In conducting our review, we reviewed and analyzed various DOD computer center consolidation plans and reported costs and assessed how these plans met OMB’s Bulletin 96-02 requirements. We also compared DOD plans and practices to the practices and strategies employed by private-sector companies we visited during our review that have successfully consolidated computer centers. In addition, we met with consultants who advise computer center managers on improving services and with the General Services Administration’s Office of Governmentwide Policy and Federal Systems Management Center. We conducted numerous interviews with DOD officials to discuss their approach to consolidating and modernizing computer centers. We also discussed with OMB officials the OMB Bulletin governing computer centers and their views on DOD responses. Details of our scope and methodology are included in appendix I. We did not validate the accuracy of the information provided by DOD on the numbers and costs of computer centers, the alternatives analyses, funding plans, and processing capacities. Our work was performed from March 1996 through January 1997 in accordance with generally accepted government auditing standards. The Department of Defense provided written comments on a draft of this report. These comments are presented and evaluated at the end of this letter and are reprinted along with our more detailed evaluation in appendix II. The Office of Management and Budget provided oral comments on a draft of this report which are incorporated in the report as appropriate and discussed at the end of this letter. The federal government owns hundreds of computer centers that perform such services as processing agency software programs, providing office automation and records management, and assisting in the management of wide area computer networks. In recent years, the federal government has recognized that most of these centers operate below optimum capacity, use outdated technology, and perform redundant services. It has concluded that it can achieve significant dollar savings and operational efficiencies by consolidating computer centers or by acquiring its information processing services from the private sector. In 1993, the Vice President’s National Performance Review recommended that the federal government take advantage of evolving technology and begin consolidating and modernizing its computer centers to reduce the duplication in information processing services and decrease information processing costs. To help implement this recommendation, a committee formed by the Council of Federal Data Center Directors recommended that the Office of Management and Budget establish operating capacity targets for the consolidated centers and that federal agencies follow an approach successfully used by private-sector companies and other government agencies to plan, implement, and optimize their own computer centers. The Committee’s recommendations formed the basis of OMB guidance to promote computer center improvements and consolidations, which was issued in October 1995. This guidance, OMB Bulletin 96-02, Consolidation of Agency Data Centers, called on agencies to (1) reduce the number of their computer centers, (2) collocate small and mid-tier computer platforms in larger computer centers, (3) modernize their remaining centers in order to improve the delivery of services, and (4) outsource information processing services to other federal or commercial computer centers when aggregate computer center capacities were below minimum target sizes. Table 1 lists OMB’s specific requirements. OMB allowed agencies considerable discretion as to which data centers they chose to retain and close so long as their consolidation scenario was cost-effective and minimal data center target sizes were met. The target sizes OMB set were based on a standard industry measure for information processing: millions of instructions per second, or MIPS. OMB asked that centers using IBM mainframe computers operate at 325 MIPS and centers using UNISYS operating systems operate at 225 MIPS. Further, OMB permitted agencies to justify not consolidating centers that fell below the target size if a particular center had a staff of less than five full-time employees, housed scientific processors and would otherwise be at least 90 percent of the minimal target size, or housed a large number of small and mid-tier processors and would otherwise be at least 90 percent of the minimal target size. OMB’s guidance is in keeping with recent congressional initiatives that focus on strengthening the planning and management of information technology efforts. In implementing the Paperwork Reduction Act and the Clinger-Cohen Act, OMB requires that information technology investments support core/priority mission functions and that they be undertaken by the requesting agency because no alternative private-sector or governmental source can efficiently support the function. These laws and OMB guidance also require agencies to establish an enterprisewide investment approach to information technology that includes selecting, controlling, and evaluating investments as part of an integrated set of management practices designed to link investments to organizational goals and objectives. Further, the National Defense Authorization Act for Fiscal Year 1997 requires the Secretary of Defense to report the Department’s plan for establishing an integrated framework for management of information resources within the Department by March 1, 1997. OMB’s guidance is also in keeping with the approach private-sector companies have taken in successfully consolidating and modernizing their own computer processing centers. We analyzed successful consolidation and modernization efforts carried out by three corporations and learned that they believed it was necessary to implement their strategies from a corporatewide perspective, rather than have separate components of their companies consolidate and modernize their own centers. These companies also ensured that from the outset of their consolidation efforts, they had clear and consistent policies and procedures governing how computer center services would be improved. This guidance spelled out such things as what constitutes an optimum computing center in terms of capacity and staff, what skills were needed to operate the centers, what cost and performance goals were relevant for the centers, and which services could be outsourced. In setting capacity goals, the private-sector companies we visited also generally attempt to reach targets that are substantially higher than the ones set by OMB—from 1,000 to 3,500 MIPS. In addition, we learned that private-sector companies we visited during this review established strong oversight processes for ensuring that their computer center decisions were based on accurate, complete, and current information on cost, schedules, benefits, and risks; that all valid options for their computer center services were fully addressed; and that their current services were correctly benchmarked against comparable services. In 1996, Defense reported to OMB that it owned 155 computer centers that perform a variety of information processing related services for the services and components. Among other things, the centers run software programs developed by the military services and various Defense components and provide information security services, customer help desk services, and records management services. Sixteen of these centers are central processing facilities known as megacenters and are owned by DISA. The remaining 139 centers are service- or component-unique centers. DOD also reported that it was continuing to further optimize and standardize its computer centers operations as part of departmentwide and intra-agency consolidations that had started in 1990 and continue today. Defense has recognized that these computer centers have been operating inefficiently and that they need to adopt new technologies and address the increasing loss of in-house technical expertise in order to continue supporting the Department’s large and complex information infrastructure. We agree with DOD that there are still many opportunities for savings. In fact, table 2 shows that many of these reported centers operate below the minimum processing capacity targets established by OMB for government-owned computer centers and thus are good candidates for consolidation or outsourcing. As table 2 indicates, 62 of DOD’s 155 computer centers—about 40 percent—met OMB criteria for possible consolidation based on processing capacity targets. However, we believe that these numbers could be higher. As indicated in the table notes, many small or mid-tier centers were not considered as candidates for consolidation. According to OMB officials responsible for implementing the Bulletin, these centers should have been included unless otherwise exempted. Further, private-sector and government-sector studies have found that larger facilities allow organizations to economize on floor space, staff, and operating expenditures, and smaller centers tend to be cost-inefficient. Before OMB issued its computer center Bulletin 96-02, DOD had determined, based on industry practices, that consolidation would ’’position DOD to more effectively support common data processing requirements across services by leveraging information technology and resource investments to meet multiple needs.’’ Since 1990, the Department has initiated and completed multiple intra-agency consolidations. In 1993, the megacenters were established as a result of (1) DOD’s base closures and (2) other consolidation and cost reduction efforts. In establishing these centers, DOD expected to change its information processing environment from one that was stovepiped, or confined to individual military services and components, to one that supported information sharing DOD-wide. Accordingly, since 1990, DOD consolidated its computer center operations by moving the workload and equipment from 194 DOD computer centers into 16 DISA megacenters by fiscal year 1996, reporting a reduction in processing costs of over $500 million. After these consolidations, DOD initiated several studies that looked into the question of whether the remaining megacenters should be further consolidated, modernized, or outsourced. One study—done by the Defense Science Board on the question of outsourcing DOD functions in general—reported in August 1996 that processing at computer centers was more expensive than at private-sector computer centers and it recommended that DOD computer center services be outsourced. A second study—done by a private contractor on the question of outsourcing, modernizing, and consolidating DISA’s megacenters for the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence (C3I) in 1996—concluded that further consolidation and outsourcing of megacenter operations was feasible. The contractor reported that the megacenters’ life cycle (10 years) cost could be cut by more than a billion dollars if the megacenters were consolidated to 6 from 16 and if certain computer center services—such as the customer help desk and those services associated with day-to-day operation of the centers—were fully outsourced. The Undersecretary of Defense, Comptroller, was also directed to submit a report on the feasibility of outsourcing DOD’s megacenters to the House Appropriations Committee by January 1, 1996. In this report, which was submitted to the Congress on December 26, 1996, the Comptroller largely agreed with the recommendations made by the contractor study described above and supported DISA’s proposed management plan to implement those recommendations. Some of our concerns with this plan, which is DISA’s consolidation strategy, are discussed in more detail in the next section of this report. In addition, as noted in the beginning of this report, we will be reporting separately on our detailed review of DISA’s plans. While DOD and its components have made progress in consolidating and finding opportunities to optimize and outsource many of the functions of its computer center operations, DOD is still missing opportunities to achieve even greater savings under its current approach. The Defense leadership has chosen to allow the individual military services and components to carry out their computer center consolidation and modernization efforts independent of any departmentwide framework. In fact, the Assistant Secretary of Defense for C3I, as part of his guidance when forwarding the OMB Bulletin, stated “that each Service and Defense Agency has the flexibility to reduce its data centers in a manner that is consistent with the DOD Component’s goals, management philosophy, and environment as long as such reductions occur within the framework of the OMB guidelines.” This decision has resulted in inconsistent and contradictory strategies which fall short of meeting OMB’s requirements and what we believe to be the intent of OMB’s Bulletin. We also learned that some of the inconsistency and incompleteness of reported plans and strategies was caused, in part, by DOD’s broad and inconsistent interpretations of the OMB Bulletin. Appendix IV provides a detailed analysis of how the military services and components responded to OMB’s Bulletin. The following discussion highlights our findings. As shown in the two tables that follow, the computer center consolidation plans of the individual military services and components submitted to OMB to date vary widely. For example, the Air Force, the Army, three Navy commands, and three Defense components plan to further consolidate in-house, while other parts of the Army and Navy, as well as the Defense Investigative Service, are choosing to keep their computer center operations in-house without further consolidation. Many of the strategies reflect a move toward mid-tier solutions without considering the potential for consolidation. Only the National Imagery and Mapping Agency and parts of the Navy chose to outsource (to DISA) their center operations. Further, just two services—the Air Force and the Army—considered inter-service consolidation of their respective computer centers within the Pentagon, and this action was already underway prior to the OMB Bulletin. Table 3 describes the approaches the services and components have decided on. Table 4 compares the strategies. We found that some of these strategies had contradictions that might well have been prevented had Defense better coordinated its computer center efforts. For example, as table 3 notes, the Department’s primary information processing service provider, DISA, intends to modernize and consolidate its megacenters and begin to offer mid-tier processing services to attract additional business from the services and components. DISA believes that significant reductions in the cost of operations could be achieved and that much of DOD’s computer processing is well suited for consolidation to DISA’s computer center operations. However, it is clear from the strategies described above that most of the services and agencies are not considering sending additional business to DISA, and DISA has no authority to require the services and components to make such transfers. The Army, the Air Force, and the Defense Logistics Agency, for example, do not plan to increase their use of DISA services. Together, about $385,000 of the reported $915,500 spent on computer center operations is outside of DISA. Most of the consolidation strategies submitted by the military services and components to OMB failed to fully address all of the planning elements addressed in the Bulletin. For example, some services and components did not provide sufficient information to show that they had (1) performed thorough analyses of their planned options, (2) demonstrated that they had ensured that they have the correct technical solutions to their computer center operations, (3) prepared even a high-level implementation approach to the major tasks associated with consolidation, or (4) provided estimates on how much it will cost to consolidate and modernize. Therefore, DOD and OMB do not have assurance that the services and components are addressing these critical planning elements in carrying out their strategies or that the approaches they have chosen are sound. Table 5 summarizes how the individual services and components responded to the OMB Bulletin. (“N” meaning they didn’t respond, “Y” meaning they did respond, “P” meaning they partially responded, and “N/A” meaning not applicable.) The table illustrates that the Defense Intelligence Agency, Defense Investigative Service, and Defense Special Weapons Agency were the only DOD components in compliance with all of the OMB requirements. The Army was the only other component to have submitted a complete alternatives analysis for its computer centers. The table also shows that the Air Force, DISA, the Defense Commissary Agency, and the Defense Logistics Agency either partially addressed or did not address the requirements. As noted earlier, a more detailed analysis of the responses is provided in appendix IV. As reflected in table 5, we determined that the DOD submissions did not always comply with the OMB requirements. When we discussed this with DOD officials, they said that their submissions did not always describe their consolidation plans for their non-mainframe computer centers because some of the components believed that the guidance only applied to mainframes and others believed that the guidance did not apply to actions already underway and approved through DOD’s life cycle management process. These officials had interpreted the Bulletin as requiring that non-mainframe computer centers be included in the inventory but not in the consolidation strategies, unless they affected the center’s meeting the minimum target size. When we discussed this with OMB officials, they disagreed with DOD’s interpretation. They stated that the Department’s non-mainframe centers also should have been addressed in both the inventories and the consolidation strategies. We also asked OMB officials why they required submissions from each of the military departments and one from DOD. OMB officials told us that they required four separate submissions based on their interpretation of the Paperwork Reduction Act of 1995, which defined DOD as the Department of Defense and the three services. However, they further stated they would have preferred to receive from DOD a departmentwide inventory, consolidation strategy, and implementation plan that clearly reflected a departmentwide analysis and direction for DOD decisions on computer centers. We believe such a departmentwide approach is consistent with the intent of the Bulletin and the Clinger-Cohen Act to ensure that opportunities to consolidate centers among services and components were maximized. Instead, these officials stated that OMB received separate and conflicting responses that failed to provide a clear view of consolidation across components. OMB officials further stated they had difficulty determining how many centers DOD currently had and planned to have after the consolidations. When we discussed the multiple submissions from DOD with Defense officials, the Assistant Secretary of Defense for C3I acknowledged that the military services and DOD components had developed individual plans. However, he believed that separate plans were allowed by the OMB Bulletin and that OMB did not request a departmentwide strategy or plans. However, the Assistant Secretary agreed that the Department needs a departmentwide policy guidance and framework as DOD seeks additional opportunities for economies and efficiencies in its data center operations. The Assistant Secretary also agrees that future decisions should be based on sound business analyses and that the Clinger-Cohen Act provides a context and leverage for these guidelines. Although DOD has been consolidating its computer centers since 1990, we found, and the Assistant Secretary of Defense for C3I agreed, that DOD lacks several decision-making tools that are imperative to any computer consolidation and modernization effort. First, it has not set targets or established policy for basic things, such as how many computer centers the Department actually needs, the numbers and skill mix of staff that are required to operate the centers, and what constitutes an optimum computer center. It also has no mechanism for ensuring that the best money-saving opportunities have been considered by the individual services and components or that consolidation efforts will conform to federal requirements or even the needs of the Department as a whole. As discussed earlier in this report, private companies we visited during our review found that setting such targets—through policies and procedures—and oversight mechanisms were key to the success of their consolidation efforts. Without them, DOD will have difficulty identifying problematic strategies and preventing some of its computer center investments from being wasteful. The private companies we visited during our review found it necessary to direct their computer center consolidation efforts from a corporatewide perspective and to clearly delineate the makeup and number of centers that the companies were aiming for. More specifically, these companies established policies that defined what constituted an optimum computer center in terms of processing capacity and the numbers and skill mix of its staff; how many centers the corporation needed; what computer center functions were so critical to carrying out the company’s mission that they could not be outsourced; what cost and performance goals were relevant for the centers; and how the centers should be compared, or benchmarked, to more successful operations. They also established corporatewide procedures for implementing these policies. During our review, we also learned that DOD visited private companies, including the ones we visited. DOD officials benchmarked this industry experience to determine how best to prepare, justify, and implement prior departmentwide efforts to consolidate and standardize computer centers from 1990 to 1994. For example, DOD learned examples of private-sector criteria that could be used to select megacenters and the level of processing capacity and expandable floor space these centers should have. However, it did not use the lessons learned from these visits to prepare departmentwide policies and procedures. As a result, individual services and components do not have a consistent basis for determining what constitutes an optimum center; what their performance or staffing targets should be; or which functions are inherently governmental or can be outsourced. For example, these services and components do not have departmentwide targets that they can set as goals for the processing capacities of their mainframe or mid-tier centers. In a March 1996 report on DOD’s acquisition of computer centers, DOD’s inspector general specifically noted that Defense lacked complete “policies and procedures on acquiring and managing the proper mix of mainframe and mid-tier computers to process corporate data” and that without such policies and procedures—especially those for mid-tier processors—DOD’s potential for acquiring excess computer processing capabilities increases. The Inspector General also noted that if DOD would coordinate its processing needs it could, among other things, (1) take advantage of the open systems infrastructure concept to resolve operational problems, (2) better track and report information management costs on a DOD-wide basis, (3) better manage the transition from existing outdated systems to migration systems, and (4) improve management of computer security. DOD agreed with the Office of the Inspector General that it should establish procedures for evaluating and providing corporate information processing and storage requirements on a DOD-wide basis rather than on an individual program basis. However, DOD noted that it should proceed with care in implementing this recommendation because of its implications for centralized management and control. According to officials in the office of the Assistant Secretary for C3I, DOD plans to determine if, and to what extent, it has a mid-tier computing problem before issuing policies and procedures to address that problem. Under the Paperwork Reduction Act of 1995 and the Clinger-Cohen Act, passed in 1996, the Assistant Secretary of Defense for Command, Control, Communications and Intelligence, as DOD’s Chief Information Officer (CIO), is supposed to develop and implement management policy and procedures to ensure that major information technology related efforts conform to departmentwide goals. In a memorandum dated November 6, 1995, the Assistant Secretary expressed an intent to monitor the consolidation initiatives to (1) ensure consistent interpretation and implementation of OMB Bulletin 96-02 across the Department, (2) ensure that consolidation efforts are consistent with the DISA plans, and (3) identify issues and develop strategies for resolving them quickly. Accordingly, the Assistant Secretary set up an advisory group to provide policy guidance for the Department’s efforts to consolidate and outsource computer center operations. However, this group has not yet prepared this critical guidance nor has it been effective in achieving its stated monitoring objectives. Under the Clinger-Cohen Act, the Secretary of Defense, with the advice and assistance of the CIO, is responsible for establishing a mechanism for ensuring that the military services and components have considered the best investment options and consolidation efforts that will meet the needs of the Department as a whole. In its guidance to agencies on evaluating information technology investments, OMB suggests that such a mechanism take the form of an investment review board, or senior management team, that would review information technology funding decisions. In their decision-making process, the team would consider such things as strategic improvements versus maintenance of current operations, new projects versus ongoing projects, risks, opportunity costs, and budget constraints. The Assistant Secretary C3I also charged the advisory group discussed above with the responsibility for providing oversight for computer center consolidation efforts. Yet, to date, neither the advisory group nor any other DOD component has provided this oversight. The Assistant Secretary C3I believes that his authority as DOD’s chief information officer for providing such oversight has been strengthened by the Clinger-Cohen Act. However, he also believes that his office lacks the staff and departmentwide support to establish such oversight. Without this important oversight mechanism, DOD does not have a means for assessing whether the individual services and components considered the cost-effectiveness and technical feasibility of their computer center alternatives from a departmentwide perspective and whether their implementation approaches, schedules, and funding plans are realistic. This also precludes Defense from having an opportunity to review the consistency of the individual plans and identify and recommend areas where even more monetary and efficiency gains could be achieved through inter-service and component efforts. Without better coordination and oversight of computer center consolidation efforts, the best Defense can hope to achieve from its computer center consolidations is optimization at or below the component level. It will certainly miss out on the chance to ensure that the most investment worthy opportunities are identified and implemented, such as those that involve services and components merging their computer centers. Moreover, millions of dollars in computer center investments and operating expenses may well end up being wasted since individual components and services are planning without departmentwide information processing needs in mind and without the benefit of clearly defined organizationwide policies and procedures for the consolidation efforts and effective oversight mechanisms. Having centralized coordination for computer center optimization efforts and strong policies, procedures, and oversight were integral to the success of the corporations we visited in their efforts to consolidate computer centers. They should be for Defense as well. We recommend that the Secretary of Defense direct the Department’s Chief Information Officer to develop an integrated, departmentwide plan for improving the cost and operations of its computer centers. Until this plan is approved by the Secretary, we further recommend that the Secretary of Defense limit any capital investments in the Department computer centers to investments that meet critical technology needs to operate the DOD computer centers. The Department’s CIO should certify that these investments comply with departmentwide goals and technical standards. We also recommend that as a basis for this plan and for future decisions concerning consolidation, modernization, and outsourcing of computer centers, Defense’s Chief Information Officer develop policies and related procedures that address the following: (1) what constitutes an optimum computer center in terms of processing capacity and staff numbers and skills; (2) how many computer centers are needed; (3) which of its computer center operations are inherently governmental and/or require component-unique centers solutions and thus cannot be consolidated or outsourced; (4) how DOD should compare its computer center services with those of other public-sector and private-sector services in terms of cost, speed, productivity, and quality of outputs and outcomes; and (5) which cost and performance goals are relevant for comparing departmentwide alternatives. We also recommend that Defense’s Chief Information Officer establish or incorporate within its existing processes, as practical, the necessary oversight to ensure that the above recommended departmentwide plan and future computer center consolidation, modernization, and outsourcing decisions (1) are being developed in accordance with the above policies and procedures, (2) are based on a sound analysis of alternatives, and (3) consider the goals and needs of the entire department. Finally, we recommend that the Director of the Office of Management and Budget (1) clarify its Bulletin, particularly in regard to mid-tier consolidation criteria and its intent to have an integrated Department of Defense submission and (2) require the Department of Defense to replace its prior multiple submissions in response to this new guidance with an integrated departmentwide submission that contains a departmentwide inventory of computer centers, a departmentwide consolidation strategy, and a departmentwide implementation plan. The Department of Defense provided written comments on a draft of this report. OMB provided us with oral comments. DOD concurred with our recommedation on providing oversight over its computer center efforts and partially concurred with our recommendation to develop policies and procedures to guide computer center decisions. However, DOD did not concur with our recommendation to limit any capital investments in the Department’s computer centers until an integrated, departmentwide consolidation plan is prepared. Defense’s response to this report is summarized below, along with our evaluation. Appendix II contains Defense’s comments along with our more detailed evaluation. DOD agreed that it needs to develop a prudent framework for achieving potential savings through its future computer center consolidation, modernization, and outsourcing decisions. DOD added that it is developing such a framework as part of its effort to implement the Clinger-Cohen Act. DOD also questioned the need for an integrated consolidation and outsourcing plan since the Department has already consolidated many of its computer centers, with significant reported savings, without such a plan. However, during our review, DOD officials acknowledged that unlike prior consolidation efforts, DOD has allowed the components considerable flexibility in their current consolidation efforts, without strategic direction from the Department. Thus, we continue to believe that an integrated, departmentwide plan is needed to show that the Department’s computer center decisions reflect sound choices for meeting departmentwide processing needs and not just those of the individual components. In discussing our recommendation on developing policies and procedures for making consolidation and outsourcing decisions, DOD agreed that these are necessary. However, DOD believed that it should complete its development of an integrated management framework for implementing the Clinger-Cohen Act before developing the specific policies and procedures we recommended. We are encouraged by the Department’s effort to begin to develop a management framework for implementing the Clinger-Cohen Act, especially if it includes the policies and procedures we recommend in this report. The report detailing DOD’s plans for this framework was submitted to the Congress on March 14, 1997. Consequently, if DOD intends to include these policies and procedures in the framework, we believe it should limit making computer center decisions and investments to those that meet critical technology needs to operate the centers until the framework is finalized. In commenting orally on this report, OMB stated that it believed our report overemphasized the importance of consolidating mid-tier processors within the context of OMB Bulletin 96-02. We disagree; we continue to believe that the consolidation strategy needs to include mid-tier processors as they are a vital component of the services offered by the computer centers. We are sending copies of this report to the Ranking Minority Member of your Committee and the Chairmen and Ranking Minority Members of the House and Senate Committees on Appropriations, the Senate Committee on Governmental Affairs, the House and Senate Committees on the Budget, the Senate Committee on Armed Services, and the House Committee on Government Reform and Oversight. Also, we are sending copies to the Secretaries of Defense, the Army, the Navy, and the Air Force; the Department of Defense Chief Information Officer; the Director of the Defense Information Systems Agency; the Director of the Defense Logistics Agency; the Director of DISA’s Westhem Command; the Director of Office of Management and Budget; and other interested parties. Copies will be made available to others upon request. If you have any questions about this report, please call me at (202) 512-6240 or Mickey McDermott, Assistant Director, at (202) 512-6219. Other major contributors to this report are listed in appendix IV. To assess whether DOD has an effective framework in place for making and executing its computer center decisions, we interviewed staff and obtained documentation from the following federal activities: the Office of Management and Budget’s Office of Information Policy and Technology Branch, which has responsibility for overseeing agency implementation of OMB Bulletin 96-02; the General Service Administration’s Office of Governmentwide Policy and Federal Systems Management Center, which provided documentation on matters federal agencies should consider when making consolidation, optimization, or outsourcing decisions; the Office of the Assistant Secretary of Defense, Command, Control, Communications, and Intelligence, which is the office of DOD’s Chief Information Officer; various offices of the Defense Information Systems Agency, primarily in Arlington, Virginia; and Army, Navy, and Air Force staffs and offices in Arlington, Virginia, with responsibility for making decisions on consolidating, optimizing, or outsourcing their computer center operations. We also met with managers from corporations that had successfully consolidated, modernized, and outsourced their computer centers. We identified these corporations through discussions with private-sector consultants and Defense computer center officials. The corporations contacted were Boeing Computing Service, Belleview, Washington; Electronic Data Systems, Plano, Texas; and GTE Corporation, Fairfax, Virginia. Through these interviews and related documentation, we analyzed how these companies strategically direct and oversee their decisions on alternatives and how they determine the cost and measure the performance of their computer center operations. We also met with consultants who advise computer center managers on improving their services. The consultants contacted were the Center for Naval Analyses, Compass America, Inc., Coopers and Lybrand, and the Gartner Group. In these discussions, we identified best practices and important performance measures that they believe well managed computer centers should use to benchmark their performance with other computer centers. In addition, we interviewed senior officials at the Defense Science Board to discuss the Board’s high-level study done for DOD management on the outsourcing of select DOD activities, including its computer centers. Finally, we met with DOD officials in the Office of the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence to discuss their actions to implement a departmentwide decision-making framework for making computer center investment decisions. To assess the effectiveness of DOD’s framework, we compared the framework with best practices used by leading organizations and the Clinger-Cohen Act. Also, through this office, we obtained and analyzed DOD’s submissions to OMB in compliance with OMB Bulletin 96-02 to determine whether these submissions met OMB’s requirements and had been prepared to meet departmentwide information processing needs. We did not validate the accuracy of the numbers provided by DOD on its computer centers. Our work was performed from March 1996 through January 1997 in accordance with generally accepted government auditing standards. We performed our work primarily at the office of the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence and at DISA headquarters offices in Arlington, Virginia. The following are GAO’s comments on the Department of Defense’s letter dated March 10, 1997. 1.We acknowledge that DOD has reported significant savings through its prior consolidation efforts and have expanded the report to reflect the fact that DOD has consolidated 194 DOD computer centers into 16 DISA megacenters, at a reported reduction in processing costs of over $500 million. (See section entitled, DOD Recognizes Benefits of Further Consolidating, Modernizing and Outsourcing Computer Centers.) As appropriate, we also expanded the report to acknowledge DOD’s use of industry practices to help make these reductions. (See section entitled, DOD Lacks Critical Decision-making Tools for Consolidation Efforts.) 2.We agree that DOD needs to determine whether further economies and efficiencies are possible and, if so, what strategies should be employed to reap these savings. The recommendations to DOD and OMB contained in this report are intended to facilitate and guide these determinations. 3.The report fully describes the differing views of DOD and OMB officials for interpreting OMB Bulletin 96-02 in two broad areas: (1) DOD’s consolidation plans for its non-mainframe small and mid-tier computer centers and (2) the number of DOD plan submissions required by OMB. In the report, we pointed out that OMB officials did not agree with DOD’s interpretation that non-mainframe computer centers should only be included in their inventories but not their consolidation strategies. OMB’s position, which we support, is that non-mainframe centers should have been described in DOD’s inventories and consolidation strategies, as the purpose of OMB Bulletin 96-02 is to look for ways to consolidate all DOD’s computer centers, not just its mainframe computer centers. We made our recommendation that OMB clarify the Bulletin with regard to its mid-tier consolidation criteria in order to preclude any future confusion. We further recommended that OMB clarify in the Bulletin that while DOD has previously been permitted to provide separate submissions for the three services and for DOD, it should be required to provide a single, integrated submission for the entire Department. 4.We provided and discussed an earlier draft of this report with DOD officials and have incorporated their comments as appropriate to improve the accuracy of the report. The reference in DOD’s letter to our handling of the Army’s centers in table 2 refers to wording that was provided by the Army. However, note b to table 2 has been expanded to reflect Army’s views that some of its centers provide unique missions (for example, command and control, and National Guard). 5.We did not include DOD’s second enclosure in appendix II because it is an annotated copy of this report. This enclosure contained a few technical comments, which we have incorporated into the final report. This appendix provides information on the numbers of mainframes and mid-tier and small processors owned by the services and components. National Imagery and Mapping Agency The Defense Commissary Agency does not have any mainframes. The tables that follow summarize our analysis of the extent to which DOD services and components complied with the planning elements called for by OMB. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. DISA did not submit an alternatives analysis to OMB. However, during our review, we found that DISA had analyzed the costs and benefits associated with (1) outsourcing megacenter services and (2) consolidating 16 megacenters into 6 centers. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. Technical architecture submitted to OMB was not based on an approved alternative analysis, nor did it identify receiving and closing data centers. Architecture did not address workload realignment or communications architecture. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. No implementation approach submitted to OMB. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. No funding plan submitted to OMB. Exceptions that could not be included in the consolidation plan. No exceptions identified to OMB. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. The Air Force did not submit an alternatives analysis to OMB; however, it did describe plans to move towards a mid-tier architecture for some of its centers and to outsource those centers that cannot be moved to mid-tiers. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. The Air Force did not submit an architectural design to OMB, only individual computer center approaches to consolidation. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. A partial implementation approach was submitted to OMB in that schedules and milestones were provided. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. No funding plan submitted to OMB, although some data were provided on estimated savings from consolidation. Exceptions that could not be included in the consolidation plan. Exceptions were requested from OMB for the following reasons: 4 centers performed applications programming, 12 centers operated national security systems, 1 center met OMB’s exception criteria by having less than five full-time employees, and 2 centers were transitioning to the Air Force Working Capital Fund. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. Alternatives analyses were submitted to OMB for the computer centers Army considered candidates for consolidation or outsourcing: the separate Single Agency Manager computer centers operated by the Air Force and the Army and two Army personnel computer centers. Outsourcing to DISA and leasing were among the alternatives considered. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. Architectural designs were submitted for the Single Agency Manager and for the two personnel computer centers. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. A high-level implementation approach was submitted to OMB. Resources, but not schedules and milestones, were submitted for major consolidation tasks. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. A funding plan was not submitted, but Army plans to chargeback costs to customers. Exceptions that could not be included in the consolidation plan. Exceptions identified for areas such as National Guard, civil works, intelligence, command and control, research and development, and wargaming. Centers not analyzed for consolidation were reported as centers that support networks or systems in a “distributed environment.” Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. Each of 10 Navy commands reported a consolidation strategy for its centers that Navy believed met OMB’s criteria for consolidation. Two of these commands, the Bureau of Naval Personnel and the Naval Supply Systems Command, reported that DISA megacenters already processed their information. The Naval Air Systems Command and the Navy Facilities Engineering Command also described plans for DISA to process their information. Two other commands, the Naval Sea Systems Command and the Bureau of Medicine and Surgery, provided alternative analyses supporting their decision to continue to process their information in-house. The remaining four commands did not provide alternative analyses to OMB. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. Architectural designs were submitted but were not based on alternatives analyses for four commands. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. Completion dates were provided, but schedules of major consolidation tasks or resource needs were not provided. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. A funding plan was not provided to OMB, but Navy plans to fund its modernization efforts through its information technology budget. Exceptions that could not be included in the consolidation plan. Not applicable. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. The agency has decided to move to a client/server architecture. No consolidation strategy was submitted for this move. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. None submitted. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. None submitted. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. None submitted. Exceptions that could not be included in the consolidation plan. No exemptions requested. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. The agency reported that it met the OMB target MIPS for a minimum size computer center at both of its computer centers. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. See above. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. See above. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. See above. Exceptions that could not be included in the consolidation plan. See above. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. Not applicable. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. Not applicable. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. Not applicable. Exceptions that could not be included in the consolidation plan. Requested exemption because the Service’s computer center meets the minimum target size for computer centers. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. Alternatives analyses were submitted for 3 of the agency’s 12 computer centers, with selection of option to consolidate in-house operations. Two of the agency’s computer centers were exempt (see below) and another two were designated for BRAC. Alternative analyses were not submitted for the remaining 5 computer centers, which will support the agency’s planned Distribution Standard System. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. Not submitted for centers that will support the Distribution Standard System because the agency believed these requirements were not applicable to its overall strategy. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. Not submitted for centers that will support the Distribution Standard System because the agency believed these requirements were not applicable to its overall strategy. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. Not submitted for centers that will support the Distribution Standard System because the agency believed these requirements were not applicable to its overall strategy. Exceptions that could not be included in the consolidation plan. Two of the agency’s computer centers meet OMB’s target size for computer centers. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. Alternatives analyses were not submitted, but the agency plans to transition processing from remaining agency computer centers to DISA megacenters by the middle of fiscal year 1998. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. See above. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. Broad milestones for transition were provided, but no additional information. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. A funding plan was not provided to OMB. The agency plans to provide OMB with a funding plan if DISA can process its applications. Exceptions that could not be included in the consolidation plan. None requested. Alternatives analysis reflecting the technical feasibility and cost-effectiveness of alternatives—including outsourcing. Agency conducted an alternatives analysis to support the consolidation of its information processing in-house. Alternatives such as commercial outsourcing were not considered because of the agency’s command, mission, and security considerations. Architecture design, or technical solution, based on selected data center consolidation alternative, and identifying the receiving and closing data centers and workload realignment as well as the communications architecture. A complete architectural design was provided. High-level implementation approach identifying major consolidation tasks and presenting a schedule, milestones, and resources. A complete high-level response was provided. Funding plan identifying and forecasting costs associated with the consolidation process and funding requirements for all major tasks associated with the consolidation. A complete funding plan was provided. Exceptions that could not be included in the consolidation plan. None requested. Karl G. 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Summary: Pursuant to a congressional request, GAO reviewed: (1) the Department of Defense's (DOD) plans to consolidate, outsource, and modernize its computer center operations; and (2) whether DOD has an effective framework in place for making and executing these decisions. GAO did not validate the accuracy of the information provided by DOD on the numbers and costs of computer centers, the alternative analyses, funding plans, and processing capacities. GAO noted that: (1) DOD has recognized the need to continue reductions in the cost of its computer centers' operations through consolidation, modernization, and outsourcing, but it has not yet established an effective framework for making these decisions; (2) this framework would include departmentwide policies and procedures critical to the success of its efforts to improve computer centers; (3) these policies and procedures would establish targets for how many computer centers DOD actually needs, define how mainframes and mid-tier computer operations should be consolidated, and identify the numbers and skill mix of staff that are required to operate the centers, and what constitutes an optimum computer center; (4) DOD also has no mechanism for ensuring that the best money-saving opportunities have been considered by the individual services and components or that consolidation efforts will conform to federal requirements or even meet the needs of DOD as a whole; (5) as a result, DOD services and components have developed individual strategies for consolidating and modernizing their computer centers that are inconsistent and contradictory to DOD as a whole and may well cause DOD to waste millions of dollars in computer center expenditures; (6) in addition, the consolidation strategies of the military services and DOD components did not always fully address critical planning elements required by the Office of Management and Budget (OMB) requirements that could help reduce the risk of waste, including alternative analyses, high-level implementation plans, and funding plans; (7) further, GAO found that the OMB and departmental guidance, particularly addressing mid-tier computer centers, was unclear; (8) this resulted in inconsistent interpretation and reporting for these centers; (9) therefore, OMB and DOD do not have assurance that the computer consolidation strategies are sound; (10) without better management over the implementation of its computer center strategies, DOD at best will only achieve optimization at the component level and forgo optimization for DOD as a whole; and (11) moreover, DOD's chief information officer (CIO) is now required by the Paperwork Reduction Act of 1995, Clinger-Cohen Act of 1996, and the Fiscal Year 1997 DOD Authorization Act to develop and implement a plan for a management framework with policies and procedures as well as effective oversight mechanisms for ensuring that major technology related efforts, such as the computer center consolidations, conform to departmentwide goals.