The 2021-22 Budget: California State Payroll System it Project

analysis full gutter The 2021-22 Budget: California State Payroll System IT Project FEBRUARY 2021 The State Controller’s Office (SCO) is responsible Budget Proposals for issuing pay to the state workforce, and the Budget Requests $5.7 Million ($3.4 Million California Department of Human Resources (CalHR) General Fund) for SCO and CalHR to Start supports state human resources (HR) and labor Project Procurement and Change Management relations policies and practices. In 2016, SCO Activities. SCO requests $5.5 million ($3.1 million started planning a replacement for the state’s General Fund) and 7 positions to complete CDT’s current payroll system—the California State Payroll PAL. SCO plans to release a solicitation for vendors System (CSPS). The 2021-22 Governor’s Budget to bid, conduct a procurement process with proposes to continue CSPS planning efforts with multiple phases (described below), and select one requests totaling $5.7 million ($3.4 million General or more vendors for the final contract award. CalHR Fund) in 2021-22 for SCO and CalHR to begin requests $230,000 General Fund and 1 position to project procurement and change management hire an Enterprise HR Project Director to support activities. This post evaluates the two budget the implementation of state HR and labor policies proposals for the proposed CSPS information and practices in CSPS. technology (IT) project and provides associated Phased Procurement Process Planned. SCO, recommendations. with technical guidance from CDT, plans to conduct Background a procurement process with three phases over a six-month period. (A recent change in SCO’s Proposed CSPS in Stage 2 Alternatives procurement strategy shortened the procurement Analysis of PAL Process. The California process from two years, as reflected in SCO’s Department of Technology’s (CDT’s) Project budget proposal, to six months.) Phase 1 will Approval Lifecycle (PAL) process is divided into four involve the release of a solicitation for vendors to consecutive stages: the Stage 1 Business Analysis, bid, meetings to answer vendor questions, and Stage 2 Alternatives Analysis, Stage 3 Solution state evaluation of vendor bids with likely no more Development, and Stage 4 Project Readiness than three vendors selected for Phase 2. Phase 2 and Approval. The proposed CSPS IT project is in will require vendors to build proofs of concept—that the Stage 2 Alternatives Analysis, which requires is, working models of their technical solutions that entities that propose projects to conduct market are based on business scenarios defined by SCO— research and identify available technical solutions for state evaluation. ($3 million of the $5.5 million to the business needs they identified in the Stage 1 that SCO requests in its budget proposal is to pay Business Analysis. Entities then recommend one vendors for their proofs of concept in Phase 2.) or more solutions to CDT for approval and (once This proof-of-concept evaluation, and other approved) set a preliminary baseline project cost, information that SCO will gather from vendor schedule, and scope. SCO submitted their Stage 2 meetings and responses, will help the state select Alternatives Analysis documentation last year, one or more “best value” vendors for Phase 3. and CDT approval is expected to be forthcoming. Phase 3 will end with a contract award after the SCO anticipates the proposed CSPS IT project will state finishes its negotiations with the vendor(s) complete the PAL process and start development and interviews project staff. Throughout the and implementation in 2022-23. procurement process, SCO will submit Stage 3 2021-22 LAO Budget Series 1 analysis full gutter Solution Development and Stage 4 Project office, on behalf of the Legislature, to review this Readiness Approval documentation, which will information before action is taken on the CSPS culminate in CDT approval of the CSPS IT project budget proposals. We expect CDT approval of the through the PAL process. proposed CSPS IT project through Stage 2 of the PAL process in the next couple of months. Assessment Recommendations Proposed CSPS Will Be a Complex and Costly IT Project. Based on market research for their Withhold Action on Budget Proposals Until recommended technical solution, SCO estimates CDT Approves Stage 2 Alternatives Analysis. We the preliminary baseline cost for the proposed recommend the Legislature withhold action on the CSPS IT project at approximately $750 million CSPS budget proposals in the 2021-22 Governor’s (a majority of which will be General Fund). The Budget until CDT approves the proposed CSPS complexity of a full replacement of the state’s IT project through Stage 2 of the PAL process. current payroll system—which is what this IT The Stage 2 Alternatives Analysis documentation project proposes—also requires a lot of time. The will allow our office to more fully assess and preliminary baseline project schedule anticipates recommend action on these budget proposals. system completion and initial deployment in Ask Administration Questions While Awaiting 2027-28—a five-year time frame to develop CDT Approval of Stage 2 Alternatives Analysis. and begin implementation of the new system. Awaiting the availability of Stage 2 Alternatives Throughout the project, change management Analysis documentation (once CDT approves the activities also will be required to train staff at project through Stage 2), we recommend the many state entities how to use the new system Legislature consider asking some of the following and to review and modify their existing business questions during the budget subcommittee processes. This statewide effort is comparable to process: the change management required for the Financial • Why is SCO proposing to replace the current Information System for California (FI$Cal) IT Uniform State Payroll System? Have these project, which led to the creation of a new entity reasons changed over time? If so, why? (Department of FI$Cal) with ongoing operational and training responsibilities. • What is the recommended solution for this proposed project? Explain the costs and Phased Procurement Process Reflects benefits of this solution. What other solutions Complexity and Risk of Project. The complexity were considered? and cost of the proposed CSPS IT project is also reflected in the planned procurement process. A • In light of the state’s projected out-year phased procurement in which vendors demonstrate deficits, is now an appropriate time to embark their technical solutions with proofs of concept on such a costly project? does have merit as a way of reducing project • What change management efforts will be risk. It also underscores the risk of the proposed necessary to implement this proposed project scope and the approach to development project? How will the project team coordinate and implementation. To determine the viability these efforts to modernize how the state of the project as scoped, state evaluation of the performs its payroll functions? proofs of concept during the second phase of the • How will the administration mitigate risks and procurement process will be critical. address issues to avoid the outcome of the Stage 2 Alternatives Analysis Approval 21st Century Project, the predecessor to the Presents Opportunity for Legislative Oversight. proposed CSPS IT project? The Stage 2 Alternatives Analysis documentation Require Reporting From Administration will identify the administration’s preferred technical to Allow for Evaluation of Proposed Project solution(s) and set a preliminary baseline project Cost, Schedule, and Scope. Once the Stage 2 cost, schedule, and scope. It is important for our 2021-22 LAO Budget Series 2 analysis full gutter Alternatives Analysis documentation is approved, Given the proposed project’s complexity and cost, we also recommend the Legislature direct SCO, the Legislature could consider budget bill language CalHR, CDT, and the Department of Finance that requires: (1) monthly oversight meetings (DOF) to provide a report with all of the options with our office (on behalf of the Legislature), and technical solutions considered during Stage 2 SCO, CalHR, CDT, and DOF to receive project and their associated preliminary project cost, updates and review oversight documents such as schedule, and scope (if known). This report could CDT independent project oversight reports and help the Legislature consider options other than independent verification and validation reports the proposed project scope and the approach to with the project team, and (2) quarterly briefings development and implementation, and inform future to update other legislative staff on the proposed hearings or meetings with the project team. project. The Legislature could revisit this oversight Consider Options for Legislative Oversight. framework once the proposed project completes We recommend the Legislature establish an the PAL process and begins development and oversight framework for this proposed IT project. implementation. 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. 2021-22 LAO Budget Series 3