DOE looking at $850M contract for shared services. Let's have some fun with those numbers.
I have been saying for 10 years that in order to fairly evaluate shared services, you need to weigh the cost of migration against the potential savings. In March of 2015 the Partnership for Public Service published a report on shared services noting potential savings of up to $47B over 10 years. Buried deep in that report were the costs of migration, estimated by them to be between $6.5B and $14.5B. In real terms what this means is that in order to save any money at all you must first invest up to $14B according to PPS, a number that I believe is very low.
Last week the Department of Energy put out a small business sources sought notice seeking to overhaul its back office IT, with a move toward shared services. Total estimated cost of this one contract ----- $850M. Let that sink in for a minute ----- $850M for DOE, which barely cracks the top 15 largest federal departments.
So let's have some fun with these numbers and use this $850M number and apply it across the 24 CFO Act agencies, $850M x 24 = $20.4B. So that $20.4B number is probably your baseline lowest possible cost to migrate to shared services and remember it's the government, so nothing is ever close to as cheap as it seems and DOE is small compared to many agencies. Let's give DOE a more honest cost, not $850M but somewhere closer to $1.25B. $1.25B x 24 = $30.0B. And DOE is not by any stretch the largest or most complicated federal department, they're the 14th largest by number of employees.
Think about some of the big ones, VA, HHS, Justice, Homeland Security, they are far larger and more complicated than DOE. Their cost is probably closer to $2.0B to migrate to a shared environment. So let's say the 10 largest federal agencies on average cost $2.0B each to migrate to shared services, that's $20.0B for 10 agencies. Let's then take the next 14 and put their average cost at $1.25B, that's another $17.5B right off the bat for a total of over $37.5B in upfront investment for just the largest 24 agencies.
Now before everyone jumps up and says I am anti-shared services, let me say that I am not. I believe shared services can be an effective way to manage and reduce the cost of IT operations but I do believe we must acknowledge the costs associated with migration. If the government can save $47B over 10 years by sharing services more power to them. However, if it costs $37B or $47B or $57B of upfront investment to get there, then that's a part of the debate we need to have, not because I don't want the government to share services but because bad policy is made when you don't understand the true cost of what has been proposed.