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Gauging Project ROI

By Elana Varon

June 01, 2003 — CIO — In Iowa state government, as in most organizations, there was a time when few outside of the IT department gave technology much thought. If an agency needed money for an IT project, officials slipped it into the budget. If a legislator asked what the money was for, a good sales pitch would close the deal and a poor one might mean no funding at all.

But along came Y2K, and officials in Iowa government started to think about the $22.5 million needed to fix the bug, and how best to spend it. To ensure taxpayers got their money’s worth, Iowa’s Year 2000 Project Office audited agencies’ progress toward compliance and reviewed every expenditure before reimbursing them from a central fund. At the end of the project, an estimated $3 million was still left, unspent, in the Y2K fund. Meanwhile, state leaders decided to examine the value they were getting from other IT expenditures. "I was a legislator for six years, and we had no clue," says Gov. Tom Vilsack, a Democrat who was first elected in 1998.

And so the idea for the Iowa Return on Investment Program was born. Today, three years after it was launched, the program has become a national model for documenting value and prioritizing IT investments in the public sector. Last year, the National Association of State Chief Information Officers named the program the winner in its competition for the best state IT management initiative. The Iowa program helps state leaders identify the most pressing new IT investments at a time when competition for funds is fierce. In addition, it has saved taxpayers more than $5 million since its inception by enabling officials to combine duplicative projects and flag unnecessary expenditures.

Value Model

As one of his early initiatives, Vilsack, now in his second term, began promoting performance-based government, an approach to public sector management that focuses on measuring the results of government programs. He realized that the principles used to validate the Y2K expenditures could be applied to any IT project. "I think [Vilsack] saw there was a lot of value in independently verifying and validating," says Paul Carlson, director of the IT department’s Enterprise Quality Assurance Office, which is in charge of the ROI Program.

When Carlson and then-CIO Richard Varn devised the new IT value methodology in 1999 using various ROI research sources, they incorporated the two main features of Y2K management. First, new investments are paid for primarily from a pot of money called the Pooled Technology Account, which is appropriated by the legislature and controlled by the IT department. Pooling the funds makes budget oversight easier and fights duplication. Second, the IT department reimburses agencies for expenses from this fund only after verifying that they’re necessary. If an agency’s expenditures aren’t in line with the project schedule, it’s a red flag for auditors that the project could be in trouble. The Enterprise Quality Assurance Office will consider conducting post-implementation audits next year. But Carlson says the details concerning how projects are chosen for audits and how those audits will be conducted are up in the air, pending decisions by John Gillispie, the executive director of the Iowa Communications Network, who is expected to manage the IT department after a proposed agency reorganization is complete.

 

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