that track actual cost, schedule, benefit, and risk associated with the Postal Service’s IT programs and projects. Members of the Postal Service’s investment boards have access to the systems used to maintain information on the organization’s IT programs and projects. Information is maintained in these databases because they are also used for other purposes. For example, project managers input up-to-date systems and project status information to PTRS; the Corporate Planning System (CPS) and PTRS are updated automatically as financial transactions are processed. Finally, the Postal Service retains records showing changes in the information maintained on each IT investment over time and provides these records to its investment boards.

Table 5 shows the rating for each key practice required to implement the critical process for IT project and system identification at the stage two level of maturity and summarizes the evidence that supports these ratings.

Processes Ensure That IT Investments Support Business Needs and Meet User Needs

Defining business needs for IT projects helps ensure that projects support the organization’s mission goals and meet users’ needs. This critical process creates the link between the organization’s business objectives and its IT management strategy. According to ITIM, effectively identifying business needs requires, among other things, (1) developing policies and procedures for identifying business needs and associated users for IT projects, (2) defining the organization’s business needs or stated mission goals, (3) defining business needs for projects, and (4) identifying users for projects who will participate in the project’s development and implementation.

The Postal Service has executed all of the key practices for this critical process. The Service’s business needs are defined in a number of documents, including the organization’s strategic plan and recent Transformation Plan. Business needs and project users are being identified and defined in accordance with policies and procedures, and users are involved in project management throughout a project’s life cycle. For example, the project management team for Point of Service ONE conducts interviews to ensure that the system is providing the information needed for decision making, and staff working in field locations tested Point of Service ONE software to provide input on modifications required to support their needs. The business needs and associated users of the four projects we reviewed were clearly identified and defined in the DARs used to obtain project approval and in other project justification documentation. In addition, users of these projects were involved in project development activities through direct collaboration with CTO staff, user groups, and/or change control groups. Because the Postal Service is executing all the key practices associated with identifying business needs, it has increased confidence that its IT projects will meet both business needs and users’ needs.

Table 6 shows the rating for each key practice required to implement the critical process for business needs identification at the stage two level of maturity and summarizes the evidence that supports these ratings.

Structures Are in Place for Selecting IT Investment Proposals

As a basic step in the direction of implementing mature stage two processes, an organization must develop a sound process for selecting IT proposals and projects. Once adequate resources are provided and an official is designated with responsibility for selecting proposals, stage two organizations establish a structured selection process. Resources required for selecting proposals typically include managerial time and attention, staff, and supporting tools and methodologies. Executives analyze and prioritize the proposals and make related funding decisions according to an established, structured process.

The Postal Service has executed all of the key practices pertaining to selecting IT proposals: executives and managers follow established selection processes, the CFO has been designated with responsibility for the organization’s budget formulation process, adequate resources are being provided to support related activities, a structured process is in place for developing new IT proposals, and executives analyze and prioritize the proposals according to established selection criteria.

Postal Service executives and managers follow established processes for selecting IT investments. Specifically, functional units, the Finance Department’s CAPE group, the Establish Team, and the organization’s enterprise-level investment boards all follow established processes for proposing, prioritizing, and selecting IT investments. Officials reported that the Establish Team operates in accordance with established management cycle processes supported by the organization’s CPS and that these processes, although not documented, are generally understood by members of the team. Finally, the CTO organization has developed selection criteria for that unit’s proposed IT investments that are incorporated in its new Business Case System (BCS).

Table 7 shows the rating for each key practice required to implement the critical process for proposal selection at the stage two level of maturity and summarizes the evidence that supports these ratings.

Postal Service Shows Mixed Progress in Managing Its IT Investments as a Portfolio

An IT investment portfolio is an integrated, enterprisewide collection of investments that are assessed and managed collectively based on common criteria. Managing investments within the context of such a portfolio is a conscious, continuous, and proactive approach to expending limited resources on an organization’s competing initiatives in light of the relative benefits expected from these investments. Taking an enterprisewide perspective enables an organization to consider its investments comprehensively so that the collective investments optimally address its mission, strategic goals, and objectives. This portfolio approach also allows an organization to determine priorities and make decisions about which projects to fund based on analyses of the relative organizational value and risks of all projects, including projects that are proposed, under development, and in operation.

According to ITIM, critical processes performed by organizations at the stage three level of maturity include (1) defining portfolio selection criteria, (2) engaging in project-level investment analysis, (3) developing a complete portfolio based on the investment analysis, and (4) maintaining oversight over the investment performance of the portfolio. In addition, organizations with more than one board that selects IT projects for funding must align the authority of their IT investment boards. Although authority alignment is a critical process for the stage three level of maturity, we did not assess it in this study, because the Postal Service has a single set of organizationwide investment processes that apply to IT investments. Table 8 shows the purpose of each critical process in stage three.

The Postal Service has executed many of the key practices associated with stage three critical processes. For example, the organization’s portfolio selection criteria are distributed throughout the organization, and they are reviewed and modified as appropriate. In addition, executives examine the mix of proposals and investments across portfolio categories in making funding selections. However, many key practices still need to be executed before the Postal Service can effectively manage its IT investments from a portfolio perspective. For example, the Postal Service has not defined the policies and procedures for any of the stage three critical processes. In addition, the Service has not developed portfolio selection criteria that adequately address cost, benefit, schedule, and risk. Until the Service fully implements critical processes associated with managing investments as a complete portfolio, it will not have ready access to the data needed to make informed decisions about competing investments.

Table 9 summarizes the status of the Postal Service’s stage three critical processes, showing how many associated key practices it has executed.

The following discussion provides information on the steps the Postal Service has taken toward implementing each of the critical processes.

Portfolio Selection Criteria Are Defined, but Do Not Adequately Address All Factors

To manage IT investments effectively, an organization needs to establish rules or “selection criteria” for determining how to allocate scarce funding to existing and proposed investments. Thus, the process of developing an IT investment portfolio necessarily involves defining appropriate cost, benefit, schedule, and risk criteria for evaluating individual proposals for investments. To ensure that the organization’s strategic goals, objectives, and mission will be satisfied by the investments, the criteria should have an enterprisewide focus that reflects these strategic goals. Further, if an organization’s mission or business needs and strategies change, criteria for selecting investments should be reexamined at the portfolio level. Portfolio selection criteria should be disseminated throughout the organization to ensure that decisions concerning investments are made in a consistent manner and that this critical process is institutionalized. To achieve this result, project managers, organizational planners, and other decision makers should receive information on the organization’s selection criteria and address the criteria in IT proposals and business cases, project oversight activities, and strategic and business planning processes. Resources required for this critical process typically include the time and attention of executives involved in the process, adequate staff, and supporting tools.

The Postal Service has executed four of the six key practices for this critical process. First, adequate resources are available to conduct portfolio selection criteria definition activities. Second, several working groups, including the Establish Team, are tasked with creating and modifying portfolio selection criteria. Third, portfolio selection criteria in the form of performance indicators and targets and program narratives that are required for budget formulation are distributed throughout the organization. Fourth, the Establish Team performs periodic reviews of the portfolio selection criteria and, in doing so, considers the organization’s current strategic goals and objectives, changing the criteria from year to year as required by current circumstances and priorities.

Nonetheless, the Postal Service has yet to develop written guidance establishing procedures to be followed in creating, modifying, and using criteria for selecting a portfolio. Postal Service officials use annual performance plans, performance indicators and targets, and program narrative requirements as portfolio selection criteria. While these criteria are based on the Postal Service’s mission, goals, strategies, and priorities, they are not adequate because they do not address cost, benefit, schedule, and risk considerations in a manner that (1) provides sufficient and meaningful cost, benefit, schedule, and risk information to effectively assess investments and (2) would allow the Service to compare them against one another, prioritize them, and select those that best meet its needs and priorities. For example, program narratives do not include complete cost information. While expected capital costs are reported for the next 6 years, expense is only reported through the end of the current fiscal year. Further, the criteria do not include a weighting schema or other method that would allow the Establish Team to compare the risk-adjusted returns of competing investments. The CTO organization uses such criteria to prioritize investments and assist in making selection decisions. Without portfolio selection criteria that adequately address cost, benefit, schedule, and risk considerations, Postal Service officials have less assurance that they are selecting the mix of investments that best meets the organization’s needs and priorities.

Table 10 shows the rating for each key practice required to implement the critical process for defining proposal selection criteria at the stage three level of maturity and summarizes the evidence that supports these ratings.

IT Investments Are Not Consistently Analyzed and Prioritized within the Context of a Portfolio

This critical process ensures that all IT investments are consistently analyzed and prioritized according to the organization’s portfolio selection criteria, which should include cost, benefit, schedule, and risk considerations. According to ITIM, effective investment analysis requires, among other things, that (1) portfolio selection criteria have been developed; (2) cost, benefit, schedule, and risk data are assessed and validated for each investment; (3) the investment review board compares each investment against the organization’s portfolio selection criteria; and (4) the investment review board creates a ranked list of investments using the portfolio selection criteria.

The Postal Service has executed two of the key practices in this area. First, the Postal Service has adequate resources for analyzing investments, including CAPE and other dedicated staff. Second, the Postal Service ensures that cost, benefit, schedule, and risk data concerning IT investments are validated. The Service does this in two particular instances: (1) during the development of the DAR, the document for approving capital projects, there is a validation step in which Finance Department staff independently verify the accuracy and integrity of the data presented and a validation memo is signed by the Controller to confirm that the data are correct; (2) as part of the annual budget formulation process, the data submitted on the various budget proposals are reviewed, and thus validated, by various levels of management up to the senior vice president of the functional unit sponsoring a proposal.

Nevertheless, the Postal Service has a number of weaknesses in the way it analyzes investments for portfolio management. First, it does not have policies and procedures that sufficiently address this critical process. Its F-66 manual includes some procedures for analyzing proposed investments; however, it does not specify an approach for analyzing existing investments to make portfolio selection decisions. Nor does it describe a process to establish portfolio selection criteria that adequately incorporate cost, benefit, schedule, and risk considerations. In addition, it does not address capital projects that have been deployed for more than 18 months or ongoing infrastructure-type projects.

Second, while investments are analyzed by executives during the approval process, through the review of quarterly status reports, and during the annual budget formulation activities, these investments are not assessed against portfolio selection criteria that adequately consider cost, benefit, schedule, and risk factors. The F-66 manual does not explicitly require the preparation of a risk assessment when the DAR is developed for a new investment. Further, when the Establish Team reviews budget documents as part of the annual budget formulation process, these documents do not provide sufficient information on cost, benefit, and risk to determine whether investments are progressing according to the approved DAR parameters.

Table 11 shows the rating for each key practice required to implement the critical process for analyzing investments at the stage three level of maturity and summarizes the evidence that supports these ratings.

An IT Investment Portfolio Is Developed, but Project Expectations Are Not Routinely Revised

At the stage three level of maturity, organizations design processes for developing an IT portfolio and develop written policies and procedures to ensure that projects are selected that best fit their strategic business direction, needs, and priorities. Each organization has practical limits on funding, the risks it is willing to take, and the length of time for which it will incur costs on a given investment before benefits are realized. To address these limits, stage three organizations group existing and proposed IT investments into predefined logical categories, for example, by cost or by type of investment (i.e., facilities or equipment). Once this is accomplished, organizations can compare investments and proposals within and across the portfolio categories and select the best overall portfolio for funding.

According to ITIM, the portfolio development process cannot be performed well unless certain conditions are first satisfied, including (1) providing adequate resources for a portfolio development process; (2) appointing to IT investment boards people who exhibit core competencies in developing portfolios; (3) analyzing individual IT investments, including validating associated cost, benefit, schedule, and risk data; and (4) defining investment categories. Organizations should also create written policies and procedures for establishing and maintaining the portfolio development process. Assuming that this foundation is in place, the IT investment boards of stage three organizations assign each investment to a portfolio category, examine the mix of existing and proposed investments across these categories, and make selections for funding. Each IT investment board also establishes annual cost, benefit, schedule, and risk expectations for individual IT projects and gathers and validates data on actual performance. A repository of information on developing portfolios is established, updated, and maintained. Resources required for this critical process typically include staff, supporting tools for developing portfolios, and managerial time and attention to portfolio development.

The Postal Service has executed six of the nine key practices for this critical process by providing adequate resources to implement this critical process; assigning competent managers to the board responsible for the portfolio development process; developing common portfolio categories; assigning IT programs and projects to portfolio categories on the basis of established criteria; examining the mix of proposals and investments across the common portfolio categories and making selection decisions for funding; and establishing, updating, and maintaining repositories of portfolio information.

Postal Service officials reported that adequate management time and staff resources are available for this critical process. In addition, several systems are in use that support portfolio development activities, including PTRS, BCS, and CPS. Postal Service officials stated that the organization provides training in the use of these systems. Moreover, members of the Postal Service’s enterprise-level investment boards are senior-level executives who have had many years of experience in the organization and in working with the IT investment management process. The Postal Service also has defined common IT investment portfolio categories for the organization. The Postal Service’s IT investments are considered to relate either to corporatewide or functional unit activities and are further classified by funding type (capital or expense) and investment type (facilities, equipment, field, or other), as provided for in the organization’s F-66 manual and budget instructions.

Postal Service programs and projects are now being assigned to portfolio categories based on the criteria described above. Further, the Establish Team examines the organization’s entire portfolio of IT investments annually and then selects programs and projects for funding. The Postal Service collects and stores information relating to the portfolio development process in a variety of forms ranging from IT project and systems inventories and finance/budget and corporate planning systems to manual backup books maintained by the Finance Department.

Even though these important steps in stage three portfolio development have been taken, some weaknesses remain. The Postal Service has yet to develop written policies and procedures for establishing and maintaining portfolio information on its IT investments. The Postal Service has defined investment categories in its F-66 manual but has not developed written policies and procedures for establishing and maintaining portfolio information on IT investments. Moreover, even though the CTO organization monitors data on the performance of IT projects, the Establish Team does not perform complete analyses of the performance of individual investments or establish cost, benefit, schedule, and risk expectations for each investment annually.

While the Establish Team reviews investments each year from a strategic planning and funding perspective, neither the analyses it performs nor the Investment Highlights reports on the projects provided to the Board of Governors adequately consider actual benefit and risk or contain complete information on cost. For example, the business case for the Surface-Air Management System includes information on over a dozen different types of qualitative benefits expected to be obtained by investing in that project. However, Investment Highlights reports provided to the Board of Governors only include information on the number of installations completed to date. In addition, although information on projects’ capital costs is included in Investment Highlights, information on operating expenses is not. As a result, information on these aspects of project performance is not routinely provided to the Board of Governors. Without complete cost, benefit, schedule, and risk data, Postal Service executives do not have the information needed to analyze and compare all investments and select those that best fit with the strategic business direction, needs, and priorities, of the organization.

Table 12 shows the rating for each key practice required to implement the critical process for portfolio development at the stage three level of maturity and summarizes the evidence that supports these ratings.

Portfolio Performance Oversight Is Performed, but without Comprehensive Guidance

The purpose of this critical process is to ensure that each IT investment achieves its cost, benefit, schedule, and risk expectations. It builds on the critical process for IT project oversight at stage two by adding elements of benefit measurement and risk management to an organization’s investment control capability. Executive-level oversight of project-level risk and benefit management activities provides the organization with increased assurance that each investment will achieve the desired cost, benefit, schedule, and risk expectations.

According to ITIM, effective oversight of portfolio performance requires, among other things, that the investment board (1) has access to up-to-date cost, benefit, schedule, and risk data; (2) monitors the performance of each investment in its portfolio by comparing actual project-level cost, benefit, schedule, and risk data to the predefined expectations for the project; and (3) corrects poorly performing projects.

The Postal Service is executing six of the nine key practices for this critical process by providing adequate resources for monitoring and controlling IT project performance and giving investment boards access to data on actual and expected cost, benefit, schedule, and risk that are maintained in the organization’s IT project and system inventory. In addition, the CTO Investment Review Board provides oversight for all IT projects by monitoring these data and providing feedback on performance to sponsoring organizations. These oversight activities include working with IT project management teams to identify and address any development and deployment issues that may arise.

Despite these strengths, however, the Postal Service has yet to develop policies and procedures that address performance oversight from a portfolio perspective. Moreover, while expectations are established in DARs or business cases that include cost, benefit, schedule, and risk, and the CTO organization monitors actual performance results, the Postal Service has not established a mechanism for revising expected benefit and risk expectations after its boards approve the investments or for notifying the Establish Team when an investment has not met cost, benefit, schedule, and risk expectations. Until the Postal Service executes all key practices associated with this critical process, senior executives will be less likely to determine whether the investments they have selected are delivering mission value at the expected cost and risk.

Table 13 shows the rating for each key practice required to implement the critical process for portfolio performance oversight at the stage three level of maturity and summarizes the evidence that supports these ratings.

Postal Service Has Yet to Implement Processes to Better Meet Strategic Goals

Organizations that achieve the stage four level of maturity evaluate their IT investment processes and portfolios to identify opportunities for improvement. At the same time, these organizations are able to maintain the mature control and selection processes that are characteristic of stage three in the ITIM model. A key tool for accomplishing this critical process is the post-implementation review, in which outcomes of individual IT investments are compared to the organization’s plans and expectations. This review typically results in identifying lessons learned from the investment experience that are used by the organization to improve its understanding of the key variables in the investment’s business case. Analyzing a number of post-implementation reviews can also provide insights into the organization’s overall IT investment management process. This analysis is facilitated by classifying individual investments into logical categories and using the lessons learned to fine-tune associated processes, as well as aspects of the portfolio. In addition, at stage four maturity, organizations are capable of systematically planning for and implementing decisions to discontinue or deselect obsolete, high-cost, and low-value IT investments and planning for successor investments that better support strategic goals and business needs.

Organizations acquire stage five capabilities when they create opportunities to shape strategic outcomes by learning from other organizations and continuously improving the manner in which they use IT to support and improve business outcomes. Thus, organizations at the stage five level of maturity benchmark their IT investment processes relative to other best-in-class organizations and conduct proactive monitoring for breakthrough information technologies that will allow them to significantly improve business performance. Table 14 shows the purpose of each critical process in stages four and five.

The Postal Service is executing five of the thirty-four key practices associated with the five critical processes in stages four and five. For example, it has policies and guidance for conducting post-implementation reviews and provides training to individuals involved in these activities. The Postal Service also provides resources for identifying opportunities for IT-driven strategic business change. However, it does not regularly capture lessons learned from post-implementation reviews, the performance of its portfolio, or benchmarking in order to improve its investment processes. In addition, it does not actively manage the succession of its IT systems or investments. Until it implements stage four and five critical processes, the Postal Service will not be positioned to effectively improve its IT investment management processes and successfully leverage IT to improve business outcomes.

Table 15 summarizes the status of the Postal Service’s critical processes for stages four and five and shows how many associated key practices it has executed.

The following discussion provides information on steps the Postal Service has taken to implement each of the critical processes.

Policies and Procedures Are Defined, but Post- Implementation Review Process Is Not Institutionalized

Post-implementation reviews are performed (1) to examine differences between estimated and actual investment costs and benefits and possible ramifications for unplanned funding needs in the future and (2) to extract lessons learned about the investment selection and control processes that can be used as the basis for management improvements. Investments that have completed development and those that were terminated before completion should be reviewed promptly to identify potential management and process improvements. According to ITIM, this critical process involves identifying the projects to be reviewed; initiating reviews and developing policies and procedures for conducting the reviews; and ensuring that quantitative and qualitative data are collected, evaluated for reliability, and analyzed during the course of the reviews.

The Postal Service has executed three of the six key practices required to implement the critical process for post-implementation reviews. First, the CTO organization and Finance Department have each developed policies and procedures for performing post-implementation reviews. These include the CTO organization’s Program Management Process Guidelines and the Finance Department’s National Cost Study Process. Second, according to Postal Service officials, the Service has adequate resources to perform review activities. Third, Postal Service staff are trained in conducting post-implementation reviews.

The Postal Service, however, has several weaknesses in this critical process. First, no investment board has been assigned responsibility for (1) identifying projects for which post-implementation reviews are to be conducted and (2) ensuring that post-implementation reviews are initiated. Second, the Postal Service has no institutionalized process for routinely (1) identifying projects for which post-implementation reviews are to be conducted, (2) collecting quantitative and qualitative data while performing post-implementation reviews, and (3) developing lessons learned and improvement recommendations about the investment process and capturing them in a written product or knowledge base. This is evidenced by the fact that, while the Finance Department’s Program Performance Group is responsible for conducting post-implementation cost studies, only three of them have been performed since 1990. Until the Postal Service implements an institutionalized process for routinely performing post- implementation reviews, senior executives will lack key information needed to improve the performance of the IT investment portfolio as well as the investment management process.

Table 16 shows the rating for each key practice required to implement the critical process for post-implementation reviews at the stage four level of maturity and summarizes the evidence that supports these ratings.

IT Investments Are Not Evaluated from the Perspective of Portfolio Performance

Stage four evaluations of portfolio performance enable organizations to determine what contribution their collected pools of IT investments are making to mission goals and needs. Evaluations of this sort are similar to post-implementation reviews involving individual projects, but different in that they apply to entire IT investment portfolios. This critical process seeks to determine how well IT investments are helping to achieve the strategic needs of the enterprise, satisfying the needs of individual units and users, and improving business performance through IT. Performance information for an organization’s entire portfolio of investments has to be compiled and analyzed and trends examined. Developing baseline performance data is critical to making this a meaningful exercise. According to ITIM, the process of addressing problems and opportunities for improving the investment process and the investment portfolio usually involves developing written policies and procedures for the investment management process, creating recommendations for the IT investment board, documenting the decision criteria used to measure portfolio performance, deciding whether or not to implement each recommendation, and tracking the progress made. Resources required for this critical process typically include staff support, methods and tools to aid the teams conducting post-implementation reviews, and current and historical portfolio data.

To advance to the stage four level of maturity, an organization must first ensure that all of the prerequisites, commitments, and activities that are characteristic of levels two and three have been put into place. The next step is to develop written policies and procedures for evaluating and improving its IT investment portfolio that include defining requirements for measuring performance data. Cost, benefit, schedule, and risk must all be fully considered to enable an organization to construct a picture of the overall performance of its IT investment portfolio.

The Postal Service is not executing any of the six key practices for this critical process. First, while the Establish Team reviews existing and proposed IT investments each year as a part of the organization’s budget formulation process, no evaluations are being done that are designed to identify opportunities for improving portfolio performance. Also lacking are written policies and procedures that define the organization’s key measures and the methods used to assess portfolio performance, evaluation methods, reporting requirements, and other applicable policies and procedures. Because the Postal Service has not collected data for this critical process, including baseline performance information on its IT portfolio, it is more difficult to perform evaluations that could result in recommendations for improving its process for selecting a portfolio.

Table 17 shows the rating for each key practice required to implement the critical process for evaluating and improving the performance of the portfolio at the stage four level of maturity and summarizes the evidence that supports these ratings.

Process for Managing Succession of Systems and Technology Is Not Established

Managing the succession of systems and technology entails periodically evaluating IT investments to determine whether they should be retained, modified, replaced, or otherwise disposed of. According to ITIM, system and technology succession management includes (1) defining policies and procedures for managing the IT succession process, (2) assigning responsibility for the succession management process, (3) developing criteria for identifying IT investments that may meet succession status, and (4) periodically analyzing IT investments to determine whether they are ready for succession. This critical process enables the organization to recognize low-value or high-cost IT investments and augments the routine replacement of systems at the end of their useful lives. This critical process supports the development of a forward-looking, solution-oriented view of IT investments that anticipates future resource requirements and allows the organization to plan appropriately.

The Postal Service has not performed any of the nine key practices required to implement this critical process. For example, while the Postal Service’s project management guidelines define procedures for retiring investments, they do not describe how to review systems regularly to identify candidates for retirement. According to officials from the CTO organization, decisions on succession management are usually made between business unit managers and CTO office staff (e.g., portfolio managers), but no individual or group has been assigned responsibility for managing the succession process from an enterprise perspective, which would allow the Postal Service to better anticipate future resource requirements. Finally, the Postal Service has neither defined the criteria for identifying investments that may meet succession status nor taken steps to regularly analyze IT investments for possible succession.

According to CTO organization officials, the Postal Service has retired or replaced roughly 250 systems since 1998. However, this was not done within the structure of an institutionalized succession management process. Postal Service officials have stated that IT investments are reviewed, for example, during the annual budget formulation process to analyze them for possible succession. However, without an institutionalized process for succession management, the Postal Service may not be able to identify those IT investments that are eligible for succession in enough time to minimize the effect of the transition on their successors.

Table 18 shows the rating for each key practice required to implement the critical process for managing the succession of systems and technology at the stage four level of maturity and summarizes the evidence that supports these ratings.

Activities for Benchmarking the Investment Process Are Not Institutionalized

In stages two through four, organizations ensure that sound investments are selected, controlled, and evaluated within the context of the IT investment management process and the enterprisewide portfolio. In the stage five level of maturity, a shift in orientation occurs as organizations evolve toward using information on leading technologies to identify opportunities for business change and to implement changes in their overall business process. Benchmarking the investment process allows organizations to identify opportunities for improvement and to implement measurable improvements in their IT investment management processes so that these processes meet or exceed those used by best-in-class organizations. Improvements can include using innovative investment oversight tools and techniques or improving the feedback mechanisms for lessons learned. According to ITIM, investment process benchmarking includes (1) defining policies and procedures for using benchmarking to improve the IT investment management process, (2) collecting baseline data on the organization’s current IT investment management process, (3) identifying and benchmarking external comparable best-in-class processes for IT investment management, and (4) improving the organization’s investment management processes.

The Postal Service has not fully executed any of the seven key practices required to implement this critical process. While there have been some efforts to identify best practices from best-in-class organizations and incorporate these practices into the Postal Service’s IT investment management processes (such as the CTO organization’s use of lessons learned in benchmarking to develop the BCS), the Postal Service has not defined policies and procedures for improving the IT investment management process using benchmarking. It also does not have any institutionalized processes to routinely (1) collect baseline data on the organization’s current IT investment management process, (2) identify and benchmark external best-in-class processes for IT investment management in comparable organizations, or (3) actually improve the organization’s investment management processes. Without these processes, the Postal Service is less likely to learn from best-in-class organizations, which will hinder any concerted effort to improve its IT investment management processes.

Table 19 shows the rating for each key practice required to implement the critical process for investment process benchmarking at the stage five level of maturity and summarizes the evidence that supports these ratings.

Potential Impacts of Leading Technologies Are Not Routinely Considered in Strategic Planning Efforts

Information technologies can provide opportunities for an organization to move dramatically in new directions to meet its goals. Thus, once an organization finds it can competently manage its enterprisewide portfolio of investments, it should actively seek out opportunities to use alternative technologies.

According to ITIM, stage five organizations provide adequate resources for conducting IT-driven activities that can result in strategic business change. These may include developing an advanced IT laboratory, test center, or library; conducting technical research; employing internal staff and external experts or reviewers; and obtaining supporting tools. Stage five organizations also develop applicable written policies and procedures and designate an official to oversee their implementation. The central focus of these activities is to follow technological events and to identify and evaluate technologies that appear to offer strategic business-changing capabilities. Once a conclusion has been reached that specific technology offers the organization significant opportunities, senior managers plan for and implement changes to the organization’s business processes. Organizations at a stage five level of maturity may create an advanced technology group, a cross-departmental group of experts, or technology centers of excellence. Finally, to strengthen management on these types of activities, mature organizations designate responsibility for this key practice to a single senior-level manager.

The Postal Service has executed two of the six key practices required to implement this critical process by designating responsibility to specific organizational units to support activities aimed at IT-driven strategic business change and by providing a range of related resources. However, steps have yet to be taken to execute the remaining key practices, including creating and maintaining a knowledge base of state-of-the-technology IT products and processes; actively identifying technologies with business- changing capabilities; and planning and implementing strategic changes to business processes on the basis of the capabilities of these technologies.

The Postal Service has assigned responsibilities to several units that could leverage IT to implement strategic business change, including its Transformation Plan Office, Office for Strategic Planning, and the CTO organization. Also, within the CTO organization, the Information Technology unit has established the positions of Enterprise Architect and Manager of Technology Standards. To ensure standardization, the Postal Service has also developed the IT Infrastructure Toolkit process and established the Enterprise Architecture Councils and the Management Steering Committee.

The Postal Service is also providing a range of resources that could be used to support the critical process of IT-driven strategic business change. The Service is funding a testing laboratory and has established Integrated Business Solutions Systems Centers and developed an IT Toolkit system and associated processes. The IT Toolkit system serves as a repository of information on technologies and application systems that have been approved for use within the Postal Service.

In addition, the Postal Service’s CTO organization is taking several steps to initiate changes to the business process based on currently available state- of-the-practice IT approaches. First, the CTO has developed a plan for a corporate database called the Corporate Data Mart, which could serve as a repository of data from 35 separate Postal Service systems. According to Postal Service officials, the CTO organization is working with each functional unit to determine which legacy systems will transition to the data mart and plans to incorporate future systems in the data mart. This transition may eliminate costly legacy systems or avoid the investment cost to replace them. The CTO organization is sponsoring the Advanced Computing Environment initiative to transition to a less costly distributed computing environment. According to officials, under this approach, activities will be standardized, centralized, and reengineered such that the costs per Postal Service user will be reduced.

These accomplishments can be helpful to the Postal Service, particularly in light of its financial difficulties and the need to identify new, more cost- effective ways of accomplishing its mission. By continuing to foster a more coordinated approach to using IT investments to achieve its business goals, using resources from across the organization, and disseminating information that is gathered more broadly, the Postal Service can more effectively capitalize on opportunities uncovered by efforts already underway.

Table 20 shows the rating for each key practice required to implement the critical process for IT-driven strategic business change at the stage five level of maturity and summarizes the evidence that supports these ratings.

Conclusions, Recommendations, and Agency Comments

Conclusions

Information technology provides key core operational capabilities that the Postal Service must rely on to achieve its mission. Only by effectively and efficiently managing its IT resources can the Postal Service gain opportunities to further leverage its IT investments and make better allocation decisions among many investment alternatives.

The Postal Service has in place most of the foundational practices required to ensure that IT investments are being selected and monitored to support its overall objectives. A comprehensive process guide for investment management and written policies and procedures for management oversight of investments will allow the Postal Service to better coordinate its IT investment activities and ensure that they are performed consistently. Once the Service has fully implemented all the critical processes for stage two, it will have the controls necessary to allow it to effectively manage its IT investments.

The Postal Service shows mixed progress in managing its IT investments as a portfolio. The Service performs many portfolio development and oversight activities. However it lacks policies and procedures for managing its portfolio. It has not defined criteria that allow it to effectively analyze, prioritize, and select its investments from a portfolio perspective. In addition, the Postal Service’s reporting of performance data is largely limited to capital projects, which are a smaller portion of its portfolio than are operating expenses. Until the Service fully implements critical processes associated with managing investments as a complete portfolio, it will not have ready access to the data it needs to make informed decisions about competing investments.

The ability of the Postal Service to continue to improve its investment management process is contingent on its ability to learn from its current practices and investments and from other organizations. The Service currently has no institutionalized processes to learn from its own experience and from other organizations. Such processes can contribute to the long-term success of the Postal Service’s IT portfolio and support its mission.

Recommendations for Executive Action

To strengthen the Postal Service’s capabilities for investment management and address the weaknesses discussed in this report, we recommend that the Postmaster General develop a plan that initially focuses on correcting the weaknesses in critical processes associated with maturity stages two and three before addressing the weaknesses at maturity stages four and five, because critical processes at the lower stages provide the foundation for building those at higher maturity stages. The plan should be developed within 6 months. At a minimum, the plan should specify an approach to develop comprehensive guidance that defines and describes the complete investment management process, unifies existing processes enterprisewide, and reflects changes in processes as they occur; develop additional process guidance, as needed, to completely define the operations and decision-making processes of investment boards and other management entities involved in managing IT investments; ensure that cost, benefit, schedule, and risk expectations are set and approved in the original business case for each investment; that accurate and complete actual cost, benefit, schedule, and risk data are tracked against these expectations; and that status information on these four criteria is periodically reported to executive-level investment boards; and establish a structured, transparent, and documented portfolio selection process that assesses, prioritizes, selects, and funds investments according to established portfolio selection criteria, including explicit cost, benefit, schedule, and risk criteria.

The Postmaster General should ensure that the plan specifies measurable goals and time frames, prioritizes initiatives, designates a senior manager responsible and accountable for directing and controlling the improvements, and establishes review milestones. After addressing the stage two and three processes, the Postal Service should create processes required for stages four and five that, at a minimum ensure that guidance for conducting post-implementation reviews is complete, including criteria for selecting systems for review, and that post-implementation reviews are conducted on all appropriate systems; establish a process for evaluating and improving portfolio performance; establish a process for managing the succession of systems and technology; establish a process to benchmark the investment processes of leading organizations to identify opportunities for improvement; and establish a process to employ IT investments strategically to improve business outcomes.

Agency Comments and Our Evaluation

The Postal Service’s Chief Financial Officer provided written comments on a draft of this report (reprinted in app. III). In these comments, the Postal Service stated that the report offered an opportunity to consider changes and improvements in its IT investment management processes. The Service added that it would carefully evaluate each of the report’s recommendations to determine the necessary actions for adopting and integrating key practices outlined in the GAO ITIM model that are appropriate for the Postal Service.

The Postal Service also identified key points where it stated that it differs from GAO’s IT investment management framework. The Postal Service also explained that it uses a hierarchy of delegations to select and oversee its investments, from the Board of Governors through the lowest level of management, to ensure that senior management can concentrate on strategic issues and the most significant projects. We did observe this structured approach to the selection and oversight process and have recognized it in our report.

In succession planning, the Postal Service stated that it uses an institutionalized portfolio approach to address the succession of its IT hardware, software, and systems. According to the Postal Service, this approach enables senior management to determine strategically driven solutions based on priorities, lessons learned, available technology, best practices, affordability, risk assessments, and business needs. Our guidance suggests that, while each of these aspects may be appropriate as part of a succession management process, effective succession management entails regularly reviewing the performance of existing systems against established criteria. Such a process allows an organization to identify systems that should be retained, modified, replaced, or otherwise disposed of in a timely manner. However, as we stated in our report, the Postal Service does not have such a process.

The Postal Service provided comments pertaining to post-implementation reviews that describe cost studies, the budget process, and the activities of the Office of Inspector General (OIG) as satisfying this critical process. We disagree with the Postal Service in this matter. While guidance for cost studies does exist, the Service provided evidence of only three post- implementation cost studies having been conducted since 1990. The Postal Service’s budget process does not satisfactorily address this critical process. Specifically, the budget process does not capture lessons learned and disseminate them to other projects and work processes in order to improve them, and this is a major objective of post-implementation reviews. Finally, while OIG does conduct evaluations from which lessons learned may be drawn and used to improve other projects and work processes, OIG evaluations are not part of the regular systems life cycle.