IT Savings Could Help Narrow Federal Deficit

The meat-cleaver approach to reducing costs in business or government always has the virtue of at least being simple to apply — although frequently painful in the execution.

For the U.S. government, an across-the-board cut of roughly 9 percent in discretionary civilian and defense outlays is, in fact, the default scenario of the sequestration requirement that would come into play if Congress and the White House fail to reach a budget agreement before Jan. 1, 2013.

The numbers are staggering. The sequestration mechanism of the Budget Control Act of 2011 envisions something over US$1.2 trillion in government-wide cuts over the next 10 years.

Whether or not political leaders find a less radical way to address budget cuts, the prudent use of information technology could make a big contribution to reducing the cost of operating the federal government according to the American Council for Technology-Industry Advisory Council. In its 2012 quadrennial government technology review, released in mid-November, ACT-IAC contends that the federal deficit could be reduced by $220 billion per year through the productive use of IT by government agencies in pursuing their missions.

Technology Yields Operational Savings

“Today’s government leaders face unprecedented challenges from the climbing deficit to declining job growth to rising health care costs,” said Molly O’Neill, vice president of CGI, and a member of the ACT-IAC study committee. “In this time of diminishing resources, government must undergo a transformation through the strategic use of technology to meet today’s mission challenges of increased scale and complexity. As the committee addressed each challenge, it became clear that strong leadership — armed with the right technology tools — can begin to provide solutions,” she said.

The report focused on three areas that could generate substantial savings in the cost of operating government programs:

  • Information management: The accelerated use of data analytic solutions to maintain fiscal responsibility and identify areas of operational improvements could yield savings of $70 billion per year in the federal health sector alone.
  • Business approach to IT: Government investments in IT and business process innovation and other commercial best practices for increasing productivity could potentially generate annual savings of $100 billion per year in federal outlays.
  • Plugging leaks: Government coffers leak billions per year through waste, fraud, and abuse, including uncollected taxes and the erroneous distribution of income support payments. Plugging these holes could save $50 billion per year.

Some examples of the productive use of IT cited in the report include more efficient claims processing by the Department of Veterans Affairs, the use of electronic health records in Medicare to reduce the cost of redundant testing, and improvements in national security through data sharing between the U.S. Department of Homeland Security and the Justice Department.

The contributions of IT to government efficiency, of course, can only occur with continued and significant levels of investment. Currently the federal government spends roughly $80-billion annually on information technology products and services to support its missions and programs out of a total federal budget of $3.5 trillion. Spending for IT “represents less than three-percent of the total outlays at a time when the private sector leverages IT investments and process innovation to drive down business costs,” the report said.

Cuts Have Consequences

Despite the potential value of IT, forecasts for future federal IT spending show cuts in the range of two or three percent per year. The ACT-IAC report did not criticize any retreat on IT spending, nor did it advocate a specific funding level, but it clearly portrayed the consequences of insufficient IT investment.

“Based on the interviews ACT-IAC representatives had with several government officials, we believe that there are savings and efficiencies that information technology can bring to many agency programs,” Sara DeCarlo, Director of the ACT-IAC Institute for Innovation, told the E-Commerce Times. “In many cases this may require an investment in information technology today to yield anticipated future benefits. It is not the dollar figure spent on technology that is the issue — rather it is the application of technology to drive more efficient and effective program delivery,” she said.

A major point of the report is that government agencies need to better relate IT spending to overall agency goals — what it calls “leveraging” — and not simply buy IT equipment or services on an as-needed basis. “We favor the strategic spending of IT outlays to drive agency mission. The question is not so much about the specific percentage of total outlays, as it is about the alignment of spending with the mission,” DeCarlo said.

The ACT-IAC report noted a few examples of agencies taking a more strategic approach to IT, but clearly indicates that a much better management effort will be needed to even approach the potential $220 billion in operational savings from productively using IT.

Pressure on cutting government IT costs can lead to tactical thinking about the use of technology instead of a strategic approach, the report noted. For example, the massive federal inventory of legacy systems has important implications. The cost and resources dedicated to maintaining them inhibit the government from taking full advantage of new technologies and innovative processes in critical areas such as healthcare and revenue collection. IT investment, technical innovation and improved process adoption can generate huge reductions in the federal deficit, the report said.

Agency Performance Critical

In tight economic times, however, agencies will have to demonstrate productive use of IT to merit continued investments. For the last two years the Obama Administration has implemented a program that is beginning to pay off in reducing the cost of operating IT systems, such as reducing data centers and moving email systems to the cloud, according to Sen. Tom Carper, D-Del., who monitors government IT performance through the Senate subcommittee on Federal Financial Management. Carper agrees, however, that leveraging information technology remains a major challenge.

“Thanks to the President’s leadership, we are now on a path to cut what we can’t afford and nurture an environment in which innovative and more cost-effective technologies are being deployed throughout government. But there’s still more work to do,” Carper told the E-Commerce Times. “The administration cannot do this alone, which is why Congress is partnering with agency CIOs to see that the government is able to get better results for less money with its IT investments,” he said.

Carper cited a recent report from the General Accountability Office which indicated that federal agencies, in general, are not fully implementing administration requirements to properly assess the performance of IT assets. “You can’t manage what you can’t measure, and information technology investments are no exception,” he said.

“I will continue to focus on federal agencies’ progress in reforming our nation’s information technology infrastructure. One of the things I’ve tried to do through the work of the subcommittee is to change the culture in our government so that we’re doing things across the board more cost-effectively,” Carper said.

John K. Higgins is a career business writer, with broad experience for a major publisher in a wide range of topics including energy, finance, environment and government policy. In his current freelance role, he reports mainly on government information technology issues for ECT News Network.

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