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 In recent years, the federal government has recognized that most of these centers operate below optimum capacity, use outdated technology, and perform redundant services.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.