FI$Cal it Project Update—Special Project Report 8

FI$Cal IT Project Update— Special Project Report 8 GABRIEL PETEK LEGISLATIVE ANALYST January 8, 2020 analysis full gutter AN LAO REPORT LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT Executive Summary The Administration Has Been Developing an Integrated Financial Management System for the State Since 2005. For almost 15 years, the administration has been engaged in the design, development, and implementation of the Financial Information System for California (FI$Cal) project. This information technology (IT) project is being developed to replace the state’s aging and decentralized IT financial systems with a new system—FI$Cal—that integrates the state’s accounting, budgeting, cash management, and procurement processes. Over time, the cost, schedule, and scope of the project all have changed significantly. These changes have been documented in special project reports (SPRs). The FI$Cal project currently is operating under its eighth SPR. The Administration Recently Made Significant Changes to the FI$Cal Project’s Schedule, Scope, and Cost. The eighth SPR approved by the administration delays the project deadline by one year (to July 2020). In addition, it removes some activities and functions from the project’s scope (to be finished later, after the project is deemed “complete”), while at the same time increasing project cost by $150 million. The administration has created a new arbitrary end date for the project, while proposing to continue additional work related to the project after its completion date. This muddles the determination as to when the project will actually be fully finished. We find the revised project schedule risky and the planned list of remaining activities and functions until project completion (as redefined) to fall short. As a consequence, the project— once “completed”—will not deliver what the Legislature expected when it authorized FI$Cal, and the Legislature will receive budget requests in future fiscal years to finish work that was originally within the project scope. Changes Set Poor Precedent for Future IT Projects, and Impede and Complicate Legislative Oversight. Deeming a project complete as done under SPR 8 is inconsistent with current state IT policy. Specifically, SPR 8 ends the project before all planned functions of the FI$Cal system are implemented. This definition of project completion also is inconsistent with the agile approach—which relies on feedback from users to guide the future development of the system—completing the project before fully incorporating user feedback for some components. Legislative oversight—and that of other state entities tasked with oversight of IT projects—is complicated when project completion and measures of success are defined inconsistently across projects. In addition, current oversight processes are focused on the time up to a project’s completion, so a deemed completion prior to the actual completion of all planned activities and functions related to a project impedes oversight. Finally, legislative oversight is further limited when the administration submits budget requests for IT projects without first approving the latest project plan, as it did with SPR 8 for FI$Cal. Recommendations to Enhance Legislative Oversight. Based on our findings related to SPR 8, we recommend the Legislature: (1) consider adopting statutory language defining IT project completion and success for the FI$Cal project; (2) consider adopting statutory language that continues current oversight practices into the operations and maintenance (post-completion) stage of the FI$Cal project, should project completion continue to be defined as under SPR 8; www.lao.ca.gov 1 analysis full gutter AN LAO REPORT and, (3) consider as a future practice adopting budget bill language that conditions the release of IT project funding (in the case of FI$Cal and IT projects more generally) on the California Department of Technology’s approval of the latest SPR and 30-day notification being given to the Legislature that includes the total cost and schedule of the project from the project approval document. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT BACKGROUND FI$Cal Project. The administration started FI$Cal. A project governance plan also guides the the design, development, and implementation of relationships between the partners. the Financial Information System for California Department of FI$Cal Operates and Maintains (FI$Cal) project in 2005 with the goal of replacing the System. In 2016, state law established a the state government’s aging and decentralized Department of FI$Cal to maintain and operate the financial information technology (IT) systems IT system and support its users. The department with a new IT system—FI$Cal. FI$Cal will will assume full responsibility for the system integrate the state’s accounting, budgeting, cash once the project is complete. The department’s management, and procurement processes into operating budget in 2019-20 (which includes some a single system, eliminating the need for over project costs) is approximately $113 million total 2,500 department-specific applications. FI$Cal funds ($69 million General Fund) and includes also will automate manual processes, improve 244 permanent positions. tracking of statewide expenditures, provide greater CDT Approves and Oversees IT Projects, transparency into the state’s financial data and Including FI$Cal. The California Department of management, and standardize state financial Technology (CDT) is responsible for reviewing and practices. With the exception of a small number of approving IT project proposals submitted by state departments that are deferred or exempted from departments. Once CDT approves a department’s the project, the vast majority of state departments proposal (and it becomes a “project”), CDT’s role will manage their finances through FI$Cal. FI$Cal is to provide project oversight. (Once an IT project is one of the largest IT projects undertaken by is complete, it becomes an operating IT “system” the state—with a currently estimated cost of and is maintained by the department operating it.) $1.1 billion total funds ($583 million General Fund). Specifically, CDT provides an independent review of As shown in Figure 1 (see next page), FI$Cal has the project to determine if it will achieve its scope significantly evolved since 2005 with, to date, on time and within budget. As part of this review, eight major revised project plans (known as special CDT routinely reports to departments on areas of project reports [SPRs]) that each significantly concern it identifies with the project, shares lessons changed the project’s cost, schedule, and scope. learned from other projects with departments, and (When it began in 2005, FI$Cal was a much smaller recommends to them ways to reduce project risk project estimated to be completed by 2011.) (For a and resolve known issues. more comprehensive history of the FI$Cal project, Over time, however, a project may change its please see our March 10, 2016 report—The scope or deviate from the schedule and/or cost 2016-17 Budget: Evaluating FI$Cal.) approved by CDT. Any significant changes to a Four Control Agencies Manage Project. The project are documented and justified in SPRs. FI$Cal project is managed by a partnership of Departments develop a revised project plan and four control agencies—the Department of Finance submit it to CDT (as an SPR) for its review and (DOF), the Department of General Services, the approval. Once CDT approves a department’s SPR, State Controller’s Office (SCO), and the State the SPR constitutes a new agreement between Treasurer’s Office (STO). Each of the partner CDT and the department on the project’s cost, agencies has unique constitutional and/or statutory schedule, and scope. In some cases, projects responsibilities for state processes that FI$Cal change considerably from their initial plan and will integrate—that is, accounting, budgeting, several SPRs are required over the life of the cash management, and procurement. State law project. CDT (or one of its predecessors) has mandates that these agencies collaborate in the performed these project approval and oversight design, development, and implementation of functions throughout the life of the FI$Cal project. www.lao.ca.gov 3 analysis full gutter AN LAO REPORT Figure 1 Evolution of the FI$Cal Project Cost, Schedule, and Scope Total Estimated Final Project Cost Implementation Project Plan (in Millions) Date Summary of Project Plan FSR $138 July 2011 The initial IT project was much more modest in scope than the current project. The July 2005 Budget Information System, as the project was then known, was envisioned to better meet DOF’s budget development and administrative needs. SPR 1 $1,334 June 2015 The administration realized there was a need to modernize and replace the state’s December 2006 entire financial management infrastructure. SPR 1 proposed increasing the scope of the project to include developing a single integrated financial information system for the state. The project would integrate the budgeting, accounting, cash management, and procurement functions of the state. Four partner agencies were identified—DOF, SCO, STO, and DGS—and the project was renamed FI$Cal. The SPR extended the schedule by four years and increased the cost by nearly $1.2 billion. SPR 2 $1,620 June 2017 SPR 2 analyzed advantages and disadvantages of various FI$Cal alternatives but December 2007 proposed maintaining the project’s expanded scope to integrate the state’s financial management processes. The SPR extended the schedule by two years and increased the cost by nearly $300 million, relative to SPR 1. SPR 3 Unspecified Unspecified SPR 3 established the use of a multistage procurement approach. The multistage November 2009 procurement strategy would assist the project in eliciting more qualified system integrators and more responsive proposals for building the FI$Cal system. The total cost and schedule for the project was left unspecified. At the conclusion of the procurement, when the software application and vendor would be selected, the project would submit SPR 4. SPR 4 $617 July 2016 SPR 4 updated the project cost and schedule based on the contract with the March 2012 selected vendor. The total project cost for the FI$Cal system was estimated at about $620 million, about $1 billion less than estimated in SPR 2. The cost reduction is attributed to (1) updated estimates and (2) the move to a more phased implementation approach that resulted in lower overall project costs through reduced risk to the vendor and lower state staffing costs. The system would be completely implemented in July 2016. SPR 5 $673 July 2017 SPR 5 made various changes to the project’s implementation approach to reflect January 2014 lessons learned over the two years since the vendor was selected and the development of the system began. The SPR resulted in a 12-month schedule extension and increased the total project cost by $56 million, relative to SPR 4. SPR 6 $910 July 2019 SPR 6 made various changes to the project’s implementation approach to reflect lessons February 2016 learned since SPR 5. SPR 6 resulted in a 24-month schedule extension and increased the total project cost by $237 million, relative to SPR 5. SPR 7 $918 July 2019 SPR 7 made various changes to the project’s implementation approach, the largest of February 2018 which was an alternative approach to implementing SCO and STO’s accounting and cash management functions in FI$Cal called the “Integrated Solution.” SPR 7 did not extend the schedule for project completion, and only increased the total project cost by $8 million. SPR 8 $1,063 July 2020 SPR 8 introduces a new definition of project completion for FI$Cal—the minimum viable product (MVP) for the Integrated Solution—that removes a number of planned activities and system functions from the project scope, while adding additional hours to complete what project scope remains to achieve the MVP. SPR 8 extends the schedule for project completion by one year and increases the total project cost by $145 million. FSR = Feasibility Study Report; IT = information technology; DOF = Department of Finance; SPR = Special Project Report; SCO = State Controller’s Office; STO = State Treasurer’s Office; and DGS = Department of General Services. 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT FI$CAL PROJECT STATUS LEADING UP TO SPR 8 Project Successfully Implemented Budgeting discussed in this report) established a new and Procurement Processes. In 2015, the FI$Cal approach to implementing SCO accounting and project integrated the state’s procurement processes cash management processes (and STO cash into the FI$Cal system, launching Cal eProcure. management processes) in FI$Cal—the “Integrated According to the project, FI$Cal supports the Solution.” The Integrated Solution is an interim entire procurement lifecycle electronically. Also solution to the implementation of these particular in 2015, DOF prepared the Governor’s proposed functions in FI$Cal that is meant to provide FI$Cal, budget for the first time using the FI$Cal system SCO, and STO additional time to develop and test and, in 2016, used the system to provide the final the functions before they are fully implemented details of the 2016-17 enacted budget. The project as planned. Under the Integrated Solution, SCO also piloted its financial transparency website— will run the FI$Cal system and its existing legacy Open FI$Cal—in 2018 and, in 2019, added to the accounting system in tandem. The Integrated website nonconfidential expenditure data from state Solution will develop interfaces between both departments using the system. systems so that data are entered only once (in Project Added Large Number of either system), but then both systems share the State Departments to FI$Cal. There are data. This way, each system can perform the 152 departments now using the FI$Cal system, accounting and cash management functions for including 64 departments that the FI$Cal project the state. SCO’s legacy system, however, will added to the system in July 2018. (In general, continue to serve as the state’s official accounting a department is “added” to the FI$Cal system record, even though FI$Cal will have access to when their information is available and their staff all of the necessary data and functionality to are ready to use the system for their accounting, produce reports such as the state’s Comprehensive budgeting, cash management, and procurement Annual Financial Report (CAFR). (The CAFR is the processes.) The number of departments using state’s year-end financial statement for creditors the system represents a significant percentage of and other stakeholders.) Ultimately, the intention all state government departments, including the is to decommission the legacy systems once majority of state expenditures. the Integrated Solution is no longer needed for the SCO/STO processes. (For a more detailed Project Working to Implement Accounting description of the Integrated Solution, please see and Cash Management Processes Through our March 2, 2018 report—The 2018-19 Budget: Integrated Solution. SPR 7 (the most recent Evaluating FI$Cal.) revised project plan prior to the one being ANALYSIS OF SPR 8 OVERVIEW later in the analysis. Below, we provide a high-level summary of how SPR 8 changes the FI$Cal Recent Challenges Triggered New SPR. The project’s schedule, scope, and cost. project operated under its seventh SPR, which was Schedule Change—Project Establishes approved by CDT in February 2018, until August Another Arbitrary End Date for Completion. 2019. A number of challenges caused the project According to traditional state IT policy, an IT project to deviate from its schedule and trigger the need is completed when all planned system functions for a revised project plan approved by CDT— are implemented. Instead, SPR 8 establishes July SPR 8. We describe these challenges in more detail 2020 as the project’s end date—one year later than www.lao.ca.gov 5 analysis full gutter AN LAO REPORT the project’s end date of July 2019 in SPR 7. The Cost Change—the Cost of the Project project would end on this date even though some Increases, but Project Cost Does Not Reflect planned system functions will not be implemented, Total Costs. The project cost increases from some departments will not be using the system, $918 million total funds ($493 million General and some legacy financial IT systems will not be Fund) in SPR 7 to $1.063 billion total funds decommissioned. As a consequence, the project ($583 million General Fund) in SPR 8, an increase will not deliver what the Legislature expected when of $145 million total funds ($90 million General it authorized FI$Cal, and the Legislature will receive Fund). Figure 2 provides the revised total project budget requests in future fiscal years to complete cost in SPR 8 broken down by fiscal year. unfinished work that was originally within the The project cost as stated in SPR 8, however, project scope. Why the administration is defining does not reflect total costs associated with the the end date of the project in this way, when its project—an issue we also raised in our analysis common practice has been to move the end date of SPR 7. The project cost, for example, does further out if needed to get all of the planned not include $25.6 million total funds ($15.1 million activities done, is unclear. General Fund) for SCO to support the development Scope Change—Project Now to Be and implementation of the Integrated Solution. Considered “Complete” With Fewer Planned The project cost also does not include funding for Activities and System Functions. SPR 8 defines departments to change their business processes project completion as the implementation of a and hire staff to use FI$Cal. Lastly, the project “minimum viable product” (MVP) for the Integrated does not include the addition of deferred (and Solution. Projects using the agile approach to possibly exempt) departments to the FI$Cal system IT project development—that is, an incremental or the completion of project-related activities and and iterative approach to the implementation of functions that will not be implemented by the a new system, instead of a traditional approach project end date (which we will discuss later in the that implements all components of the system all analysis). at once—commonly use the term MVP. The MVP Below, we go into greater detail about the refers to the version of a product with just enough FI$Cal project’s challenges that triggered the features for the product’s users to determine need for SPR 8. We provide our analysis of the (1) whether to continue development of the product main changes made by SPR 8 in response to and, if so, (2) to provide the project with feedback these challenges and identify issues raised by on the product to incorporate into future versions. them. Specifically, we discuss SPR 8’s response According to the project, applying the concept of to delays in the implementation of the Integrated the MVP to the Integrated Solution will—once implemented—result Figure 2 in a product that will allow FI$Cal SPR 8—FI$Cal Project Cost to capture the information SCO (In Millions) needs to generate financial Fiscal Year(s) General Fund Total Funds reports, validate balances, and ensure FI$Cal data align with SCO 2005-06 through 2015-16 $220 $476 legacy system data. To define 2016-17 97 114 project completion in this way, 2017-18 88 132 2018-19 (estimated) 54 108 the project removes a number 2019-20 (estimated) 67 132 of planned activities and system 2020-21 (projected)a 57 101 functions from the project scope Totals $583 $1,063 while adding additional hours a Reflecting traditional IT project budgeting practice, the projected 2020-21 project costs include to complete what project scope operations and maintenance costs for the first year following project completion (now scheduled remains to achieve the MVP. for July 2020). SPR = special project report; FI$Cal = Financial Information System for California; and IT = information technology. 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT Solution, including an associated change in were already implemented to some degree— the determination of when the FI$Cal project is Milestones 2 and 3. (The term “stabilize” considered complete. Finally, we discuss SPR 8’s here means the project addresses any major stated recognition of a need for additional support performance or technical issues with the milestones for departments already using FI$Cal. and any other functions that have already been implemented.) After Milestones 2 and 3 were RESPONDS TO DELAYS IN partially/fully implemented in late 2018, the project and its partners encountered a number of technical THE IMPLEMENTATION OF issues with the milestones and identified additional INTEGRATED SOLUTION enhancements they would need for the Integrated Solution to work. As a result, the project needed FI$Cal Project Implemented Some of the more than six months to stabilize and support Integrated Solution in Late 2018. In SPR 7, Milestone 2, and the project continues to stabilize the FI$Cal project planned the implementation and support some of Milestone 3 nearly a year after of the Integrated Solution as the completion of implementation. six milestones. (Only five of the six milestones— SPR 8 Reschedules Implementation of Milestones 1 through 5—were within the project Remaining Milestones Within Project Scope scope defined by SPR 7, with Milestone 6 Through July 2020. The project expects to scheduled to be completed after project implement the remainder of Milestone 3, all of completion.) Figure 3 provides a description of Milestone 4, and most of Milestone 5 by July each of the Integrated Solution milestones. 2020. The project will implement some functions The FI$Cal project implemented Milestones 1 within each of the milestones on a monthly basis. and 2 in October 2018, and some of Milestone 3 in However, the majority of the functions will be December 2018. The project could not implement implemented near or on July 2020. The schedule the remaining milestones by the project end date in assumes that each function is stable soon after SPR 7 of July 2019. implementation, which will allow other functions Project Needed More Time to Stabilize to be implemented on schedule. Any functions and Support Milestones 2 and 3. One reason implemented on July 2020 are assumed to be the project could not implement the remaining stable at some point soon after the project ends. milestones by July 2019 was that the project needed to stabilize and support milestones that Figure 3 Integrated Solution Milestones Milestone Description 1 Implement some functions STO needs to use the FI$Cal system. Implement security features for the Integrated Solution. 2 Implement remaining functions STO needs to use the FI$Cal system. 3 Implement some functions for Integrated Solution that allow the FI$Cal and SCO legacy systems to share some data. 4 Implement remaining functions for Integrated Solution that allow the FI$Cal and SCO legacy systems to share and reconcile all data. 5 Implement functions SCO needs for statewide financial reporting, including the state’s CAFR. 6 Complete remaining activities and functions in FI$Cal system, including decommissioning the SCO legacy system and making FI$Cal the state’s book of record. STO = State Treasurer’s Office; FI$Cal = Financial Information System for California; SCO = State Controller’s Office; and CAFR = Comprehensive Annual Financial Report. www.lao.ca.gov 7 analysis full gutter AN LAO REPORT SPR 8 Provides More Resources for to stabilize and support Milestones 3 and 4, Stabilization and Support of Remaining and 12 months to stabilize and support some Milestones. In response to the number of technical of Milestone 5. Despite these time frames being issues encountered with Milestones 2 and 3, the longer than those estimated in SPR 7, they are project adds dedicated resources to stabilize likely still too short. The project needed longer than and support the remaining milestones after six months to stabilize and support Milestone 2, implementation. The schedule also assumes longer and continues to stabilize and support some of time frames to stabilize and support the remaining Milestone 3 nearly a year after implementation. If milestones that range from 6 to 24 months. the project needs additional time to stabilize and support some of the milestones it implements, LAO Findings the project might not be able to implement other New Schedule for Remaining Milestones Is milestones that are dependent on the already Risky. In SPR 7, the project assumed it would be implemented milestones being stable. able to implement the remaining milestones by July Stabilization and Support of Remaining 2019. A number of technical issues and additional Milestones Occurs After Project End Date. The enhancements that were needed to make the stabilization and support time frames for some Integrated Solution work caused the project to of Milestones 3 and 4 and all of Milestone 5 are deviate from its schedule. While SPR 8 does extend scheduled after the project end date. The project the project schedule one year and anticipates more schedule, therefore, suggests that the project could time will be needed to stabilize and support the end before the Integrated Solution is stable. The remaining milestones, we find the project schedule project attempts to mitigate this risk by deploying to be risky for several reasons: some functions and testing their stability before their scheduled implementation date, and by • Some of the remaining milestones are more requiring SCO to accept the MVP for the Integrated complex to implement than milestones already Solution before the project can end. The project, implemented. Any technical issues with these however, could still “implement” functions that are milestones could take longer to address, and not stable (even after additional time to deploy and any rush to implement them could lead to test), and SCO could still accept the MVP without errors in the system. knowing whether or not the Integrated Solution • Some functions in the remaining milestones is stable (or reject the MVP without a clear path must be stable for other later functions to forward). To ensure that what the project delivers is be implemented. The project needed more stable, the stabilization and support time frames for time than initially anticipated to stabilize the remaining milestones should remain within the Milestones 2 and 3. Given the complexity of project schedule. the remaining milestones, there is a risk (as discussed in more detail in the paragraph REVISES DEFINITION OF below) the project will again need more time. PROJECT COMPLETION: • Some functions in the remaining milestones MVP FOR INTEGRATED SOLUTION must be implemented at the start of a fiscal year for SCO to collect data in both systems SPR 8 Introduces MVP for Integrated to prepare (as an example) the state’s CAFR. Solution. As noted above, SPR 8 uses a new term Any delay in the implementation of these to define the completion of the FI$Cal project—the functions might delay the preparation of the MVP for the Integrated Solution. SPR 8 defines state’s CAFR using FI$Cal by (at least) one the MVP for the Integrated Solution as a product year. that allows FI$Cal to capture the information Longer Time Frames to Stabilize and Support SCO needs to generate financial reports, validate Remaining Milestones Likely Still Too Short. balances, and ensure FI$Cal data align with SCO The FI$Cal project anticipates needing six months legacy system data. In using the MVP to define 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT project completion, the project removes a number majority of the project scope from SPR 7 (removing of planned activities and system features from the some scope, which we discuss below), it assumes project scope, while assuming at the same time that more than double the number of hours—from it will take longer to complete what project scope 18,250 hours in SPR 7 to 38,800 hours in SPR 8, remains. as shown in Figure 4—will be needed to complete MVP Adds Additional Hours to Complete what remains. Most of Remaining Project Scope. In defining MVP Removes Some of the Project Scope to the project scope in SPR 7, the project estimated Accommodate Additional Hours. SPR 8 removes the number of hours it would need to complete a number of functions from the project scope that, the Integrated Solution. (As shown in Figure 4, for although critical to the completion of the FI$Cal example, SPR 7 assumed the project would need system, are not needed to complete the MVP for 18,250 hours for Milestone 5 functions and 22,140 the Integrated Solution. In other words, the project hours for some other functions that were previously moves these functions to be completed after in other milestones in order to complete the the project (as redefined in SPR 8) is considered Integrated Solution.) As the project implemented done. The project calculated the number of hours some of the milestones of the Integrated Solution it would need to complete these functions—that (and more fully planned others), the project learned is, 22,140 hours as shown in Figure 4—and it that it would need more time both to complete the is roughly equivalent to the additional hours the existing functions of the Integrated Solution and project will need to complete the MVP for the the new functions it did not anticipate in SPR 7. Integrated Solution. Figure 4 shows the net change In SPR 8, the project recalculates the number of in the estimated number of hours for the remaining hours it would take to complete the MVP for the project scope (as redefined by SPR 8)—that is, a Integrated Solution. While the MVP includes the net decrease of 1,590 hours. However, this small Figure 4 SPR 8: Substantial Increase in Time Required to Complete FI$Cal System Functionsa Hours Required to “Complete” Project SPR 7 18,250 22,140 40,390 SPR 8 38,800 38,800 Difference 1,590 Milestone 5, Priority 1 and 2 Items Difference in Hours Between SPR 7 and SPR 8 Other Functions (Generally Outside of Milestone 5) 22,140 15,272 37,487 Milestone 5, Newly Identified Priority 3 Items Under SPR 8, Hours to Complete System Functions After Project Deemed Complete a SPR 8 redefines project completion as when Milestone 3, Milestone 4, and Milestone 5—Priority 1 and 2 items—of the Integrated Solution (shaded dark blue) are complete. Under SPR 8, the system functions reflected in the 22,140 hours under SPR 7 (shaded red) have been shifted to be completed after the project is deemed complete. SPR = special project report and FI$Cal = Financial Information System for California. www.lao.ca.gov 9 analysis full gutter AN LAO REPORT net decrease in hours to complete the project (with have an uncertain net effect on the number of a narrower scope) is overwhelmed by the resulting hours.) These changes in project scope suggest the increase under SPR 8 in the estimated number of project might not know whether the MVP is, in fact, hours for functions completed after the project is the “minimum” set of functions or is “viable.” Not deemed complete—that is, an additional 37,487 only will some of the key functions in the remaining hours (22,140 hours for other functions moved milestones be stabilized and supported after the out of the project scope to be completed later and project end date (as we previously discussed), but an additional 15,272 hours newly identified for also the Integrated Solution will start capturing Milestone 5 functions the project considers to be (and validating) most of the information that SCO outside of the project scope). needs after the project end date. If the milestones are not stable or the Integrated Solution does not LAO Findings capture (and also validate between the FI$Cal New Definition of Project Completion system and SCO legacy system) the information Inconsistent With Agile Approach; Legislative SCO needs, the Integrated Solution might not be Oversight Is Compromised. Agile projects use viable. A MVP that might not include the minimum the term MVP to refer to a version of a product— number of functions or might not be viable means often the first version, with a minimum number that its users might not be able to make an of functions users need to determine whether to informed decision and provide feedback regarding continue development of a product and, if so, to its continued development consistent with the agile decide how it can be improved. The FI$Cal project, approach. however, uses MVP to define the completion of SPR 8 Adds Additional Hours Without a the Integrated Solution and the project. To allow Complete Plan. To create the MVP in SPR 8, a project to end this way is inconsistent with the project moved an estimated 22,000 hours state IT policy in general, as it ends the project of work for critical system functions from the before all planned functions of the FI$Cal system previously defined project scope to be completed are implemented. The inconsistency of SPR 8’s after the project is deemed complete. These definition of project completion with the agile system functions join a list of other activities and approach is also problematic—under SPR 8, the functions to be completed in the future as part FI$Cal project will be considered complete before of Milestone 6, including the addition of deferred taking advantage of all of the feedback from users (and possibly exempt) departments to the FI$Cal to guide the future development of the system. system and the decommissioning of legacy financial This sets a poor precedent for future IT projects IT systems. SPR 8 does not include a plan for that use the agile approach. The oversight authority Milestone 6 or, more generally, an operations and of the Legislature—and other state entities with maintenance (O&M) plan, and does not include oversight of IT projects—is compromised when key any of the costs associated with Milestone 6 in terms such as project completion and measures of the total project cost for FI$Cal. (An O&M plan success are defined inconsistently across projects. is a document submitted by a project to CDT Such inconsistency makes it confusing for oversight for approval with detailed information about the agencies and more difficult for them to track activities that will be completed after the project projects. ends, including the estimated cost of each activity, Recent Changes Since Approval of SPR 8 the estimated date of completion, and any risks Raise Questions About MVP. Since CDT’s or consequences to the system from delayed approval of SPR 8 at the end of August, the FI$Cal completion or a failure to complete each activity. project has moved at least four additional functions Generally, the cost of activities included in an O&M out of project scope to be completed later (after the plan are not included in a project’s total cost.) What project is deemed complete) and identified more plan SPR 8 does offer for certain O&M activities functions it will need to complete the MVP. (These includes an estimated 15,000 hours of work for changes are not reflected in Figure 4, and would new functions—Milestone 5, Priority 3 items—that 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT it did not anticipate in SPR 7 and that it adds to Solution will require some departments to change the list of activities and functions to be completed their business processes to accommodate the after the project ends (including the 22,000 hours new functions implemented in the FI$Cal system. of work moved from the previously defined project Other departments will need to learn how to close scope). These 15,000 hours may therefore be month- and year-end financial statements in the viewed as additional hours being added to the system, and might ask for help when they have overall number of hours connected with the project difficulty entering, processing, and/or reconciling (before and after deemed completion). The project their data. Nearly all departments will need expects to implement Milestone 5, Priority 3 items additional training of new and existing staff on how by June 2021—after the project end date. More to use the system. work added for after the project ends without Legislature Approved Additional Funding a complete plan compromises the Legislature’s in 2019-20 Budget Act for Department oversight of the FI$Cal system, as discussed below. of FI$Cal. To provide additional support to Activities and Functions to Be Completed departments (and implement the Integrated After the Project Ends Not Subject to Same Solution), FI$Cal requested—and the Legislature Level of Legislative Oversight as FI$Cal Project. approved—$64.1 million total funds ($39.1 million Current oversight practices for a highly critical IT General Fund) over three fiscal years. With this project such as FI$Cal will not continue after July funding, the Department of FI$Cal will provide 2020 (the revised project end date) without an additional user training (including on closing O&M plan or other authority—such as statutory month- and year-end financial statements in FI$Cal) language—that continues those practices into and department support (including, for example, on the O&M phase of the project. (Current oversight changing their business processes and identifying includes at least monthly meetings with the project potential enhancements to the system). The and stakeholders—including the Legislature— FI$Cal project also will use some of this funding to to review oversight reports on the project.) An stabilize and support the remaining milestones of O&M plan can include measures such as specific the Integrated Solution. The Legislature approved oversight practices to ensure all remaining activities these resources in June as part of the 2019-20 are completed successfully. The importance and Budget Act, more than two months before CDT volume of activities and functions to be completed approved the new project plan for FI$Cal in August. after the project ends suggests continued oversight LAO Findings of this stage, and more generally of the FI$Cal system, is warranted. Several Departments Missed Deadlines for Year-End Financial Statements. As part of its PROVIDES ADDITIONAL SUPPORT 2019-20 budget request to the Legislature, FI$Cal FOR DEPARTMENTS ALREADY set a goal of providing enough support—that is, additional staff, training, and other resources— USING FI$CAL to every department using FI$Cal to close their SPR 8 Anticipates Additional Support Will year-end financial statements in the system no Be Necessary for Departments Using FI$Cal. later than the October following the end of a fiscal A significant number of departments with large year in June. Recent data from FI$Cal show the budgets now use the FI$Cal system. SPR 8 project did not meet its goal for the 2018-19 fiscal anticipates that most of the departments will year by a significant margin—only 77 out of 152 need additional support from the project and the (or 51 percent) departments using FI$Cal closed Department of FI$Cal as the project implements their financial statements by October. The 77 the Integrated Solution and as departments departments that closed their financial statements close their month- and (fiscal) year-end financial on time also represent only a small fraction of the statements. Implementation of the Integrated total departmental budgets in FI$Cal—$35 billion www.lao.ca.gov 11 analysis full gutter AN LAO REPORT out of $295 billion (or 12 percent). Figure 5 As shown in Figure 5, as of Several Large Departments Using FI$Cal Have Yet to November 2019, a number of large departments, such as the Submit Their 2018-19 Year-End Financial Statementsa Department of Education and (In Billions) the Employment Development Department 2018-19 Budget Department, have yet to submit California Department of Education $81.6 their 2018-19 year-end financial Employment Development Department 14.9 statements. California Community Colleges Chancellor’s Office 10.0 Uncertain How Large Department of Developmental Services 7.4 Departments With Late/ Judicial Council of California 5.2 Estimated Year-End Financial a As of November 2019. FI$Cal = Financial Information System for California. Statements Will Impact State’s 2019-20 CAFR. Given funding in the 2019-20 budget cycle was to the significant number of provide departments with additional support. departments with year-end financial statements At least 13 departments, however, separately outstanding—and their impact on the amount of requested FI$Cal-related resources during the total departmental budgets closed in FI$Cal—what 2019-20 budget cycle. Whether the departments impact the submission of late or estimated year-end coordinated their requests with the Department financial statements for these departments will of FI$Cal to, for example, ensure the requested have on the state’s 2019-20 CAFR is uncertain. In resources were complementary and not duplicative its most recent report on the FI$Cal project, the is unclear. While these are costs associated with California State Auditor mentions the possibility that the FI$Cal project, SPR 8 does not include them in it could issue a modified opinion of the CAFR—that the total project cost. is, a finding that the financial statements referred to in the CAFR might not be presented completely Administration Limited Legislature’s Oversight and accurately. The Auditor noted that a modified by Submitting a Project Funding Request Before opinion could, for example, lead a bond-rating Approving an SPR. The administration submitted agency to downgrade the state’s bond rating a budget request for the Department of FI$Cal and because the agency cannot rely on the state’s the FI$Cal project prior to the approval of SPR 8. CAFR (and possibly other financial statements) for Without an approved SPR, the Legislature did not decision-making. have updated information about the cost, schedule, and scope of the project with which to consider the Unclear How Additional Funding for budget request. By not providing this information, Department of FI$Cal Complements the administration limited the Legislature’s oversight Funding and Resources Requested by Other of the project, such as the Legislature not having Departments Using FI$Cal. One of the reasons a complete view of all of the significant changes to the Department of FI$Cal requested more the FI$Cal project scope. PROJECT-RELATED WORKLOAD BEYOND SPR 8 In this section, we describe what work remains the addition of deferred (and possibly exempt) to be done after the project is complete (as departments to the FI$Cal system; and the redefined by SPR 8). Remaining workload after continued support of departments already using project completion includes the activities and FI$Cal to close their financial statements on time, functions removed from the project scope by decommission their legacy systems, and train their SPR 8 (and others already moved to Milestone 6); staff and update their business processes. 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT Activities and Functions to Be Completed FI$Cal will determine how much it will cost to add After the Project Ends. The work to be completed the department and likely request those resources for the FI$Cal project after it ends is large relative to through the budget process. other IT projects. In addition to the 22,000 hours of Departments Currently Using FI$Cal. FI$Cal work for critical system functions moved from the will be involved in a number of one-time and project scope to be completed later and the 15,000 ongoing activities with the 152 departments hours of work for new functions—Milestone 5, that currently use the FI$Cal system, including Priority 3 items—in SPR 8, the post-project helping departments close their month- and completion stage also includes the development of year-end financial statements, decide whether to many other functions in the FI$Cal system. These decommission their legacy financial IT systems, and include the transition from SCO’s legacy system participate in change management efforts to (as an to FI$Cal as the state’s book of record and the example) train new and existing departmental staff decommissioning of SCO’s legacy system. While on how to use the FI$Cal system. the number of hours required to complete this • Financial Statements. FI$Cal was expected stage is unknown currently, the project partners to change how departments close their likely will work on completing these activities and month- and year-end financial statements functions through at least 2022. (SPR 8 anticipates both by improving the process in the FI$Cal SCO could consider a transition to FI$Cal as system itself (through additional system the state’s book of record as well as consider development), and by working directly decommissioning its legacy system—thereby with departments to make their business ending the Integrated Solution—in 2022.) processes for closing these statements more Deferred and Exempt Departments. According to FI$Cal, Figure 6 there are nine state entities that are deferred from the FI$Cal system Number of Large Departments Remain Deferred or (which means they will be added Are Exempt From Using FI$Cal to the system at a later time), Deferred Departments including some large departments Department of Corrections and Rehabilitation such as the Department of Department of Justice Corrections and Rehabilitation and Department of Motor Vehicles the Department of Transportation. Department of Technology Figure 6 provides a full list of the Department of Transportation Department of Water Resources remaining departments that are Prison Industry Authority deferred or exempt (which means State Lottery Commission they are not expected to be added State Teachers’ Retirement Systema to the system at this time) from the Exempt Departments/Fund FI$Cal system. California Law Revision Commission A number of the deferred California State Auditor departments have existing California State University contracts for IT systems that Department of Rehabilitation perform some or all of the Legislative Counsel Bureau functions of the FI$Cal system and, Legislature Public Employees’ Retirement System when those contracts expire, we State Compensation Insurance Fund understand that the administration State Teachers’ Retirement Systemb will consider whether or not to University of California add the departments to FI$Cal. a Accounting only. If the administration does decide b Except accounting. to add a department to FI$Cal, FI$Cal = Financial Information System for California. www.lao.ca.gov 13 analysis full gutter AN LAO REPORT efficient. Given the number of departments management efforts in the next several that were unable to close their 2018-19 years because of the number and size of the financial statements in FI$Cal, these efforts departments that were recently added to the likely will continue over the next several years. FI$Cal system and the number of functions • Legacy Systems. An unknown number of (including the Integrated Solution) that remain departments that use the FI$Cal system to be implemented and could change how also continue to use their legacy financial IT departments operate. systems as well. Nearly all departments that were using the primary legacy financial IT LAO Findings system—the California State Accounting and Remaining Workload After Project Ends Reporting System—now only have limited Critical to Project Success. SPR 8 moves the access to that system. However, several project end date to July 2020, at which time (if the other legacy systems remain in use because, MVP for the Integrated Solution is implemented) the for example, the functions the departments administration will consider the project complete. need are not available in the FI$Cal It is clear that while the administration will consider system. Whether a state entity can require the project complete, there are number of activities departments to decommission their legacy that continue beyond SPR 8 that are critical to systems is unclear. These decisions likely will the project’s success. The completion of activities continue to involve FI$Cal, however. and functions removed from the project scope by • Change Management. FI$Cal continues SPR 8 (and others already moved to Milestone 6), to train department staff on how to use the the addition of deferred (and possibly exempt) FI$Cal system. As departments use the FI$Cal departments to the FI$Cal system, and the system, many of them consider changes in continued support of departments already using their business processes that can require FI$Cal are all essential to FI$Cal becoming the additional resources or enhancements to state’s single system for accounting, budgeting, the existing FI$Cal system. These efforts cash management, and procurement. These to change how a department operates in activities also come at a cost, the sum of which response to the implementation of a new should be considered together with the approved IT system is called change management. total project cost for FI$Cal. FI$Cal likely will be more involved in change LAO RECOMMENDATIONS Based on our findings related to SPR 8, we Integrated Solution is inconsistent with the agile make the following recommendations related to approach (meaning it is unclear whether the project FI$Cal. will deliver system functions in a way that allows Consider Statutory Language to Define for feedback from users regarding their continued Project Completion and Success. We development), is an incomplete implementation of recommend that the Legislature consider adopting the Integrated Solution, and sets a poor precedent statutory language that defines project completion for future IT projects that use the agile approach. and success for the FI$Cal project. Current Project completion could, for example, be defined statutory language defines the broad objectives as FI$Cal becoming the state’s book of record with of the FI$Cal system, but does not define what accounting and cash management processes fully activities must be done for the FI$Cal project to be implemented in the system. Measures of “success” considered complete or successful. The project’s could be, for example, the number and cost of current definition of completion as the MVP for the the legacy financial IT systems that have been 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT decommissioned as a result of the FI$Cal system In Future, Consider Budget Bill Language and the number and cost of those legacy systems to Condition Release of Project Funding that remain. on Approval of Latest SPR. We recommend Consider Statutory Language to Continue the Legislature in the future consider adopting Legislative Oversight of Project Beyond Deemed budget bill language that conditions the release Project End Date. We recommend the Legislature of IT project funding (in the case of FI$Cal and IT consider adopting statutory language that projects more generally) on (1) CDT’s approval of continues current oversight practices into the next the latest SPR and (2) 30-day notification being phase of the project beyond its revised deemed given to the Legislature (Joint Legislative Budget end date of July 2020, given the large number Committee) that includes the total cost and of activities and functions that are expected to schedule of the project from the project approval continue beyond this date. After July 2020, the document. We see this as a way to structurally current oversight practices for FI$Cal will not improve and protect the Legislature’s oversight continue without an O&M plan or other authority authority. As discussed above, the administration that continues those practices. (Except for the limited the Legislature’s oversight of the project State Auditor’s oversight role, most oversight by submitting a 2019-20 budget request for the activities with respect to FI$Cal have developed Department of FI$Cal and the FI$Cal project as a matter of practice and are not codified in without the latest SPR approved by CDT. Budget statute.) These practices would include (but not be bill language provides the Legislature with another limited to) at least monthly meetings with FI$Cal opportunity to review the budget request alongside and stakeholders and the continued involvement the project plan to determine, for example, if the of independent project oversight and independent changes in the plan merit additional resources. verification and validation consultants. www.lao.ca.gov 15 analysis full gutter AN LAO REPORT 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter AN LAO REPORT www.lao.ca.gov 17 analysis full gutter AN LAO REPORT LAO PUBLICATIONS This report was prepared by Brian Metzker, and reviewed by Mark C. Newton and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 18 LEGISLATIVE ANALYST’S OFFICE