Exclusive: OMB to propose major changes to financial management systems

Wednesday - 6/9/2010, 5:22pm EDT

WFED's Jason Miller on DorobekInsider

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By Jason Miller
Executive Editor
Federal News Radio

The Office of Management and Budget is considering major changes to the way agencies develop and implement financial management systems.

In a draft memo obtained by Federal News Radio, OMB director Peter Orszag would halt all new financial management system modernization projects worth at least $10 million, and all existing task orders for ongoing development efforts worth more than $500,000. Existing contracts, however, would not be affected by the freeze, unless the agency is awarding a new task order under a current deal.

The draft memo calls for OMB to approve agency implementation plans. Additionally, OMB would use the apportionment process to give agencies money each quarter to pay for the next phase of the system development instead of letting an agency have the entire amount at once.

"[T] his memorandum initiates a re-examination of these expensive and lengthy investments in financial management solutions in favor of shorter-term, lower-cost, and easier-to-manage solutions," Orszag writes in the draft memo. "By dividing projects into smaller segments that deliver the most critical functionality more quickly, federal agencies will achieve greater functionality sooner, better align projects to their organization's capacity to manage change and reduce risk and cost. This memorandum also delineates related policy changes that will reduce project complexity by encouraging shared services where cost effective, initiating a performance-based approach for compliance with financial system requirements and streamlining the process for certifying financial management software."

This memo would be the latest step in how the administration is reshaping federal financial management

In March, OMB announced it was shutting down the Financial Systems Integration Office, and less than a month later announced a new Office of Financial Innovation and Transformation, (OFIT) in the Treasury Department.

OMB also is pushing agencies to use governmentwide systems for intragovernmental transactions and to process vendor invoices.

An OMB spokeswoman says OMB doesn't comment on draft policy.

In the draft memo, OMB would require agencies to break projects into segments that last no longer than 90 days, and the entire project should go on for no more than 24 months. Agencies should focus on their most critical needs first in this segmented approach, the memo states.

"I view the memo as the first step in the beginning of a reframing of the approach to procurement of federal financial management systems," says Ira Goldstein, a former chief operating officer at the Government Accountability Office, and now director at Deloitte Consulting. "The draft puts a stake in the sand at a particular point and says we are moving toward more bite-sized incremental approaches to financial management systems. We will focus more on short term functionality and less on long term global enterprise transformation."

Agencies must submit to OMB 60 days after the memo is finalized revised project plans to outline strategies for reducing costs, shortening the timeline and reduce risks.

"Proven best practices in this area include identifying up-front a series of milestones, warning flags, and stop points over the course of the segment lifecycle in which, if deemed necessary, the project will be suspended and returned to planning," the memo states. "Additionally, clear deliverables are monitored closely and any delays in deliverables automatically results in a more in-depth review of a project. Finally, mechanisms for review of project status by senior management are built into a project plan. Revised agency projects plans should integrate these best practices into their oversight processes."

David Lucas, chief strategy officer at GCE Federal, a financial management services provider, says the short time frames OMB seems to want to hold agencies to is promoting the use of commercial systems.

"There is no doubt there have been a lot of failures for many years in this space and the failures come from several different pieces of a program, more often than not, it's in this business model where agencies and vendors are trying to configure things from scratch," he says. "One of the things you will see as it becomes more and more support for a pre-built solution and service providers to emerge, you will see less and less problems with this part of the implementation, getting the software up and running."

OMB then would approve those revised agency plans within 30 days after submission. The memo also would call for OMB and a new Financial Systems Advisory Board--made up of the agency chief financial officers and chief information officers--to review projects and make recommendations to OMB.