IT modernization: Four ways to pay the tab

The drivers for modernizing federal IT systems are multiplying. From the escalation in citizen expectations to the incoming mandates from the legislative and executive branch, there is a real and emerging momentum. This is most evident in the recently enacted Modernizing Government Technology Act of 2017, which helps bridge the budget gaps that have stifled recent modernization efforts. The challenge now facing agency CIOs is that dedicated MGT funding is insufficient to fully address the decades of “technical debt” that has accumulated in federal systems, despite the heightened expectations prompted by the law’s passage.

Instead, CIOs must consider a range of financial strategies to address their modernization needs: the use of Working Capital Funds (WCF); shifting from capital expense (CapEx) to operating expense (OpEx); accelerating legacy system retirements and partnering with the mission or business to capture and share program cost savings. What’s also important to recognize is that all these approaches can be combined to develop an enterprise strategy focused on “continuous modernization” and driven by key operational priorities.

Put working capital funds to work

Two types of multi-year revolving funds are available through MGT: the central WCF and the self-funded WCF. The central WCF allows any federal agency to apply for funding, but it must be repaid within five years.

For fiscal years 2018-2019, the proposed overall funding is just under $500 million. However, just $100 million was appropriated for FY18; the administration is seeking $210 million for FY19. Sunset provisions limit most funding to this timeframe, making it critical for agencies to move fast to secure the dollars. Strong applications will address adopting agile or iterative software development; promoting the use of commercial cloud technology; enhancing cyber security; creating flexible, customer-centric service delivery at lower cost; and employing strong program management and procurement strategies. It’s also critical to use standardized technology business management-based metrics and reporting structures.

The self-funded WCF allows any of the 24 CFO Act agencies to use new or existing agency funds. Consider focusing these funds initially on quick-win projects that can deliver rapid payback and meaningful impact with minimal risk. This approach makes it possible for agencies to use limited funding across several modernization cycles within the funding window.

Capitalize on OpEx

While modernizing systems can reduce maintenance costs and deliver other performance advantages, it often requires significant upfront capital investments to upgrade. To avoid these requirements, agencies should consider shifting some systems to OpEx via managed services, shared services or Software-as-a-Service. By shifting from CapEx to OpEx, agencies can reduce ongoing costs (and make them more predictable) while also opening access to commercial platforms, which can help to address cyber-security risks.

Accenture Federal Services’ Federal IT Playbook shows that CIOs are already considering these changes. In a recent survey, 80 percent of 185 federal IT decision-makers agreed that the shift to cloud-based systems with OpEx budgeting, makes it affordable to migrate systems that had been too costly to move in the past.

Fast-track system retirements

Sometimes the most sensible strategy is to remove old systems. Outdated applications are often managed by specific line-item programs, with IT carrying the support and infrastructure costs. CIOs are often stuck maintaining the legacy technology, creating a disincentive to modernize because costs and benefits are not distributed equitably. CIOs can counter that dynamic by demonstrating the total and ongoing costs for orphan systems. Hard data about support costs provides motivation for programs to modernize. It also justifies higher chargeback fees for those choosing not to do so.

When migrating systems to the cloud, conventional wisdom calls for re-architecting them first to fully capitalize on native cloud capabilities. In some contrarian examples, though, it makes sense to simply “lift and shift.” This approach lets agencies retire legacy infrastructure faster—and then invest the cost savings in subsequent cloud optimization.

Share the work, share the rewards

Another way to fund modernization is to engage with program leaders to build a joint business case. The goal: to justify a modernization investment based on total financial impact.

Working together, IT and program leaders can uncover significant opportunities to redesign and improve business processes, including adopting automation. With the growing maturity of digital platforms, it’s easier than ever to jointly develop prototypes to demonstrate and validate proposed performance improvements. Better processes and more up-to-date systems can help reduce fraud, waste, abuse, cost to serve, supply chain and other program costs.

Between the imperative to migrate away from legacy systems and the need to shift toward more agile, service-based platforms, IT modernization has agency-wide implications. Federal CIOs that have lacked sufficient budgets can now take advantage of multiple funding models that are optimized for specific use cases to realize the financial flexibility needed to achieve their mission and modernization goals.