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How the Changing Face of Information Technology Is Reducing City Budgets

Monday, April 20, 2009
Dave Mims, President

“Technology is critical to the operation of state government and the delivery of services to Georgians, and an IT infrastructure that is aging, fragmented, and lacking in enterprise-wide standards poses an unacceptable risk.”

- Patrick Moore, Executive Director, Georgia Technology Authority

In the January 2, 2009 edition of the Atlanta Business Chronicle, Moore discusses his rationale behind fixing Georgia’s IT issues:

Picture an IT environment so outdated and fragile that critical systems go down because of rats gnawing on electrical cables and broken air conditioners causing server rooms to overheat to 115 degrees.

A typical city’s IT environment might not have such extreme issues, but Moore’s frustration at trying to meet pressing needs with aging, fragile IT infrastructure may strike a chord with many city managers and IT decision makers.

As if aging technology wasn’t bad enough, the economic crisis has tightened city budgets to extreme levels. INPUT, a market intelligence firm specializing in government business, reported in its “State of City and County IT, 2008” that 49% of city and county IT budgets will remain the same and 37% will be decreased. The number of cities with decreased budgets may grow in 2009 as less property and sales tax revenue leads to more budget cuts and shortfalls.

In addition, these tough times are leading officials to demand greater city budget transparency. A March 1, 2009 story (“Firm that runs cities won’t reveal its profits”) in the Atlanta Journal Constitution talked about a few Georgia cities demanding transparent budget reports from their vendor, and a small outcry arose when that vendor was unwilling to reveal this information.

A January 2009 survey of local government IT executives by the Public Technology Institute reported on pressing issues for 2009-2010, such as budget cuts and staff layoffs. One of the issues addressed IT specifically:

IT departments and functions will be under more scrutiny as IT executives face increasing pressure to provide sound business cases and ROI analysis for IT projects and budgets.

A city’s IT budget will likely face greater scrutiny not only by city officials but by the public. What makes IT budget transparency difficult is that “information technology services” has traditionally been a murkier budget line item compared to most city services. As the IT industry has matured over the past two decades, much of its knowledge has not trickled down to non-technical decision makers in ways they can easily understand. Thus, IT is often a foggy, confusing item on city budgets – and sometimes is not mentioned at all.

Some current IT trends will soon blow the fog off IT services and bring them fully into the light – with clear, transparent ROI.

IT Trends Impacting a City’s Bottom Line

In a recent Gartner research report in February 2009, Gartner analyst Frances Karamouzis reported:

Managing IT costs is not just about buying the hardware and software. The big spending is in the delivery of IT services to design, build, deploy and manage those assets. The art and science of execution are where the money is and key to the savings.

A city may often experience the pains of hardware and software purchasing (which are expensive upfront investments), but also see a lot of money disappear into “IT services.” Even with such annual costs for “services,” the city’s technology environment may still suffer from downtime and lost employee productivity. For cities experiencing tight budgets, to have “government-class” hardware, software, and services might seem out of reach, but a few emerging trends suggest otherwise.

Cloud Computing

“Cloud computing” has received much attention in the news and trade publications, and many major companies have announced cloud computing initiatives. Essentially, cloud computing is defined as providing access to software, anytime and from anywhere, as a service – rather like turning on a utility such as electricity. On the user’s side, it doesn’t matter where the software is installed, where the hardware is located, or how the software applications are being managed – no more than it matters to a citizen how electricity gets generated. The user’s experience with the hardware and software is the same as if it was installed traditionally. In addition, the cost is lowered and the complexity of maintenance removed.

There is a common misperception that cloud computing only takes place over the Internet, but that shouldn’t be seen as the only model. Unreliable connections to the Internet still exist. Cities, just as the private sector, must have reliable Internet connectivity in order for external (or Internet-based) cloud computing to be realistic. If a city’s Internet connectivity is not reliable, internal (or local site-based) cloud computing is a strong alternative solution to reduce cost just as with external cloud computing. In this internal cloud computing model, the hardware, software, and application management is set on the city’s Intranet, and all cloud computing services are provided locally as a service.

Software-as-a-Service

Though they may not know it, most people have used some form of Software-as-a-Service (SaaS). Its use involves signing up for software that is normally purchased, paying monthly for the usage, and receiving access to the application. There are no up-front fees and a person pays as they use it, as in the case of Salesforce.com.

Extend the possibility of this idea to all software. In this scenario, the upfront capital costs, licensing burden, and risk all rest with the IT service provider, just like the power companies that provide electricity. The city will not have to purchase expensive software or worry about upgrading as it becomes obsolete. SaaS involves paying a flat monthly cost, adding and subtracting licenses as users are increased or decreased, and automatically receiving upgrades.

Hardware-as-a-Service

Hardware-as-a-Service (HaaS) is another component of cloud computing. Though more rare, it is modeled similar to SaaS but instead considers hardware such as servers, workstations, storage devices, and even printers, firewalls, and other assets. Additionally, a city can also utilize server virtualization and/or thin clients (i.e. terminal workstations without hard drives that are connected to the city’s servers to access only applications and files that are needed) as ways to take advantage of HaaS’s cost savings by eliminating the need for expensive full desktops and additional servers.

Instead of purchasing hardware upfront, a city signs up for as many servers, workstations, and printers as it needs and pays a monthly cost. As the city’s needs change and hardware is added or subtracted, the monthly fee is adjusted accordingly – again, like electricity or a similar utility where a person or organization only pays for what is used.

Compare this with traditional IT purchasing. If a city purchases too many servers or workstations, it is stuck with them. For those budgeting or managing their city’s IT, the implications of HaaS are significant for a city’s bottom line as expensive upfront capital costs for new hardware (that quickly depreciates in value) are removed. Also, if at times less equipment is needed, a city simply scales down – and its monthly costs go down.

The Changing Face of IT

Many cities have over-spent, under-spent, risked data loss, slowed employee productivity, and jeopardized the completion of major projects during the last few decades while wrestling with information technology. As IT has evolved through mainframes, desktop computers, the 1980s software explosion, and the 1990s Internet explosion, the last decade found nearly all organizations having to harness information technology in some form. Like everyone else, cities have had no choice but to learn and wrap their minds around information technology’s revolutions and evolutions.

“Pay as you go” IT services, reflected in flat monthly operational costs (versus expensive upfront capital costs), will lead to high quality, low cost technology infrastructures for cities. A January 2009 article entitled “Buyer Beware” from Public CIO states:

Despite [service issues from vendors], government organizations still turn to the private sector for help with their IT management. This trend will accelerate as workers currently managing legacy systems retire, organizations update technology, enterprise-wide software applications are implemented and shared services arrangements are adopted, infrastructure and applications become more complex, and securing talent at government salary levels becomes more difficult.

Four Ways That SaaS and HaaS Can Improve An IT Budget

Trends are working against a city’s information technology infrastructure even if the city does nothing or keeps to the status quo. But taking advantage of flat monthly operational-cost IT services means the following:

Lower, affordable, monthly costs for exactly what is needed. Pay monthly for needed hardware, software, and services. IT is scalable – add or subtract users as necessary, and the cost is adjusted on the fly.

Clear, transparent ROI. Information technology has matured into a transparent reportable investment. A cost analysis of the money spent for traditional hardware, software, and services can be outlined and compared against a flat monthly operational-cost model. When this cost analysis is performed, many cities often uncover an opportunity for instant cost savings.

Included, no-cost hardware and software upgrades. With “pay as you go” IT service models, there is no longer any worry about upgrading hardware or software. With a city’s monthly costs, all upgrades are included.

Minimized risk of data loss and security breaches. With an IT environment that is monitored and maintained with consistent, upgraded, quality hardware, software, and services at a monthly cost, the burden of data retention, security, and maintenance falls upon the service provider. Recovering from theft or a disaster can be much quicker and more cost effective for the city.

Summary

Information technology is evolving toward more of an operational cost and less of a capital cost. This involves “pay as you go” monthly fees for hardware, software, and services that can be turned off and on, saving significant money for a city’s IT budget – and overall bottom line. An expensive upfront capital cost is often an obstacle for cities when they wish to invest in essential IT infrastructure. With a series of smaller, more predictable payments, it is easier to justify such costs to city decision makers.

As can be seen, anyone concerned with a city’s IT budget needs to seriously consider cloud computing, SaaS, and HaaS as tools to reduce costs and save money. And with increasing budget shortfalls and greater calls for transparency, the time is ripe for cities to reexamine their IT budgets and find ways to save hard dollars through these emerging technologies.

Five Questions to Consider

Have you ever discussed the city’s information technology spending in terms of money saved each year (ROI)? If not, would you have this conversation if more than 25% of your IT budget could be cut?

Identify a list of hardware and software upgrades you need. Is the upfront cost of this hardware and software prohibiting you from moving forward with upgrading the city IT infrastructure?

Look at your city’s IT budget. Are most of your costs related to capital expenses? Operational expenses? “Services” expenses? Do you know where the money allocated for your city’s IT budget is clearly going, and why?

Can you say with confidence that all servers, workstations, and network infrastructure components in your city are 100% current with patches, antivirus, antispyware, and security protection? If not, why?

Can you say with confidence that the city is not in danger of data loss or significant down time to critical applications at Public Safety or City Hall? Are there risks for security breaches?

If any of these questions challenge your knowledge about the stability of your city’s IT environment, now is the time to act by talking with your appropriate city government IT professional, consultant, or vendor.

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