Successful Implementation of Commercial-off-the-Shelf Financial Software for Government?

Posted on October 24, 2012 in PFM

Doug Hadden, VP Products

How can governments evaluate the success of COTS PFM vendors?

• Emerging economy and developed country governments are increasingly adopting Commercial-Off-the-Shelf (COTS) software to replace legacy and custom developed software applications for financial, budget, expenditure, tax, treasury and civil service management.
• These governments leverage software applications, often called Financial Management Information Systems (FMIS), to enable involved in Public Financial Management (PFM) reform and modernization.
• Government organizations can chose to acquire Enterprise Resource Planning (ERP) COTS software from large software firms whose software is used in multiple “vertical” markets or Government Resource Planning (GRP) software designed exclusively for governments.
• FreeBalance is unique among the three leading COTS FMIS (Financial Management Information Systems) vendors to government through a 100% GRP focus.
• Large ERP vendors and systems integration firms have strong marketing departments and large marketing budgets to influence potential clients. This can result in the impression that large multinational firms have had significant success in meeting government public financial management goals.
• Some vendors are also able to present Fear, Uncertainty and Doubt (FUD) about competing vendors often presenting a misleading impression of the real value of software choices.
• FUD has been used specifically to give government decision-makers misleading impressions about FreeBalance.

What has been the FreeBalance global GRP contribution ?

1. FreeBalance GRP software has a much higher implementation and sustainability success rate that ERP software in industry or government.
2. FreeBalance GRP software has been successful implemented in advanced, middle income and fragile states.
3. FreeBalance has modern web-based software that is technically more advanced that legacy web-enabled software provided by leading ERP vendors.

Has ERP been successful in developed nation governments for financial management?

Major ERP Project Failure in Developed Country Governments

• A large ERP shared services project in France country was estimated to be $200M over budget by the audit office and more than 1 year late and resulted in late payments of over $2.2B to defense contractors.
• National Audit Office in the United Kingdom found that the use of ERP shared services added rather than reduced costs

Reports by the United States Government Accountability Office (GAO) and the Department of Defense (DoD) Inspector General (IG) found that 11 of 13 ERP projects were over-budget costing American taxpayers Billions of Dollars with one ERP project resulting in $1B “largely wasted”

What are the major difficulties experienced in ERP implementations in the public sector in developed countries?

ERP failures and cost overruns in the public sector have resulted in difficulties, contract cancelations and lawsuits:

• Australia: State government ministry
• Canada: non-profit, city
• France: city
• Ireland: 2 projects within an important ministry
• United Kingdom: university, councils (1) (2) (3) and government ministries (1) (2) (3)
• United States: non-profit, school district, universities (1) (2) (3) (4) (5),  a police department, cities (1) (2) (3) (4), counties (1) (2),  state government (1) (2) (3) (4), federal government (1) (2) (3) (4) (5)

What is the evidence of ERP success across industries?

Success Rates

• Between 20% and 35% of all ERP implementations fail
• 51% of ERP implementers judged their implementation as unsuccessful
• Nearly 70% of large projects were found to be improbable of achieving project success
• 41% of ERP projects achieved all or the majority of benefits
• 40% of ERP projects failed to meet business case within 1 year of going live
• Average for ERP projects was 50% of intended benefits
• ERP projects saw the implementation of -59% of intended functionality
• 34% of respondents “very satisfied” with ERP project
• Fewer than 1/3 of decision-makers recommend their ERP vendor
• ERP vendors achieved a D+ in return on investment
• 75% of organizations experienced a productivity dip after implementing ERP
• 20% of survey respondents terminated ERP projects

Costs

• 40% of all ERP projects will exceed estimates by 50% or more
• Average ERP cost variance was 182% of budgets
• Average ERP cost variance was 178% of budgets
• Average ERP implementation cost was 40% over budget
• Average ERP implementation takes 23 months, has a total cost of ownership of $15 million and with an average negative net present value of $1.5 million
• Users of Tier 1 ERP vendors will experience higher TCO than users of Tier 2 vendors
• ERP upgrades cost about ½ the value of the original license fee and 20% of the original implementation costs
• Experts warn that organizations should expect to pay as much as 3 times the original ERP software cost to upgrade to new technology
• Interviews with reference customers of a major ERP vendor found that 57% did not achieve a positive ROI

On-time Delivery

• Average implementation time from the 2 major ERP vendors are 17 and 18 months with average variance of 2 and 4 months over schedule
• Average variance for ERP projects was 230% of schedule
• Up to 80% of ERP exceed time and budget estimates
• 70%  of respondents stated their ERP project timeline was inadequate

What is the evidence of FMIS success in emerging economies?

A 2003 Study by the World Bank found a lack of success in government FMIS implementations whether COTS or Custom developed:

• 43% delivered as specified
• 50% delivered on budget
• 21% delivered on time
• 25% unsustainable
• 69% likely to be sustainable
• 6% highly likely to be sustainable

A 2011 Study by the World Bank found that FMIS implementation sustainability has improved but that 18% remain unsustainable.

Examples of FMIS implementation problems in emerging economies including Azerbaijan, Costa Rica, Ghana, Kazakhstan, Malawi , Maldives, Russia, Rwanda, Uganda , Zambia and Vietnam.

FreeBalance has enjoyed more successful GRP implementations than ERP. Custom or “bespoke” solutions often fare worse: Bespoke systems often go over budget and seldom get delivered on time. They require established skill sets in custom software development  and—expertise that is often difficult to find in less developed markets.

What is the success rate for FreeBalance?

• FreeBalance implementations have been described as successful under difficult circumstances including  Afghanistan, Kosovo, Sierra Leone and Timor-Leste.  This is an indication of software flexibility and fast time to results.
• FreeBalance, based in Ottawa Canada, has been successfully implemented in countries with low, medium, high and very high Human Development Indexes (HDI).
• FreeBalance has brought advanced GRP functionality to countries around the world that has enabled governments to achieve better Public Expenditure and Financial Accountability (PEFA) than more advanced countries, particularly in “Accounting, Recording and Reporting.”

FreeBalance Government Customers range from post-conflict “fragile” states to countries in the G8. FreeBalance software is deployed in more Government of Canada departments and agencies than any other FMIS software package.

FreeBalance has brought advanced PFM features such as e-procurement, budget transparency and performance results enabling “technology leapfrog.”

FreeBalance government customers that have undergone PEFA assessment enjoy better scores than countries with higher HDI who do not use FreeBalance software. FreeBalance customers have been recognized for achievements of substantial reform.

What software used for FMIS is fully web based?

The FreeBalance Accountability Suite, Version 7, is fully web-based in that there is  no legacy client/server code used. The FreeBalance Accountability Suite is a net-native application built on Java Enterprise Edition.

The majority of COTS ERP software programs are web-enabled whereby legacy code remains the heart of the application. Such legacy code bases are built on proprietary software languages such as:

• Advanced Business Application Programming (ABAP)

Client/server Application Language (C/AL)


• Configurable Network Computing (CNC)
• Dexterity
• Dynamic Enterprise Modeler (DEM)
• EntepriseOne
• MorphX and X++
• PeopleTools
• Procedural Language/Structured Query Language (PL/SQL)

Why is fully web-based an important technical advantage?

• Pure Web reduces software maintenance costs: Web software enables central management and control to reduce security issues, optimize up-time and reduce maintenance. The use of hybrid client/server technology reduces many of these benefits.
• Pure Web improves software performance: Legacy client/server programming languages can be inefficient compared to modern languages. Presentation, business logic and data layers are often mixed and translation layers are often required to support integration with sub-systems and to support web deployment. This reduces performance and scalability.
• Pure Web reduces infrastructure costs: Proprietary client/server infrastructures have large technology monolithic technology footprints and are difficult and costly to maintain. Many systems cannot leverage open virtualization, clustering and load-balancing technology. Open systems give governments more choices of open source and proprietary middleware.
• Pure Web reduces communications costs: Legacy systems often require data replication and always-on networks because of inefficient client/server design.
• Pure Web provides more flexible software deployment: Systems based on client/server design have complex software licensing, upgrading and deployment. Pure web systems are ideal to deploy in government clouds.

What software architecture good practices are used in the FreeBalance Accountability Suite Version 7?

• Service-Oriented Architecture to enable interoperability and compatibility with numerous sub-systems
• Business objects (that we call “government entities”) to improve system maintainability and extensibility
• Scalability including support for horizontal, vertical and diagonal scaling to enable running software from a small number of users on a laptop to hundreds of thousands via a data centre
• Web-native multi-tier architecture to support technology change and choice in the future
• Servlet-based Java Enterprise Edition to provide proven enterprise-class scalable solutions in an open system

What is a good practice approach to COTS back-office implementation in government?

1. ERP software is high risk in industry and government. Specialized GRP software, like the FreeBalance Accountability Suite, has proven more successful and sustainable in governments.
2. FreeBalance software has been implemented successfully across a range of development contexts from fragile states through to G8 countries. The FreeBalance Accountability Suite has enabled lower developed countries to leapfrog more developed countries. And, with the large installed base in the Government of Canada, FreeBalance supports advanced PFM requirements.
3. Unlike most ERP software, the FreeBalance Accountability Suite is fully web-based using modern software architecture good practices that enable growth, extensibility, scalability and choice.